exv10w1






Exhibit 10.1




EXECUTION VERSION



 



 

 






CREDIT AGREEMENT




dated as of October 2, 2008




among




PETROQUEST ENERGY, L.L.C.,

as Borrower,




PETROQUEST ENERGY, INC.,

as Parent,




JPMORGAN CHASE BANK, N.A.,

as Administrative Agent,




CALYON NEW YORK BRANCH,

as Syndication Agent,




BANK OF AMERICA, N.A.,

as Documentation Agent,




and




The Lenders Party Hereto




 






J.P. MORGAN SECURITIES INC. and CALYON NEW YORK BRANCH

Co-Lead Arrangers




 

 






 









 












TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 	 
	 
	 	ARTICLE I	 	 	 	 
	 
	 	DEFINITIONS AND ACCOUNTING MATTERS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 1.01
	 	Terms Defined Above	 	 	1	 
	Section 1.02
	 	Certain Defined Terms	 	 	1	 
	Section 1.03
	 	Types of Loans and Borrowings	 	 	20	 
	Section 1.04
	 	Terms Generally; Rules of Construction	 	 	20	 
	Section 1.05
	 	Accounting Terms and Determinations; GAAP	 	 	20	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE II	 	 	 	 
	 
	 	THE CREDITS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 2.01
	 	Commitments	 	 	21	 
	Section 2.02
	 	Loans and Borrowings	 	 	21	 
	Section 2.03
	 	Requests for Borrowings	 	 	22	 
	Section 2.04
	 	Interest Elections	 	 	23	 
	Section 2.05
	 	Funding of Borrowings	 	 	24	 
	Section 2.06
	 	Termination and Reduction of Aggregate Maximum Credit Amounts	 	 	25	 
	Section 2.07
	 	Borrowing Base	 	 	25	 
	Section 2.08
	 	Letters of Credit	 	 	27	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE III	 	 	 	 
	 
	 	PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 3.01
	 	Repayment of Loans	 	 	32	 
	Section 3.02
	 	Interest	 	 	32	 
	Section 3.03
	 	Alternate Rate of Interest	 	 	33	 
	Section 3.04
	 	Prepayments	 	 	33	 
	Section 3.05
	 	Fees	 	 	35	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE IV	 	 	 	 
	 
	 	PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 4.01
	 	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	 	 	36	 
	Section 4.02
	 	Presumption of Payment by the Borrower	 	 	37	 
	Section 4.03
	 	Certain Deductions by the Administrative Agent	 	 	38	 
	Section 4.04
	 	Disposition of Proceeds	 	 	38	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE V	 	 	 	 
	 
	 	INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 5.01
	 	Increased Costs	 	 	38	 
	Section 5.02
	 	Break Funding Payments	 	 	39	 
	Section 5.03
	 	Taxes	 	 	39	 
	Section 5.04
	 	Mitigation Obligations; Replacement of Defaulting Lenders	 	 	40	 






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	 	 	 	 	Page	 
	 	 
	 
	 	ARTICLE VI	 	 	 	 
	 
	 	CONDITIONS PRECEDENT	 	 	 	 
	 
	 	 	 	 	 	 
	Section 6.01
	 	Effective Date	 	 	41	 
	Section 6.02
	 	Each Credit Event	 	 	43	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE VII	 	 	 	 
	 
	 	REPRESENTATIONS AND WARRANTIES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 7.01
	 	Organization; Powers	 	 	44	 
	Section 7.02
	 	Authority; Enforceability	 	 	44	 
	Section 7.03
	 	Approvals; No Conflicts	 	 	45	 
	Section 7.04
	 	Financial Condition; No Material Adverse Change	 	 	45	 
	Section 7.05
	 	Litigation	 	 	46	 
	Section 7.06
	 	Environmental Matters	 	 	46	 
	Section 7.07
	 	Compliance with the Laws and Agreements; No Defaults	 	 	47	 
	Section 7.08
	 	Investment Company Act	 	 	47	 
	Section 7.09
	 	Taxes	 	 	48	 
	Section 7.10
	 	ERISA	 	 	48	 
	Section 7.11
	 	Disclosure; No Material Misstatements	 	 	48	 
	Section 7.12
	 	Insurance	 	 	49	 
	Section 7.13
	 	Restriction on Liens	 	 	49	 
	Section 7.14
	 	Subsidiaries	 	 	49	 
	Section 7.15
	 	Location of Business and Offices	 	 	49	 
	Section 7.16
	 	Properties; Titles, Etc.	 	 	50	 
	Section 7.17
	 	Maintenance of Properties	 	 	51	 
	Section 7.18
	 	Gas Imbalances, Prepayments	 	 	51	 
	Section 7.19
	 	Marketing of Production	 	 	52	 
	Section 7.20
	 	Swap Agreements	 	 	52	 
	Section 7.21
	 	Use of Loans and Letters of Credit	 	 	52	 
	Section 7.22
	 	Solvency	 	 	52	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE VIII	 	 	 	 
	 
	 	AFFIRMATIVE COVENANTS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 8.01
	 	Financial Statements; Other Information	 	 	53	 
	Section 8.02
	 	Notices of Material Events	 	 	56	 
	Section 8.03
	 	Existence; Conduct of Business	 	 	56	 
	Section 8.04
	 	Payment of Obligations	 	 	57	 
	Section 8.05
	 	Performance of Obligations under Loan Documents	 	 	57	 
	Section 8.06
	 	Operation and Maintenance of Properties	 	 	57	 
	Section 8.07
	 	Insurance	 	 	58	 
	Section 8.08
	 	Books and Records; Inspection Rights	 	 	58	 
	Section 8.09
	 	Compliance with Laws	 	 	58	 
	Section 8.10
	 	Environmental Matters	 	 	58	 
	Section 8.11
	 	Further Assurances	 	 	59	 
	Section 8.12
	 	Reserve Reports	 	 	60	 
	Section 8.13
	 	Title Information	 	 	61	 






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	 	 	 	 	Page	 
	 	 
	Section 8.14
	 	Additional Collateral; Additional Guarantors	 	 	61	 
	Section 8.15
	 	ERISA Compliance	 	 	62	 
	Section 8.16
	 	Swap Agreements	 	 	62	 
	Section 8.17
	 	Marketing Activities	 	 	63	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE IX	 	 	 	 
	 
	 	NEGATIVE COVENANTS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 9.01
	 	Financial Covenants	 	 	63	 
	Section 9.02
	 	Debt	 	 	63	 
	Section 9.03
	 	Liens	 	 	64	 
	Section 9.04
	 	Dividends, Distributions and Redemptions; Repayment of Senior Notes	 	 	65	 
	Section 9.05
	 	Investments, Loans and Advances	 	 	66	 
	Section 9.06
	 	Nature of Business; International Operations	 	 	67	 
	Section 9.07
	 	Limitation on Leases	 	 	67	 
	Section 9.08
	 	Proceeds of Notes	 	 	67	 
	Section 9.09
	 	ERISA Compliance	 	 	67	 
	Section 9.10
	 	Sale or Discount of Receivables	 	 	68	 
	Section 9.11
	 	Mergers, Etc.	 	 	68	 
	Section 9.12
	 	Sale of Properties	 	 	68	 
	Section 9.13
	 	Environmental Matters	 	 	69	 
	Section 9.14
	 	Transactions with Affiliates	 	 	69	 
	Section 9.15
	 	Subsidiaries	 	 	69	 
	Section 9.16
	 	Negative Pledge Agreements; Dividend Restrictions	 	 	69	 
	Section 9.17
	 	Gas Imbalances, Take-or-Pay or Other Prepayments	 	 	70	 
	Section 9.18
	 	Swap Agreements	 	 	70	 
	Section 9.19
	 	Holding Company	 	 	70	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE X	 	 	 	 
	 
	 	EVENTS OF DEFAULT; REMEDIES	 	 	 	 
	 
	 	 	 	 	 	 
	Section 10.01
	 	Events of Default	 	 	71	 
	Section 10.02
	 	Remedies	 	 	73	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE XI	 	 	 	 
	 
	 	THE AGENTS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 11.01
	 	Appointment; Powers	 	 	74	 
	Section 11.02
	 	Duties and Obligations of Administrative Agent	 	 	74	 
	Section 11.03
	 	Action by Administrative Agent	 	 	75	 
	Section 11.04
	 	Reliance by Administrative Agent	 	 	76	 
	Section 11.05
	 	Subagents	 	 	76	 
	Section 11.06
	 	Resignation or Removal of Administrative Agent	 	 	76	 
	Section 11.07
	 	Agents as Lenders	 	 	77	 
	Section 11.08
	 	No Reliance	 	 	77	 
	Section 11.09
	 	Administrative Agent May File Proofs of Claim	 	 	77	 
	Section 11.10
	 	Authority of Administrative Agent to Release Collateral and Liens	 	 	78	 
	Section 11.11
	 	The Arrangers, the Syndication Agent and the Documentation Agent	 	 	78	 






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	 	 	 	 	Page	 
	 	 
	 
	 	ARTICLE XII	 	 	 	 
	 
	 	MISCELLANEOUS	 	 	 	 
	 
	 	 	 	 	 	 
	Section 12.01
	 	Notices	 	 	78	 
	Section 12.02
	 	Waivers; Amendments	 	 	79	 
	Section 12.03
	 	Expenses, Indemnity; Damage Waiver	 	 	80	 
	Section 12.04
	 	Successors and Assigns	 	 	83	 
	Section 12.05
	 	Survival; Revival; Reinstatement	 	 	86	 
	Section 12.06
	 	Counterparts; Integration; Effectiveness	 	 	86	 
	Section 12.07
	 	Severability	 	 	87	 
	Section 12.08
	 	Right of Setoff	 	 	87	 
	Section 12.09
	 	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	 	 	87	 
	Section 12.10
	 	Headings	 	 	88	 
	Section 12.11
	 	Confidentiality	 	 	88	 
	Section 12.12
	 	Interest Rate Limitation	 	 	89	 
	Section 12.13
	 	EXCULPATION PROVISIONS	 	 	90	 
	Section 12.14
	 	Collateral Matters; Swap Agreements	 	 	91	 
	Section 12.15
	 	No Third Party Beneficiaries	 	 	91	 
	Section 12.16
	 	Acknowledgements	 	 	91	 
	Section 12.17
	 	USA Patriot Act Notice	 	 	92	 






ANNEXES, EXHIBITS AND SCHEDULES




	 	 	 
	Annex I

	 	— List of Maximum Credit Amounts
	 
	 	 
	Exhibit A

	 	— Form of Note
	Exhibit B

	 	— Form of Borrowing Request
	Exhibit C

	 	— Form of Interest Election Request
	Exhibit D

	 	— Form of Compliance Certificate
	Exhibit E-1

	 	— Form of Legal Opinion of Porter & Hedges LLP, special counsel to the Borrower
	Exhibit E-2

	 	— Form of Legal Opinion of Local Counsel
	Exhibit F-1

	 	— Security Instruments
	Exhibit F-2

	 	— Form of Guaranty and Pledge Agreement
	Exhibit G

	 	— Form of Assignment and Assumption
	 
	 	 
	Schedule 7.05

	 	— Litigation
	Schedule 7.14

	 	— Subsidiaries
	Schedule 7.18

	 	— Gas Imbalances
	Schedule 7.19

	 	— Marketing Contracts
	Schedule 7.20

	 	— Swap Agreements
	Schedule 9.05

	 	— Investments







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     THIS CREDIT AGREEMENT dated as of October 2, 2008, is among: PETROQUEST ENERGY, L.L.C., a
limited liability company duly formed and existing under the laws of the State of Louisiana (the
“Borrower”); PETROQUEST ENERGY, INC., a corporation duly formed and existing under the laws
of the State of Delaware (the “Parent”); each of the Lenders from time to time party
hereto; JPMORGAN CHASE BANK, N.A. (in its individual capacity, “JPMorgan”), as
administrative agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Administrative Agent”); CALYON NEW YORK BRANCH, as syndication agent for the
Lenders (in such capacity, together with its successors in such capacity, the “Syndication
Agent”); and BANK OF AMERICA, N.A., as documentation agent for the Lenders (in such capacity,
together with its successors in such capacity, the “Documentation Agent”).



RECITALS




     A. The Borrower has requested that the Lenders provide certain loans to and extensions of
credit on behalf of the Borrower.



     B. The Lenders have agreed to make such loans and extensions of credit subject to the terms
and conditions of this Agreement.



     C. In consideration of the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:



ARTICLE I

Definitions and Accounting Matters




     Section 1.01 Terms Defined Above. As used in this Agreement, each term defined above
has the meaning indicated above.



     Section 1.02 Certain Defined Terms. As used in this Agreement, the following terms
have the meanings specified below:



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



     “Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal
to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.



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



     “Affiliate” means, with respect to a specified Person, another Person that directly,
or indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.



 









 





     “Agents” means, collectively, the Administrative Agent, the Syndication Agent and the
Documentation Agent; and “Agent” shall mean any of the Administrative Agent, the Syndication Agent
or the Documentation Agent, as the context requires.



     “Aggregate Maximum Credit Amounts” at any time shall equal the sum of the Maximum
Credit Amounts, as the same may be reduced or terminated pursuant to Section 2.06.



     “Agreement” means this Credit Agreement, as the same may from time to time be amended,
modified, supplemented or restated.



     “Alternate Base Rate” means, for any day, a rate per annum equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.



     “Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar
Loan, or with respect to the Commitment Fee Rate, as the case may be, the rate per annum set forth
in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage
then in effect:



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowing Base Utilization Grid
	Borrowing Base
Utilization
Percentage
	 	 	<50	%	 	 	350% <75	%	 	 	375% <90	%	 	 	390	%
	Eurodollar Loans
	 	 	1.500	%	 	 	1.750	%	 	 	2.000	%	 	 	2.250	%
	ABR Loans
	 	 	0.000	%	 	 	0.250	%	 	 	0.500	%	 	 	0.750	%
	Commitment Fee Rate
	 	 	0.375	%	 	 	0.375	%	 	 	0.500	%	 	 	0.500	%






     Notwithstanding the forgoing, for the period from October 2, 2008 to April 2, 2009, the
Applicable Margin means, with respect to any Eurodollar Loan, 2.000%, and with respect to any ABR
Loan, 0.500%. Each change in the Applicable Margin and the Commitment Fee Rate shall apply during
the period commencing on the effective date of a change in the Borrowing Base Utilization
Percentage and ending on the date immediately preceding the effective date of the next such change;
provided, however, that if at any time the Borrower fails to deliver a Reserve Report
pursuant to Section 8.12(a), then the “Applicable Margin” and “Commitment Fee Rate”
each shall mean the rate per annum set forth on the grid when the Borrowing Base Utilization
Percentage is at its highest level.



     “Applicable Percentage” means, with respect to any Lender, the percentage of the
Aggregate Maximum Credit Amounts represented by such Lender’s Maximum Credit Amount as such
percentage is set forth on Annex I.



     “Approved Counterparty” means (a) any Lender or any Affiliate of a Lender and (b) any
other Person whose long term senior unsecured debt rating, at the time the Swap Agreement is
entered into, is A/A2 by S&P or Moody’s (or their equivalent) or higher.



2









 





     “Approved Fund” means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of credit in the
ordinary course of its business and 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 Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc., (b)
Ryder Scott Company Petroleum Consultants, L.P. and (c) any other independent petroleum engineers
reasonably acceptable to the Administrative Agent.



     “Arrangers” means, collectively, J.P. Morgan Securities Inc. and Calyon New York
Branch, each in its capacity as a co-lead arranger hereunder.



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



     “Availability Period” means the period from and including the Effective Date to but
excluding the Termination Date.



     “Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.



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



     “Borrowing Base” means at any time an amount equal to the amount determined in
accordance with Section 2.07, as the same may be adjusted from time to time pursuant to Section
8.13(c) or Section 9.12(d).



     “Borrowing Base Deficiency” occurs if at any time the total Revolving Credit Exposures
exceeds the Borrowing Base then in effect.



     “Borrowing Base Utilization Percentage” means, as of any day, the fraction expressed
as a percentage, the numerator of which is the sum of the Revolving Credit Exposures of the Lenders
on such day, and the denominator of which is the Borrowing Base in effect on such day.



     “Borrowing Request” means a request by the Borrower for a Borrowing in accordance with
Section 2.03.



     “Business Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City or Houston, Texas are authorized or required by law to remain
closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of
principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar
Loan or a notice by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which banks are open for
dealings in dollar deposits in the London interbank market.



3









 





     “Capital Leases” means, in respect of any Person, all leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of the
Person liable (whether contingent or otherwise) for the payment of rent thereunder.



     “Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or similar proceeding of,
any Oil and Gas Property of the Borrower or any of its Subsidiaries having a fair market value in
excess of $2,500,000.



     “Change in Control” means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Equity
Interests representing more than 35% of the aggregate ordinary voting power represented by the
issued and outstanding Equity Interests of the Parent, (b) occupation of a majority of the seats
(other than vacant seats) on the board of directors of the Parent by Persons who were neither (i)
nominated by the board of directors of the Parent nor (ii) appointed by directors so nominated or
(c) the Parent ceases to own 100% of the issued and outstanding Equity Interests of the Borrower.



     “Change in Law” means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement or (c)
compliance by any Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.



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



     “Commitment” means, with respect to each Lender, the commitment of such Lender to make
Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as
such commitment may be (a) modified from time to time pursuant to Section 2.06 and (b) modified
from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b). The
amount representing each Lender’s Commitment shall at any time be the lesser of such Lender’s
Maximum Credit Amount and such Lender’s Applicable Percentage of the then effective Borrowing Base.



     “Commitment Fee Rate” has the meaning set forth in the definition of “Applicable
Margin”.



     “Consolidated Net Income” means with respect to the Parent and the Consolidated
Subsidiaries, for any period, the aggregate of the net income (or loss) of the Parent and the
Consolidated Subsidiaries after allowances for taxes for such period determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded from such net income
(to the extent otherwise included therein) the following: (a) the net income of any



4









 







Person in which the Parent or any Consolidated Subsidiary has an interest (which interest does
not cause the net income of such other Person to be consolidated with the net income of the Parent
and the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in cash during such period by such other Person to the
Parent or to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss)
during such period of any Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at
the time permitted by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is otherwise restricted or
prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any
Person acquired in a pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period and (e) any gains or losses
attributable to writeups or writedowns of assets, including ceiling test writedowns; and
provided further that if the Parent or any Consolidated Subsidiary shall acquire or
dispose of any Property during such period, then Consolidated Net Income shall be calculated after
giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition
had occurred on the first day of such period.



     “Consolidated Subsidiaries” means each Subsidiary of the Parent (whether now existing
or hereafter created or acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Parent in accordance with GAAP.



     “Control” means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. For the purposes of this definition, and without
limiting the generality of the foregoing, any Person that owns directly or indirectly 10% or more
of the Equity Interests having ordinary voting power for the election of the directors or other
governing body of a Person (other than as a limited partner of such other Person) will be deemed to
“control” such other Person. “Controlling” and “Controlled” have meanings
correlative thereto.



     “Convertible Preferred Stock” means the shares of 6.875% Series B Cumulative
Convertible Perpetual Stock of the Parent.



     “Debt” means, for any Person, the sum of the following (without duplication): (a) all
obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, surety or other bonds and similar
instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all obligations under
Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other
clauses of this definition) of others secured by (or for which the holder of such Debt has an
existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person,
whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses
of this definition) of others guaranteed by such Person or in which such Person otherwise assures a
creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the
lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or cause to



5









 







be maintained the financial position or covenants of others or to purchase the Debt or
Property of others; (i) obligations to deliver commodities, goods or services, including, without
limitation, Hydrocarbons, in consideration of one or more advance payments, other than gas
balancing arrangements in the ordinary course of business; (j) obligations to pay for goods or
services even if such goods or services are not actually received or utilized by such Person; (k)
any Debt of a partnership for which such Person is liable either by agreement, by operation of law
or by a Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital
Stock; and (m) the undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment. The Debt of any Person
shall include all obligations of such Person of the character described above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such obligation is not
included as a liability of such Person under GAAP.



     “Default” means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.



     “Defaulting Lender” means a Lender (a) that fails to fund a requested Loan and such
default continues for a period of three (3) Business Days, (b) that fails to reimburse the
Administrative Agent for an LC Disbursement or (c) who (or whose bank holding company) is placed
into receivership, conservatorship or bankruptcy.



     “Disqualified Capital Stock” means any Equity Interest that, by its terms (or by the
terms of any security into which it is convertible or for which it is exchangeable) or upon the
happening of any event, requires the payment of dividends (other than dividends payable solely in
Equity Interests which do not otherwise constitute Disqualified Capital Stock) or matures or is
mandatorily redeemable for any consideration other than other Equity Interests (which would not
constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is
convertible or exchangeable for Debt or redeemable for any consideration other than other Equity
Interests (which would not constitute Disqualified Capital Stock) at the option of the holder
thereof, in whole or in part, on or prior to the date that is one year after the earlier of (a) the
Maturity Date and (b) the date on which there are no Loans, LC Exposure or other obligations
hereunder outstanding and all of the Commitments are terminated.



     “dollars” or “$” refers to lawful money of the United States of America.



     “Domestic Subsidiary” means any Subsidiary that is organized under the laws of the
United States of America or any state thereof or the District of Columbia.



     “EBITDAX” means, for any period, the sum of Consolidated Net Income for such period
plus the following expenses or charges to the extent deducted from Consolidated Net Income in such
period: interest, income taxes, depreciation, depletion, amortization, accretion expenses related
to FAS 143, exploration expenses, expenses recognized under FAS 123(r) and FAS 133, non-cash
impairment expenses and other similar noncash charges, minus all noncash income added to
Consolidated Net Income.



     “Effective Date” means the date on which the conditions specified in Section 6.01 are
satisfied (or waived in accordance with Section 12.02).



6









 





     “Engineering Reports” has the meaning assigned such term in Section 2.07(c)(i).



     “Environmental Laws” means any and all Governmental Requirements pertaining in any way
to health, safety, the environment, the preservation or reclamation of natural resources, or the
management, Release or threatened Release of any Hazardous Materials, in effect in any and all
jurisdictions in which the Borrower or any of the Borrower’s Subsidiaries is conducting, or at any
time has conducted, business, or where any Property of the Borrower or any Subsidiaries of Borrower
is located, including, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
(“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act
of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Law, as amended, and other environmental conservation or
protection Governmental Requirements.



     “Environmental Permit” means any permit, registration, license, notice, approval,
consent, exemption, variance, or other authorization required under or issued pursuant to
applicable Environmental Laws.



     “Equity Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights entitling the holder thereof to
purchase or acquire any such Equity Interest.



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute.



     “ERISA Affiliate” means each trade or business (whether or not incorporated) which
together with the Borrower or the Borrower’s Subsidiary would be deemed to be a “single employer”
within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section
414 of the Code.



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



     “Event of Default” has the meaning assigned such term in Section 10.01.



     “Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in accordance with GAAP;
(b) Liens in connection with workers’ compensation, unemployment insurance or other social
security, old age pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’, vendors’,
carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s,
construction or other like Liens arising by operation of law in the ordinary course of business or



7









 







incident to the exploration, development, operation and maintenance of Oil and Gas Properties
each of which is in respect of obligations that are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been maintained in accordance
with GAAP; (d) contractual Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of mutual interest
agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and customary in the oil
and gas business and are for claims which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained in accordance with
GAAP; provided that any such Lien referred to in this clause does not materially impair the
use of the Property covered by such Lien for the purposes for which such Property is held by the
Borrower or any of the Borrower’s Subsidiaries or materially impair the value of such Property
subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only
deposit accounts or other funds maintained with a creditor depository institution; provided
that no such deposit account is a dedicated cash collateral account or is subject to restrictions
against access by the depositor in excess of those set forth by regulations promulgated by the
Board and no such deposit account is intended by the Borrower or any of the Borrower’s Subsidiaries
to provide collateral to the depository institution; (f) easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any Property of the Borrower or any
of the Borrower’s Subsidiaries for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate, rights of way,
facilities and equipment, that do not secure any monetary obligations and which in the aggregate do
not materially impair the use of such Property for the purposes of which such Property is held by
the Borrower or any of the Borrower’s Subsidiaries or materially impair the value of such Property
subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety
and appeal bonds, government contracts, performance and return of money bonds, bids, trade
contracts, leases, statutory obligations, regulatory obligations and other obligations of a like
nature incurred in the ordinary course of business and (h) judgment and attachment Liens not giving
rise to an Event of Default; provided that any appropriate legal proceedings which may have
been duly initiated for the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have expired and no action to
enforce such Lien has been commenced; provided, further that Liens described in
clauses (a) through (e) shall remain “Excepted Liens” only for so long as no action to enforce such
Lien has been commenced, and no intention to subordinate the first priority Lien granted in favor
of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted
existence of such Excepted Liens.



8









 





     “Excluded Subsidiary” means, individually and collectively, Indianola Gathering,
L.L.C., an Oklahoma limited liability company, PetroQuest Oil & Gas, L.L.C., a Louisiana limited
liability company, Pittrans, Inc., an Oklahoma corporation, and Sea Harvester Energy
Development Co., L.L.C., a Louisiana limited liability company.



     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of
the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of America or such other
jurisdiction under the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending office is located, (b)
any branch profits taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Borrower or any Guarantor is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 5.04),
any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such
Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is
attributable to such Foreign Lender’s failure to comply with Section 5.03(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts with respect to such withholding
tax pursuant to Section 5.03(a) or Section 5.03(b).



     “Existing Credit Agreement” means that certain Second Amended and Restated
Credit Agreement dated as of November 18, 2005 among the Borrower, as borrower, the Parent, as
guarantor, JPMorgan, as administrative agent, and the lenders and other agents party thereto, as
the same has heretofore been amended, modified, supplemented or restated.



     “Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.



     “Financial Officer” means, for any Person, the chief financial officer, principal
accounting officer, treasurer or controller of such Person. Unless otherwise specified, all
references herein to a Financial Officer means a Financial Officer of the Parent.



     “Financial Statements” means the financial statement or statements of the Parent and
its Consolidated Subsidiaries referred to in Section 7.04(a).



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



     “Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.



9









 





     “GAAP” means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in Section 1.05.



     “Governmental Authority” means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.



     “Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, rules of common law, authorization or other directive or requirement, whether now or
hereinafter in effect, of any Governmental Authority.



     “Guarantors” means:



     (a) the Parent;



     (b) TDC Energy LLC, a Louisiana limited liability company; and



     (c) each other Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b).



     “Guaranty Agreement” means an agreement executed by the Guarantors in substantially
the form of Exhibit F-2 unconditionally guarantying on a joint and several basis, payment of the
Indebtedness, as the same may be amended, modified or supplemented from time to time.



     “Hazardous Material” means any substance regulated or as to which liability might
arise under any applicable Environmental Law including: (a) any chemical, compound, material,
product, byproduct, substance or waste defined as or included in the definition or meaning of
“hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic waste,”
“extremely hazardous substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar
meaning or import found in any applicable Environmental Law; (b) Hydrocarbons, petroleum products,
petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components,
fractions, or derivatives thereof; and (c) radioactive materials, explosives, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon, infectious or medical wastes.



     “Highest Lawful Rate” means, with respect to each Lender, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such
Lender which are presently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.



     “Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or
gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net
profit interests and production payment interests, including any reserved or residual interests of
whatever nature.



10









 





     “Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.



     “Indebtedness” means any and all amounts owing or to be owing by the Borrower, any
Subsidiary or any Guarantor (whether direct or indirect (including those acquired by assumption),
absolute or contingent, due or to become due, now existing or hereafter arising): (a) to the
Administrative Agent, the Issuing Bank or any Lender under any Loan Document; (b) to any Lender or
any Affiliate of a Lender under any Swap Agreement between the Parent, the Borrower or any
Subsidiary and such Lender or Affiliate of a Lender while such Person (or in the case of its
Affiliate, the Person affiliated therewith) is a Lender hereunder and (c) all renewals, extensions
and/or rearrangements of any of the above.



     “Indemnified Taxes” means Taxes other than Excluded Taxes.



     “Information Memorandum” means the Confidential Information Memorandum dated September
4, 2008 relating to the Borrower and the Transactions.



     “Initial Reserve Report” means the report of the Parent dated as of August 22, 2008,
with respect to certain Oil and Gas Properties of the Borrower and its Subsidiaries as of July 1,
2008.



     “Interest Election Request” means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.04.



     “Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each
March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of
the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to
the last day of such Interest Period that occurs at intervals of three months’ duration after the
first day of such Interest Period.



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



11









 





     “Interim Redetermination” has the meaning assigned such term in Section 2.07(b).



     “Interim Redetermination Date” means the date on which a Borrowing Base that has been
redetermined pursuant to an Interim Redetermination becomes effective as provided in Section
2.07(d).



     “Investment” means, for any Person: (a) the acquisition (whether for cash, Property,
services or securities or otherwise) of Equity Interests of any other Person or any agreement to
make any such acquisition (including, without limitation, any “short sale” or any sale of any
securities at a time when such securities are not owned by the Person entering into such short
sale); (b) the making of any deposit with, or advance, loan or capital contribution to, the
purchase or other acquisition of any other Debt of or equity participation or interest in, or other
extension of credit to, any other Person (including the purchase of Property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell such Property to such
Person, but excluding any such advance, loan or extension of credit having a term not exceeding
ninety (90) days representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the purchase or acquisition (in one or a series of
transactions) of Property of another Person that constitutes a business unit; or (d) the entering
into of any guarantee of, or other contingent obligation (including the deposit of any Equity
Interests to be sold) with respect to, Debt or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such Person.



     “Issuing Bank” means JPMorgan, in its capacity as the issuer of Letters of
Credit hereunder, and its successors in such capacity as provided in Section 2.08(i). The Issuing
Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.



     “LC Commitment” at any time means twenty-five million dollars ($25,000,000).



     “LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of
Credit.



     “LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.



     “Lenders” means the Persons listed on Annex I and any Person that shall have become a
party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be
a party hereto pursuant to an Assignment and Assumption.



     “Letter of Credit” means any letter of credit issued pursuant to this Agreement.



     “Letter of Credit Agreements” means all letter of credit applications and other
agreements (including any amendments, modifications or supplements thereto) submitted by the
Borrower, or entered into by the Borrower, with the Issuing Bank relating to any Letter of Credit.



12









 





     “LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period,
the rate appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such
service, or any successor to or substitute for such service, providing rate quotations comparable
to those currently provided on such page of such service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not available at such
time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such
Interest Period shall be the rate (rounded upwards, if necessary, to the next 1/100 of 1%) at which
dollar deposits of an amount comparable to such Eurodollar Borrowing and for a maturity comparable
to such Interest Period are offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period.



     “Lien” means any interest in Property securing an obligation owed to, or a claim by, a
Person other than the owner of the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or contingent, and including but
not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or bailment for
security purposes or (b) production payments and the like payable out of Oil and Gas Properties.
The term “Lien” shall include easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations. For the purposes of this Agreement, the Parent and its
Subsidiaries shall be deemed to be the owner of any Property which it has acquired or holds subject
to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person in a transaction
intended to create a financing.



     “Loan Documents” means this Agreement, the Notes, the Letter of Credit Agreements, the
Letters of Credit and the Security Instruments.



     “Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.



     “Material Adverse Effect” means a material adverse change in, or material adverse
effect on (a) the business, operations, Property, condition (financial or otherwise) or prospects
of the Parent and the Subsidiaries taken as a whole, (b) the ability of the Borrower, any
Subsidiary or any Guarantor to perform any of its obligations under any Loan Document to which it
is a party, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies
of or benefits available to the Administrative Agent, any other Agent, the Issuing Bank or any
Lender under any Loan Document.



     “Material Indebtedness” means Debt (other than the Loans and Letters of Credit), or
obligations in respect of one or more Swap Agreements, of any one or more of the Parent and its
Subsidiaries in an aggregate principal amount exceeding $5,000,000. For purposes of
determining Material Indebtedness, the “principal amount” of the obligations of the Parent or
any Subsidiary in respect of any Swap Agreement at any time shall be the Swap Termination Value.



13









 





     “Maturity Date” means February 10, 2012; provided that if on or prior to
February 10, 2012, the Parent or the Borrower prepays the Senior Notes with the proceeds of any
Permitted Refinancing Debt and/or with the net cash proceeds of any sale of Equity Interests (other
than Disqualified Capital Stock) of the Parent, then the term “Maturity Date” shall mean October 2,
2013.



     “Maximum Credit Amount” means, as to each Lender, the amount set forth opposite such
Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the same may be (a) reduced
or terminated from time to time in connection with a reduction or termination of the Aggregate
Maximum Credit Amounts pursuant to Section 2.06(b), or (b) modified from time to time pursuant to
any assignment permitted by Section 12.04(b).



     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a
nationally recognized rating agency.



     “Mortgaged Property” means any Property owned by the Borrower or any Guarantor which
is subject to the Liens existing and to exist under the terms of the Security Instruments.



     “New Borrowing Base Notice” has the meaning assigned such term in Section 2.07(d).



     “Notes” means the promissory notes of the Borrower described in Section 2.02(d) and
being substantially in the form of Exhibit A, together with all amendments, modifications,
replacements, extensions and rearrangements thereof.



     “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the Properties now or
hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future
unitization, pooling agreements and declarations of pooled units and the units created thereby
(including without limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all
operating agreements, contracts and other agreements, including production sharing contracts and
agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all
Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues
and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements,
hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and
estates described or referred to above, including any and all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or useful in connection with the
operating, working or development of any of such Hydrocarbon Interests or Property (excluding
drilling rigs, automotive equipment, rental equipment or other personal Property which may be on
such premises for the purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps,



14









 







pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions and attachments to
any and all of the foregoing.



     “Oklahoma Gas Gathering Assets” means all equipment, facilities, easements, rights of
way and related rights and interests associated with the Borrower’s gas gathering assets located in
Oklahoma.



     “Other Taxes” means any and all present or future stamp or documentary taxes or any
other excise or Property taxes, charges or similar levies arising from any payment made hereunder
or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and
any other Loan Document.



     “Participant” has the meaning set forth in Section 12.04(c)(i).



     “Permitted Refinancing Debt” means Debt (for purposes of this definition, “new
Debt”) incurred in exchange for, or proceeds of which are used to refinance, all of any other
Debt (the “Refinanced Debt”); provided that (a) such new Debt is in an aggregate
principal amount not in excess of the sum of (i) the aggregate principal amount then outstanding of
the Refinanced Debt (or, if the Refinanced Debt is exchanged or acquired for an amount less than
the principal amount thereof to be due and payable upon a declaration of acceleration thereof, such
lesser amount) and (ii) an amount necessary to pay any fees and expenses, including premiums,
related to such exchange or refinancing; (b) such new Debt has a stated maturity no earlier than
stated maturity of the Refinanced Debt or, in the case of the Senior Notes, January 31, 2014, and
an average life no shorter than the average life of the Refinanced Debt; (c) such new Debt has a
stated interest rate that is a market-based rate; (d) such new Debt does not contain any covenants
which are materially more onerous to the Parent and its Subsidiaries than those imposed by the
Refinanced Debt and (e) such new Debt (and any guarantees thereof) is otherwise on terms and
documentation satisfactory to the Administrative Agent.



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



     “Plan” means any employee pension benefit plan, as defined in section 3(2) of ERISA,
which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower or the
Borrower’s Subsidiary or an ERISA Affiliate or (b) was at any time during the six calendar years
preceding the date hereof, sponsored, maintained or contributed to by the Borrower or the
Borrower’s Subsidiary or an ERISA Affiliate.



     “Prime Rate” means the rate of interest per annum publicly announced from time to time
by JPMorgan as its prime rate in effect at its principal office in New York City; each
change in the Prime Rate shall be effective from and including the date such change is publicly
announced as being effective. Such rate is set by the Administrative Agent as a general reference
rate of interest, taking into account such factors as the Administrative Agent may deem
appropriate; it being understood that many of the Administrative Agent’s commercial or other loans
are priced



15









 







in relation to such rate, that it is not necessarily the lowest or best rate actually charged
to any customer and that the Administrative Agent may make various commercial or other loans at
rates of interest having no relationship to such rate.



     “Property” means any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and
contract rights.



     “Proposed Borrowing Base” has the meaning assigned to such term in Section 2.07(c)(i).



     “Proposed Borrowing Base Notice” has the meaning assigned to such term in Section
2.07(c)(ii).



     “Redemption” means with respect to any Debt, the repurchase, redemption, prepayment,
repayment, defeasance or any other acquisition or retirement for value (or the segregation of funds
with respect to any of the foregoing) of such Debt. “Redeem” has the correlative meaning
thereto.



     “Redetermination Date” means, with respect to any Scheduled Redetermination or any
Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes
effective pursuant to Section 2.07(d).



     “Refinanced Debt” has the meaning assigned such term in the definition of “Permitted
Refinancing Debt”.



     “Register” has the meaning assigned such term in Section 12.04(b)(iv).



     “Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.



     “Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and advisors (including
attorneys, accountants and experts) of such Person and such Person’s Affiliates.



     “Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching,
dumping, or disposing into the environment.



     “Remedial Work” has the meaning assigned such term in Section 8.10(a).



     “Required Lenders” means, at any time while no Loans or LC Exposure is outstanding,
Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit
Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least
sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate principal amount of the
Loans and participation interests in Letters of Credit (without regard to any sale by a Lender of a
participation in any Loan under Section 12.04(c)); provided that the Maximum Credit Amounts and the
principal amount of the Loans and participation interests in Letters of Credit of the Defaulting
Lenders shall be excluded from the determination of Required Lenders.



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     “Reserve Report” means a report, in form and substance reasonably satisfactory to the
Administrative Agent, setting forth, as of each January 1st or July 1st (or such other date in the
event of an Interim Redetermination) the oil and gas reserves attributable to the Oil and Gas
Properties of the Borrower and the Borrower’s Subsidiaries, together with a projection of the rate
of production and future net income, taxes, operating expenses and capital expenditures with
respect thereto as of such date, based upon the economic assumptions consistent with the
Administrative Agent’s lending requirements at the time.



     “Responsible Officer” means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Executive Vice President of such Person. Unless otherwise
specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the
Parent.



     “Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the Parent or any of its
Subsidiaries, or any payment (whether in cash, securities or other Property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such Equity Interests in the Parent or any of its Subsidiaries
or any option, warrant or other right to acquire any such Equity Interests in the Parent or any of
its Subsidiaries.



     “Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lender’s Loans and its LC Exposure at such time.



     “Scheduled Redetermination” has the meaning assigned such term in Section 2.07(b).



     “Scheduled Redetermination Date” means the date on which a Borrowing Base that has
been redetermined pursuant to a Scheduled Redetermination becomes effective as provided in Section
2.07(d).



     “SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.



     “Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust and
other agreements, instruments or certificates described or referred to in Exhibit F-1, and any and
all other agreements, instruments, consents or certificates now or hereafter executed and delivered
by the Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate
of a Lender or participation or similar agreements between any Lender and any other lender or
creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as
security for the payment or performance of the Indebtedness, the Notes, this Agreement, or
reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified,
supplemented or restated from time to time.



     “Senior Indenture” means (a) that certain Indenture dated as of May 11, 2005, among
the Parent and the Borrower, as issuers, the subsidiary guarantors identified therein, and The Bank
of New York Trust Company, N.A., as trustee, pursuant to which the Senior Notes are issued, and (b)
any indenture, note purchase agreement or other agreement pursuant to which any Permitted
Refinancing Debt is issued, in each case, as hereafter amended or supplemented pursuant to
Section 9.04(b).



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     “Senior Notes” means the Borrower’s $150,000,000 10-3/8% senior notes due 2012.



     “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies,
Inc., and any successor thereto that is a nationally recognized rating agency.



     “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative Agent is subject, with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding
and to be subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender under such Regulation D
or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.



     “subsidiary” means, with respect to any Person (the “parent”) at any date, any
other Person the accounts of which would be consolidated with those of the parent in the parent’s
consolidated financial statements if such financial statements were prepared in accordance with
GAAP as of such date, as well as any other Person (a) of which Equity Interests representing more
than 50% of the equity or more than 50% of the ordinary voting power (irrespective of whether or
not at the time Equity Interests of any other class or classes of such Person shall have or might
have voting power by reason of the happening of any contingency) or, in the case of a partnership,
any general partnership interests are, as of such date, owned, controlled or held, or (b) that is,
as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.



     “Subsidiary” means: other than Excluded Subsidiaries (a) with respect to the Parent,
any subsidiary of the Parent (including the Borrower) and (b) with respect to the Borrower, any
subsidiary of the Borrower. Unless otherwise specified, all references to a “Subsidiary” or the
“Subsidiaries” herein shall mean a Subsidiary (including the Borrower) of the Parent or the
Subsidiaries (including the Borrower) of the Parent other than Excluded Subsidiaries.



     “Swap Agreement” means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter”
or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities,
equity or debt instruments or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any combination of these
transactions; provided that no phantom stock or similar plan providing for payments only on
account of services provided by current or former directors, officers, employees or consultants of
the Parent or the Subsidiaries shall be a Swap Agreement.




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     “Swap Termination Value” means, in respect of any one or more Swap Agreements, after
taking into account the effect of any legally enforceable netting agreement relating to such Swap
Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and
termination value(s) determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market
value(s) for such Swap Agreements, as determined by the counterparties to such Swap Agreements.



     “Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases on the
financial statements of the Person liable (whether contingently or otherwise) for the
payment of rent thereunder and which were properly treated as indebtedness for borrowed
money for purposes of U.S. federal income taxes, if the lessee in respect thereof is
obligated to either purchase for an amount in excess of, or pay upon early termination an
amount in excess of, 80% of the residual value of the Property subject to such operating
lease upon expiration or early termination of such lease.



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



     “Termination Date” means the earlier of the Maturity Date and the date of termination
of the Commitments.



     “Total Debt” means, at any date, all Debt of the Parent and the Consolidated
Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under FAS 133 and FAS 143
and (ii) accounts payable and other accrued liabilities (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary course of business which are not
greater than sixty (60) days past the date of invoice or delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been maintained in accordance
with GAAP.



     “Transactions” means, with respect to (a) the Borrower, the execution, delivery and
performance by the Borrower of this Agreement and each other Loan Document to which it is a party,
the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit
hereunder, and the grant of Liens by the Borrower on Mortgaged Properties and other Properties
pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and
performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the
Indebtedness and the other obligations under the Guaranty Agreement by such Guarantor and such
Guarantor’s grant of the security interests and provision of collateral under the Security
Instruments, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties
pursuant to the Security Instruments.



     “Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Alternate Base Rate or the Adjusted LIBO Rate.



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     “Wholly-Owned Subsidiary” means, in respect of any Person, any subsidiary of such
Person, all of the Equity Interests of which (other than director’s qualifying shares, as may be
required by law) is owned by such Person, either directly or indirectly through one or more
Wholly-Owned Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the
term “Wholly-Owned Subsidiary” shall mean a Wholly-Owned Subsidiary of the Parent.



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



     Section 1.04 Terms Generally; Rules of Construction. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The
words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall be construed to have the same meaning and effect as the word
“shall”. Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications set forth in the Loan
Documents), (b) any reference herein to any law shall be construed as referring to such law as
amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c)
any reference herein to any Person shall be construed to include such Person’s successors and
assigns (subject to the restrictions contained in the Loan Documents), (d) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with respect to the
determination of any time period, the word “from” means “from and including” and the word “to”
means “to and including” and (f) any reference herein to Articles, Sections, Annexes, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and
Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be
interpreted or construed against any Person solely because such Person or its legal representative
drafted such provision.



     Section 1.05 Accounting Terms and Determinations; GAAP. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial statements and certificates and
reports as to financial matters required to be furnished to the Administrative Agent or the Lenders
hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the
Financial Statements except for changes in which Parent’s independent certified public accountants
concur and which are disclosed to Administrative Agent on the next date on which financial
statements are required to be delivered to the Lenders pursuant to Section 8.01(a);
provided that, unless the Parent and the Required Lenders shall otherwise agree in writing,
no such change shall modify or affect the manner in which compliance with the covenants contained
herein is computed such that all such computations shall be conducted utilizing financial
information presented consistently with prior periods.



20









 





ARTICLE II

The Credits




     Section 2.01 Commitments. Subject to the terms and conditions set forth herein, each
Lender agrees to make Loans to the Borrower during the Availability Period in an aggregate
principal amount that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such
Lender’s Commitment or (b) the total Revolving Credit Exposures exceeding the total Commitments.
Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, repay and reborrow the Loans.



     Section 2.02 Loans and Borrowings.



          (a) Borrowings; Several Obligations. Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their respective Commitments.
The failure of any Lender to make any Loan required to be made by it shall not relieve any other
Lender of its obligations hereunder; provided that the Commitments are several and no
Lender shall be responsible for any other Lender’s failure to make Loans as required.



          (b) Types of Loans. Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each
Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of such option shall
not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this
Agreement.



          (c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of each
Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an
aggregate amount that is equal to the entire unused balance of the total Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.08(e).
Borrowings of more than one Type may be outstanding at the same time; provided that there
shall not at any time be more than a total of eight (8) Eurodollar Borrowings outstanding.
Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.



          (d) Notes. The Loans made by each Lender shall be evidenced by a single promissory
note of the Borrower in substantially the form of Exhibit A, dated, in the case of (i) any Lender
party hereto as of the date of this Agreement, as of the date of this Agreement, or (ii) any Lender
that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of
the Assignment and Assumption, payable to the order of such Lender in a principal amount equal to
its Maximum Credit Amount as in effect on such date, and otherwise duly completed. In the event
that any Lender’s Maximum Credit Amount increases or decreases for any reason (whether pursuant to
Section 2.06, Section 12.04(a) or otherwise), the Borrower shall deliver or cause to be delivered
on the effective date of such increase or decrease, a new



21









 







Note payable to the order of such Lender in a principal amount equal to its Maximum Credit
Amount after giving effect to such increase or decrease, and otherwise duly completed. The date,
amount, Type, interest rate and, if applicable, Interest Period of each Loan made by each Lender,
and all payments made on account of the principal thereof, shall be recorded by such Lender on its
books for its Note, and, prior to any transfer, may be endorsed by such Lender on a schedule
attached to such Note or any continuation thereof or on any separate record maintained by such
Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender’s or
the Borrower’s rights or obligations in respect of such Loans or affect the validity of such
transfer by any Lender of its Note.



     Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar
Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of
the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York
City time, one Business Day before the date of the proposed Borrowing; provided that no
such notice shall be required for any deemed request of an ABR Borrowing to finance the
reimbursement of an LC Disbursement as provided in Section 2.08(e). Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in substantially the form of Exhibit B and
signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:



               (i) the aggregate amount of the requested Borrowing;



               (ii) the date of such Borrowing, which shall be a Business Day;



               (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;



               (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable
thereto, which shall be a period contemplated by the definition of the term “Interest Period”;



               (v) the amount of the then effective Borrowing Base, the current total Revolving Credit
Exposures (without regard to the requested Borrowing) and the pro forma total Revolving Credit
Exposures (giving effect to the requested Borrowing); and



               (vi) the location and number of the Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.05.


If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an
ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar
Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s
duration. Each Borrowing Request shall constitute a representation that the amount of the
requested Borrowing shall not cause the total Revolving Credit Exposures to exceed the total
Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and the then effective
Borrowing Base).




22









 







Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the
Administrative Agent shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing.




     Section 2.04 Interest Elections.



          (a) Conversion and Continuance. Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this
Section 2.04. The Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.



          (b) Interest Election Requests. To make an election pursuant to this Section 2.04,
the Borrower shall notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing
of the Type resulting from such election to be made on the effective date of such election. Each
such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by
hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in
substantially the form of Exhibit C and signed by the Borrower.




          (c) Information in Interest Election Requests. Each telephonic and written Interest
Election Request shall specify the following information in compliance with Section 2.02:




               (i) the Borrowing to which such Interest Election Request applies and, if different options
are being elected with respect to different portions thereof, the portions thereof to be allocated
to each resulting Borrowing (in which case the information to be specified pursuant to Section
2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing);



               (ii) the effective date of the election made pursuant to such Interest Election Request, which
shall be a Business Day;



               (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and



               (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period contemplated by
the definition of the term “Interest Period”.


If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
month’s duration.




23









 








          (d) Notice to Lenders by the Administrative Agent. Promptly following receipt of an
Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof
and of such Lender’s portion of each resulting Borrowing.




          (e) Effect of Failure to Deliver Timely Interest Election Request and Events of Default
and Borrowing Base Deficiencies on Interest Election. If the Borrower fails to deliver a
timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default or a Borrowing Base
Deficiency has occurred and is continuing: (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion
of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be
ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.




     Section 2.05 Funding of Borrowings.



          (a) Funding by Lenders. Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York
City time, to the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an account of the
Borrower maintained with the Administrative Agent in Houston, Texas and designated by the Borrower
in the applicable Borrowing Request; provided that ABR Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the
Administrative Agent to the Issuing Bank. Nothing herein shall be deemed to obligate any Lender to
obtain the funds for its Loan in any particular place or manner or to constitute a representation
by any Lender that it has obtained or will obtain the funds for its Loan in any particular place or
manner.




          (b) Presumption of Funding by the Lenders. Unless the Administrative Agent shall have
received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender’s share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the
applicable Borrowing available to the Administrative Agent, then the applicable Lender and the
Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i)
in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan
included in such Borrowing.




24









 








     Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.



          (a) Scheduled Termination of Commitments. Unless previously terminated, the
Commitments shall terminate on the Maturity Date. If at any time the Aggregate Maximum Credit
Amounts or the Borrowing Base is terminated or reduced to zero, then the Commitments shall
terminate on the effective date of such termination or reduction.




          (b) Optional Termination and Reduction of Aggregate Credit Amounts.




               (i) The Borrower may at any time terminate, or from time to time reduce, the Aggregate Maximum
Credit Amounts; provided that (A) each reduction of the Aggregate Maximum Credit Amounts
shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and
(B) the Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts if, after
giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the
total Revolving Credit Exposures would exceed the total Commitments.



               (ii) The Borrower shall notify the Administrative Agent of any election to terminate or reduce
the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) at least three Business Days prior to
the effective date of such termination or reduction, specifying such election and the effective
date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section
2.06(b)(ii) shall be irrevocable. Any termination or reduction of the Aggregate Maximum Credit
Amounts shall be permanent and may not be reinstated. Each reduction of the Aggregate Maximum
Credit Amounts pursuant to this Section 2.06(b)(ii) shall be made ratably among the Lenders in
accordance with each Lender’s Applicable Percentage.



     Section 2.07 Borrowing Base.



          (a) Initial Borrowing Base. For the period from and including the Effective Date to
but excluding the first Redetermination Date, the amount of the Borrowing Base shall be
$150,000,000. Notwithstanding the foregoing, the Borrowing Base may be subject to further
adjustments from time to time pursuant to Section 8.13(c), Section 8.16 or Section 9.12(d).



          (b) Scheduled and Interim Redeterminations. The Borrowing Base shall be redetermined
semi-annually in accordance with this Section 2.07 (a “Scheduled Redetermination”), and,
subject to Section 2.07(d), such redetermined Borrowing Base shall become effective and applicable
to the Borrower, the Agents, the Issuing Bank and the Lenders on March 31st and
September 30th of each year, commencing March 31, 2009. In addition, the
Borrower may, by notifying the Administrative Agent thereof, and the Administrative Agent may, at
the direction of the Required Lenders, by notifying the Borrower thereof, two times during any
12-month period, each elect to cause the Borrowing Base to be redetermined between Scheduled
Redeterminations (an “Interim Redetermination”) in accordance with this Section 2.07.



25









 





     (c) Scheduled and Interim Redetermination Procedure.



               (i) Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as
follows: Upon receipt by the Administrative Agent of (A) the Reserve Report and the certificate
required to be delivered by the Borrower to the Administrative Agent, in the case of a Scheduled
Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an Interim
Redetermination, pursuant to Section 8.12(b) and (c), and (B) such other reports, data and
supplemental information, including, without limitation, the information provided pursuant to
Section 8.12(c), as may, from time to time, be reasonably requested by the Required Lenders (the
Reserve Report, such certificate and such other reports, data and supplemental information being
the “Engineering Reports”), the Administrative Agent shall evaluate the information
contained in the Engineering Reports and shall, in its sole discretion, propose a new Borrowing
Base (the “Proposed Borrowing Base”) based upon such information and such other information
(including, without limitation, the status of title information with respect to the Oil and Gas
Properties as described in the Engineering Reports and the existence of any other Debt) as the
Administrative Agent deems appropriate in its sole discretion and consistent with its normal oil
and gas lending criteria as it exists at the particular time. In no event shall the Proposed
Borrowing Base exceed the Aggregate Maximum Credit Amounts.



               (ii) The Administrative Agent shall notify the Borrower and the Lenders of the Proposed
Borrowing Base (the “Proposed Borrowing Base Notice”):



                    (A) in the case of a Scheduled Redetermination (1) if the Administrative Agent shall have
received the Engineering Reports required to be delivered by the Borrower pursuant to Section
8.12(a) and (c) in a timely and complete manner, then on or before the March 15th and September
15th of such year following the date of delivery or (2) if the Administrative Agent shall not have
received the Engineering Reports required to be delivered by the Borrower pursuant to Section
8.12(a) and (c) in a timely and complete manner, then promptly after the Administrative Agent has
received complete Engineering Reports from the Borrower and has had a reasonable opportunity to
determine the Proposed Borrowing Base in accordance with Section 2.07(c)(i); and



                    (B) in the case of an Interim Redetermination, promptly, and in any event, within fifteen (15)
days after the Administrative Agent has received the required Engineering Reports.



               (iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must
be approved or deemed to have been approved by all of the Lenders as provided in this Section
2.07(c)(iii); and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base
then in effect must be approved or be deemed to have been approved by the Required Lenders as
provided in this Section 2.07(c)(iii). Upon receipt of the Proposed Borrowing Base Notice, each
Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base or disagree with the
Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the end of such fifteen
(15) days, any Lender has not communicated its approval or disapproval in writing to the
Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing
Base. If, at the end of such 15-day



26









 







period, all of the Lenders, in the case of a Proposed Borrowing Base that would increase the
Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base
that would decrease or maintain the Borrowing Base then in effect, have approved or deemed to have
approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base,
effective on the date specified in Section 2.07(d). If, however, at the end of such 15-day period,
all of the Lenders or the Required Lenders, as applicable, have not approved or deemed to have
approved, as aforesaid, then the Administrative Agent shall poll the Lenders to ascertain the
highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required
Lenders and, so long as such amount does not increase the Borrowing Base then in effect, such
amount shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).



          (d) Effectiveness of a Redetermined Borrowing Base. After a redetermined Borrowing
Base is approved or is deemed to have been approved by all of the Lenders or the Required Lenders,
as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the Borrower
and the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing Base
Notice”), and such amount shall become the new Borrowing Base, effective and applicable to the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders:



               (i) in the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have
received the Engineering Reports required to be delivered by the Borrower pursuant to Section
8.12(a) and (c) in a timely and complete manner, then on the March 31st or September 30th, as
applicable, following such notice, or (B) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Parent pursuant to Section 8.12(a) and (c) in a
timely and complete manner, then on the Business Day next succeeding delivery of such notice; and



               (ii) in the case of an Interim Redetermination, on the Business Day next succeeding delivery
of such notice.


Such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the
next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section
8.13(c), Section 8.16 or Section 9.12(d), whichever occurs first. Notwithstanding the foregoing,
no Scheduled Redetermination or Interim Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrower.




     Section 2.08 Letters of Credit.



          (a) General. Subject to the terms and conditions set forth herein, the Borrower may
request the issuance of dollar denominated Letters of Credit for its own account or for the account
of the Parent or any of the Subsidiaries, in a form reasonably acceptable to the Administrative
Agent and the Issuing Bank, at any time and from time to time during the Availability Period;
provided that the Borrower may not request the issuance, amendment, renewal or extension of
Letters of Credit hereunder if a Borrowing Base Deficiency exists at such time or would exist as a
result thereof. In the event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of credit



27









 







application or other agreement submitted by the Borrower to, or entered into by the Borrower
with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement
shall control.



          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request
the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter
of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication,
if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (not less than three (3) Business Days in advance of the requested date of
issuance, amendment, renewal or extension) a notice:



               (i) requesting the issuance of a Letter of Credit or identifying the Letter of Credit to be
amended, renewed or extended;



               (ii) specifying the date of issuance, amendment, renewal or extension (which shall be a
Business Day);



               (iii) specifying the date on which such Letter of Credit is to expire (which shall comply with
Section 2.08(c));



               (iv) specifying the amount of such Letter of Credit;



               (v) specifying the name and address of the beneficiary thereof and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit; and



               (vi) specifying the amount of the then effective Borrowing Base and whether a Borrowing Base
Deficiency exists at such time, the current total Revolving Credit Exposures (without regard to the
requested Letter of Credit or the requested amendment, renewal or extension of an outstanding
Letter of Credit) and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of an outstanding
Letter of Credit).


Each notice shall constitute a representation that after giving effect to the requested issuance,
amendment, renewal or extension, as applicable, (i) the LC Exposure shall not exceed the LC
Commitment and (ii) the total Revolving Credit Exposures shall not exceed the total Commitments
(i.e. the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base).



If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank’s standard form in connection with any request for a Letter of Credit.




          (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of
business on the earlier of (i) the date one year after the date of the issuance of such Letter of
Credit (or, in the case of any renewal or extension thereof, one year after such renewal or
extension) and (ii) the date that is five Business Days prior to the Maturity Date.



28









 





          (d) Participations. By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action on the part of the
Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s
Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit.
In consideration and in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not
reimbursed by the Borrower on the date due as provided in Section 2.08(e), or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and
agrees that its obligation to acquire participations pursuant to this Section 2.08(d) in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence
and continuance of a Default, the existence of a Borrowing Base Deficiency or reduction or
termination of the Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.



          (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a
Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the
date that such LC Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been
received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York
City time, on (i) the Business Day that the Borrower receives such notice, if such notice is
received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such notice is not
received prior to such time on the day of receipt; provided that if such LC Disbursement is
not less than $1,000,000, the Borrower shall, subject to the conditions to Borrowing set forth
herein, be deemed to have requested, and the Borrower does hereby request under such circumstances,
that such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so
financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the
resulting ABR Borrowing. If the Borrower fails to make such payment when due, the Administrative
Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the
Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage
of the payment then due from the Borrower, in the same manner as provided in Section 2.05 with
respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the
payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing
Bank the amounts so received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this Section 2.08(e), the
Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that
Lenders have made payments pursuant to this Section 2.08(e) to reimburse the Issuing Bank, then to
such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve
the Borrower of its obligation to reimburse such LC Disbursement.



29









 





          (f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as
provided in Section 2.08(e) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit,
any Letter of Credit Agreement or this Agreement, or any term or provision therein, (ii) any draft
or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by
the Issuing Bank under a Letter of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit or any Letter of Credit Agreement, or (iv)
any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section 2.08(f), constitute a legal or equitable discharge
of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties shall have
any liability or responsibility by reason of or in connection with the issuance or transfer of any
Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from causes beyond the
control of the Issuing Bank; provided that the foregoing shall not be construed to excuse
the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the Borrower to the extent
permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure
to exercise care when determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of
gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a
court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised all requisite
care in each such determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented which appear on
their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents without
responsibility for further investigation or refuse to accept and make payment upon such documents
if such documents are not in strict compliance with the terms of such Letter of Credit.



          (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt
thereof, examine all documents purporting to represent a demand for payment under a Letter of
Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by
telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made
or will make an LC Disbursement thereunder; provided that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank
and the Lenders with respect to any such LC Disbursement.



          (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, until
the Borrower shall have reimbursed the Issuing Bank for such LC Disbursement (either with its own
funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for
each day from and including the date such LC Disbursement is made to



30









 







but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per
annum then applicable to ABR Loans. Interest accrued pursuant to this Section 2.08(h) shall be for
the account of the Issuing Bank, except that interest accrued on and after the date of payment by
any Lender pursuant to Section 2.08(e) to reimburse the Issuing Bank shall be for the account of
such Lender to the extent of such payment.



               (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by
written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the
successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement
of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall
pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section
3.05(a). From and after the effective date of any such replacement, (i) the successor Issuing Bank
shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing
Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such
successor and all previous Issuing Banks, as the context shall require. After the replacement of
the Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of the Issuing Bank under this Agreement with
respect to Letters of Credit issued by it prior to such replacement, but shall not be required to
issue additional Letters of Credit.



               (j) Cash Collateralization. If (i) any Event of Default shall occur and be continuing
and the Borrower receives notice from the Administrative Agent or the Required Lenders demanding
the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrower is required
to pay to the Administrative Agent the excess attributable to an LC Exposure in connection with any
prepayment pursuant to Section 3.04(c), then the Borrower shall deposit, in an account with the
Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders,
an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of
a payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as
of such date plus any accrued and unpaid interest thereon; provided that the obligation to
deposit such cash collateral shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower or any Subsidiary described in Section 10.01(h) or
Section 10.01(i). The Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security
interest in and Lien on such account and all cash, checks, drafts, certificates and instruments, if
any, from time to time deposited or held in such account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such account, all interest,
dividends, cash, instruments, financial assets and other Property from time to time received,
receivable or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and
all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any
substitutions and replacements therefor. The Borrower’s obligation to deposit amounts pursuant to
this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary
of any such Letter of Credit has attempted to draw down all or a portion of such amount under the
terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be
subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the
Parent or any of its



31









 







Subsidiaries may now or hereafter have against any such beneficiary, the Issuing Bank, the
Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit
shall be held as collateral securing the payment and performance of the Borrower’s and the
Guarantor’s obligations under this Agreement and the other Loan Documents. The Administrative
Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over
such account. Other than any interest earned on the investment of such deposits, which investments
shall be made in the items described in Section 9.05(c), (d), (e) and (f) and at the Borrower’s
direction, risk and expense, such deposits shall not bear interest. Interest or profits, if any,
on such investments shall accumulate in such account. Moneys in such account shall be applied by
the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of
the Loans has been accelerated, be applied to satisfy other obligations of the Borrower and the
Guarantors under this Agreement or the other Loan Documents. If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, and the Borrower is not otherwise required to pay to the Administrative Agent the excess
attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then
such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three
Business Days after all Events of Default have been cured or waived.



ARTICLE III

Payments of Principal and Interest; Prepayments; Fees




     Section 3.01 Repayment of Loans. The Borrower hereby unconditionally promises to pay
to the Administrative Agent for the account of each Lender the then unpaid principal amount of each
Loan on the Termination Date.



     Section 3.02 Interest.



          (a) ABR Loans. The Loans comprising each ABR Borrowing shall bear interest at the
Alternate Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.



          (b) Eurodollar Loans. The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate.



          (c) Post-Default Rate. Notwithstanding the foregoing, if an Event of Default has
occurred and is continuing, or if any principal of or interest on any Loan or any fee or other
amount payable by the Borrower or any Guarantor hereunder or under any other Loan Document is not
paid when due, whether at stated maturity, upon acceleration or otherwise, and including any
payments in respect of a Borrowing Base Deficiency under Section 3.04(c), then all Loans
outstanding, in the case of an Event of Default, and such overdue amount, in the case of a failure
to pay amounts when due, shall bear interest, after as well as before judgment, at a rate per annum
equal to two percent (2%) plus the rate applicable to ABR Loans as provided in Section 3.02(a), but
in no event to exceed the Highest Lawful Rate.



32









 





          (d) Interest Payment Dates. Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and on the Termination Date; provided that (i)
interest accrued pursuant to Section 3.02(c) shall be payable on demand, (ii) in the event of any
repayment or prepayment of any Loan (other than an optional prepayment of an ABR Loan prior to the
Termination Date), accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such
Loan shall be payable on the effective date of such conversion.



          (e) Interest Rate Computations. All interest hereunder shall be computed on the basis
of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case
interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), except
that interest computed by reference to the Alternate Base Rate at times when the Alternate Base
Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days
in a leap year), and in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate
or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.



     Section 3.03 Alternate Rate of Interest. If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:



          (a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate or the LIBO Rate for such Interest Period; or



          (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or
LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost
to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest
Period;


then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any
Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.




     Section 3.04 Prepayments.



          (a) Optional Prepayments. The Borrower shall have the right at any time and from time
to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with
Section 3.04(b).



          (b) Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, New York City



33









 







time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of
an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date
of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of
any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the
contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02.
Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section
3.02 and any amounts due under Section 5.02.



          (c) Mandatory Prepayments.



               (i) If, after giving effect to any termination or reduction of the Aggregate Maximum Credit
Amounts pursuant to Section 2.06(b), the total Revolving Credit Exposures exceeds the total
Commitments, then the Borrower shall (A) prepay the Borrowings on the date of such termination or
reduction in an aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative
Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as
provided in Section 2.08(j).



               (ii) Upon any redetermination of or adjustment to the amount of the Borrowing Base in
accordance with Section 2.07 or Section 8.13(c), if the total Revolving Credit Exposures exceeds
the redetermined or adjusted Borrowing Base, then the Borrower shall (A) prepay the Borrowings in
an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying
all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of
the Lenders an amount equal to such excess to be held as cash collateral as provided in Section
2.08(j). The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral
within forty-five (45) days following its receipt of the New Borrowing Base Notice in accordance
with Section 2.07(d) or the date the adjustment occurs; provided that all payments required
to be made pursuant to this Section 3.04(c)(ii) must be made on or prior to the Termination Date.



               (iii) Upon any adjustments to the Borrowing Base pursuant to Section 9.12(d), if the total
Revolving Credit Exposures exceeds the Borrowing Base as adjusted, then the Borrower shall (A)
prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess
remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(j). The Borrower shall be obligated to make such prepayment
and/or deposit of cash collateral on the date the Parent or any Subsidiary receives cash proceeds
as a result of such disposition; provided that all payments required to be made pursuant to
this Section 3.04(c)(iii) must be made on or prior to the Termination Date.



               (iv) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first,
ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then
outstanding, and if more than one Eurodollar Borrowing is then



34









 







outstanding, to each such Eurodollar Borrowing in order of priority beginning with the
Eurodollar Borrowing with the least number of days remaining in the Interest Period applicable
thereto and ending with the Eurodollar Borrowing with the most number of days remaining in the
Interest Period applicable thereto.



               (v) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to
the Loans included in the prepaid Borrowings. Prepayments pursuant to this Section 3.04(c) shall
be accompanied by accrued interest to the extent required by Section 3.02.



          (d) No Premium or Penalty. Prepayments permitted or required under this Section 3.04
shall be without premium or penalty, except as required under Section 5.02.



     Section 3.05 Fees.



          (a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate
on the average daily amount of the unused amount of the Commitment of such Lender during the period
from and including the date of this Agreement to but excluding the Termination Date. Accrued
commitment fees shall be payable in arrears on the last day of March, June, September and December
of each year and on the Termination Date, commencing on the first such date to occur after the date
hereof. All commitment fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).



          (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its participations in Letters of
Credit, which shall accrue at the same Applicable Margin used to determine the interest rate
applicable to Eurodollar Loans on the average daily amount of such Lender’s LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) during the period from and
including the date of this Agreement to but excluding the later of the date on which such Lender’s
Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (ii) to the
Issuing Bank a fronting fee, which shall accrue at the rate of 0.250% per annum on the average
daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the date of this Agreement to but excluding the
later of the date of termination of the Commitments and the date on which there ceases to be any LC
Exposure; provided that in no event shall such fee be less than $500 during any quarter,
and (iii) to the Issuing Bank, for its own account, its standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.
Participation fees and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the third Business Day following such last
day, commencing on the first such date to occur after the date of this Agreement; provided
that all such fees shall be payable on the Termination Date and any such fees accruing after the
Termination Date shall be payable on demand. Any other fees payable to the Issuing Bank



35









 







pursuant to this Section 3.05(a) shall be payable within 10 days after demand. All
participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless
such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on
the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).



          (c) Administrative Agent Fees. The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.



          (d) Borrowing Base Increase Fees. The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender then party to this Agreement, ratably in accordance with its
Applicable Percentage, a Borrowing Base increase fee, to be agreed by the Lenders and the Borrower,
on the amount of any increase of the Borrowing Base over the highest Borrowing Base previously in
effect, payable on the effective date of any such increase to the Borrowing Base.



          (e) Defaulting Lender Fees. The Borrower shall not be obligated to pay the
Administrative Agent any Defaulting Lender’s ratable share of the fees described in Section 3.05(a)
and (b) for the period commencing on the day such Defaulting Lender becomes a Defaulting Lender and
continuing for so long as such Lender continues to be a Defaulting Lender.



ARTICLE IV

Payments; Pro Rata Treatment; Sharing of Set-offs




     Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.



          (a) Payments by the Borrower. The Borrower shall make each payment required to be
made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately available funds, without defense,
deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and shall
not be refundable under any circumstances. Any amounts received after such time on any date may,
in the discretion of the Administrative Agent, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon. All such payments shall be
made to the Administrative Agent at its offices specified in Section 12.01, except payments to be
made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to
Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments received by it for
the account of any other Person to the appropriate recipient promptly following receipt thereof.
If any payment hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.




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          (b) Application of Insufficient Payments. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.




          (c) Sharing of Payments by Lenders. If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on
any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements
and accrued interest thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value) participations in the
Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Loans and participations
in LC Disbursements; provided that (i) if any such participations are purchased and all or
any portion of the payment giving rise thereto is recovered, such participations shall be rescinded
and the purchase price restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the
Borrower pursuant to and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of
its Loans or participations in LC Disbursements to any assignee or participant, other than to the
Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c)
shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.




     Section 4.02 Presumption of Payment by the Borrower. Unless the Administrative Agent
shall have received notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank that the Borrower will not
make such payment, the Administrative Agent may assume that the Borrower has made such payment on
such date in accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower
has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may
be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by
the Administrative Agent in accordance with banking industry rules on interbank compensation.



37









 





     Section 4.03 Certain Deductions by the Administrative Agent. If any Lender shall be a
Defaulting Lender because of its failure to make any payment required to be made by it pursuant to
Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02, then the Administrative Agent
may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Defaulting Lender to
satisfy such Defaulting Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.



     Section 4.04 Disposition of Proceeds. The Security Instruments contain an assignment
by the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the benefit
of the Lenders of all of the Borrower’s or each Guarantor’s interest in and to production and all
proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property.
The Security Instruments further provide in general for the application of such proceeds to the
satisfaction of the Indebtedness and other obligations described therein and secured thereby.
Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify
the purchaser or purchasers of such production nor take any other action to cause such proceeds to
be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such
proceeds to be paid to the Borrower and the Guarantors and (b) the Lenders hereby authorize the
Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to
the Borrower and/or the Guarantors.



ARTICLE V

Increased Costs; Break Funding Payments; Taxes




     Section 5.01 Increased Costs.



          (a) Eurodollar Changes in Law. If any Change in Law shall:




               (i) impose, modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by, any Lender (except
any such reserve requirement reflected in the Adjusted LIBO Rate); or



               (ii) impose on any Lender or the London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender;


and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
reduce the amount of any sum received or receivable by such Lender (whether of principal, interest
or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.




          (b) Capital Requirements. If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of reducing the rate of
return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the
Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or such



38









 







Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law
(taking into consideration such Lender’s or the Issuing Bank’s policies and the policies of such
Lender’s or the Issuing Bank’s holding company with respect to capital adequacy), then from time to
time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional
amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the
Issuing Bank’s holding company for any such reduction suffered.



          (c) Certificates. A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company,
as the case may be, as specified in Section 5.01(a) or (b) shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank,
as the case may be, the amount shown as due on any such certificate within 10 days after receipt
thereof.



          (d) Effect of Failure or Delay in Requesting Compensation. Failure or delay on the
part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 5.01 shall
not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation.



     Section 5.02 Break Funding Payments. In the event of (a) the payment of any principal
of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an
ABR Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure
to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice
delivered pursuant hereto, or (d) the assignment of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to
Section 5.04, then, in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the principal amount of
such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the then current Interest
Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such Lender would bid
were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market.



A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.



39









 





     Section 5.03 Taxes.



          (a) Payments Free of Taxes. Any and all payments by or on account of any obligation
of the Borrower or any Guarantor under any Loan Document shall be made free and
clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that
if the Borrower or any Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes
from such payments, then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums payable under this
Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower
or such Guarantor shall make such deductions and (iii) the Borrower or such Guarantor shall pay the
full amount deducted to the relevant Governmental Authority in accordance with applicable law.



          (b) Payment of Other Taxes by the Borrower. The Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.



          (c) Indemnification by the Borrower. The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the
Issuing Bank, as the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 5.03) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate of the Administrative Agent, a Lender or the Issuing Bank as to the
amount of such payment or liability under this Section 5.03 shall be delivered to the Borrower and
shall be conclusive absent manifest error.



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



          (e) Foreign Lenders. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or
any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or
any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at
the time or times prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by the Borrower as will permit such payments
to be made without withholding or at a reduced rate.



     Section 5.04 Mitigation Obligations; Replacement of Defaulting Lenders.



          (a) Designation of Different Lending Office. If any Lender requests compensation
under Section 5.01, or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lender
shall use reasonable efforts to designate a different lending office for funding or booking its
Loans hereunder or to assign its rights and obligations hereunder to



40









 







another of its offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.01 or
Section 5.03, as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.



          (b) Replacement of Defaulting Lenders. If any Lender becomes a Defaulting Lender,
then the Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance
with and subject to the restrictions contained in Section 12.04(a)), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such obligations (which assignee
may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall
have received the prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld and (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the
extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of
all other amounts).



ARTICLE VI

Conditions Precedent




     Section 6.01 Effective Date. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on
which each of the following conditions is satisfied (or waived in accordance with Section 12.02):



          (a) The Administrative Agent, the Arrangers and the Lenders shall have received all
commitment, facility and agency fees and all other fees and amounts due and payable on or prior to
the Effective Date, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder (including,
without limitation, the fees and expenses of Vinson & Elkins LLP, counsel to the Administrative
Agent).



          (b) The Administrative Agent shall have received a certificate of the Secretary or an
Assistant Secretary of the Borrower and each Guarantor setting forth (i) resolutions of its board
of directors or other relevant governing body with respect to the authorization of the Borrower or
such Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into
the transactions contemplated in those documents, (ii) the officers of the Borrower or such
Guarantor (y) who are authorized to sign the Loan Documents to which the Borrower or such Guarantor
is a party and (z) who will, until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions contemplated hereby,
(iii) specimen signatures of such authorized officers, and (iv) the articles or certificate of
incorporation and bylaws or other applicable charter and governing documents of the Borrower and
such Guarantor, certified as being true and complete.
The Administrative Agent and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower to the contrary.



41









 





          (c) The Administrative Agent shall have received certificates of the appropriate State
agencies with respect to the existence, qualification and good standing of the Borrower and each
Guarantor.



          (d) The Administrative Agent shall have received a compliance certificate which shall be
substantially in the form of Exhibit D, duly and properly executed by a Responsible Officer and
dated as of the Effective Date.



          (e) The Administrative Agent shall have received from each party hereto counterparts (in such
number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such
party.



          (f) The Administrative Agent shall have received duly executed Notes payable to the order of
each Lender in a principal amount equal to its Maximum Credit Amount dated as of the date hereof.



          (g) The Administrative Agent shall have received from each party thereto duly executed
counterparts (in such number as may be requested by the Administrative Agent) of the Security
Instruments, including the Guaranty Agreement and the other Security Instruments described on
Exhibit F-1. In connection with the execution and delivery of the Security Instruments, the
Administrative Agent shall:



               (i) be reasonably satisfied that the Security Instruments create first priority, perfected
Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition
thereof, but subject to the provisos at the end of such definition) on at least 85% of the total
value of the Oil and Gas Properties evaluated in the Initial Reserve Report; and



               (ii) have received certificates, together with undated, blank stock powers for each such
certificate, representing all of the issued and outstanding Equity Interests of each of the
Guarantors.



          (h) The Administrative Agent shall have received an opinion of (i) Porter & Hedges LLP,
special counsel to the Borrower, substantially in the form of Exhibit E-1 hereto, and (ii) local
counsel in each of the following states: Louisiana, Texas, Oklahoma and any other jurisdictions
requested by the Administrative Agent, substantially in the form of Exhibit E-2.



          (i) The Administrative Agent shall have received a certificate of insurance coverage of the
Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.12.



          (j) The Administrative Agent shall have received title information as the Administrative Agent
may reasonably require satisfactory to the Administrative Agent setting forth the status of title
to at least 85% of the total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report.



42









 





          (k) The Administrative Agent shall be reasonably satisfied with the environmental condition of
the Oil and Gas Properties of the Parent and its Subsidiaries.



          (l) The Administrative Agent shall have received a certificate of a Responsible Officer of the
Parent and the Borrower certifying that the Borrower has received all consents and approvals
required by Section 7.03.



          (m) The Administrative Agent shall have received the financial statements referred to in
Section 7.04(a) and the Initial Reserve Report accompanied by a certificate covering the matters
described in Section 8.12(c).



          (n) The Administrative Agent shall have received appropriate UCC search certificates
reflecting no prior Liens encumbering the Properties of the Parent and the Subsidiaries for each of
the following jurisdictions: Delaware, Louisiana, Oklahoma and any other jurisdiction
requested by the Administrative Agent; other than those being assigned or released on or
prior to the Effective Date or Liens permitted by Section 9.03.



          (o) The Administrative Agent shall have received a copy, certified by a Responsible Officer as
true and complete, of the Senior Indenture (including all amendments and supplements thereto)
pursuant to which the Senior Notes have been issued.



          (p) Prior to or contemporaneously with the initial funding hereunder, the Administrative Agent
shall have received evidence satisfactory to it of the termination of the commitments of the
lenders under the Existing Credit Agreement, the repayment in full of all amounts owing thereunder,
the termination of all suretyship arrangements in connection therewith, and the release of all
Liens securing any obligations thereunder.



          (q) The Administrative Agent shall have received such other documents as the Administrative
Agent or special counsel to the Administrative Agent may reasonably request.



     The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and
such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section
12.02) at or prior to 2:00 p.m., New York City time, on October 2, 2008 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at such time).



     Section 6.02 Each Credit Event. The obligation of each Lender to make a Loan on the
occasion of any Borrowing (including the initial funding), and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:



          (a) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.



43









 





          (b) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no event, development or
circumstance has occurred or shall then exist that has resulted in, or could reasonably be expected
to have, a Material Adverse Effect.



          (c) The representations and warranties of the Borrower and the Guarantors set forth in this
Agreement and in the other Loan Documents shall be true and correct on and as of the date of such
Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, except to the extent any such representations and warranties are expressly limited to
an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, such representations and
warranties shall continue to be true and correct as of such specified earlier date.



          (d) The making of such Loan or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, would not conflict with, or cause any Lender or the Issuing Bank to violate
or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and
no litigation shall be pending or threatened, which does or, with respect to any threatened
litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the
issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations
therein or the consummation of the transactions contemplated by this Agreement or any other Loan
Document.



          (e) The receipt by the Administrative Agent of a Borrowing Request in accordance with Section
2.03 or a request for a Letter of Credit in accordance with Section 2.08(b), as applicable.



     Each request for a Borrowing and each request for the issuance, amendment, renewal or
extension of any Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in Section 6.02(a) through (e).



ARTICLE VII

Representations and Warranties




     The Parent and the Borrower, in each case with respect to itself and its Subsidiaries, each
represents and warrants to the Lenders that:



     Section 7.01 Organization; Powers. It and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization, has all
requisite power and authority, and has all material governmental licenses, authorizations, consents
and approvals necessary, to own its assets and to carry on its business as now conducted, and is
qualified to do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where failure to have such power, authority, licenses,
authorizations, consents, approvals and qualifications could not reasonably be expected to have a
Material Adverse Effect.



44









 





     Section 7.02 Authority; Enforceability. The Transactions are within the Borrower’s
and each Guarantor’s corporate powers and have been duly authorized by all necessary corporate
and, if required, stockholder action (including, without limitation, any action required to be
taken by any class of directors of the Parent, the Borrower or any other Person, whether interested
or disinterested, in order to ensure the due authorization of the Transactions). Each Loan
Document to which the Borrower and each Guarantor is a party has been duly executed and delivered
by the Borrower and such Guarantor and constitutes a legal, valid and binding obligation of the
Borrower and such Guarantor, as applicable, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’
rights generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.



     Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require any consent
or approval of, registration or filing with, or any other action by, any Governmental Authority or
any other third Person (including shareholders or any class of directors, whether interested or
disinterested, of the Parent, the Borrower or any other Person), nor is any such consent, approval,
registration, filing or other action necessary for the validity or enforceability of any Loan
Document or the consummation of the transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect other than (i) the recording and filing of the
Security Instruments as required by this Agreement and (ii) those third party approvals or consents
which, if not made or obtained, would not cause a Default hereunder, could not reasonably be
expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability
of the Loan Documents, (b) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of it or any of its Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any indenture, agreement
or other instrument binding upon it or any of its Subsidiaries or its Properties, or give rise to a
right thereunder to require any payment to be made by it or such Subsidiary and (d) will not result
in the creation or imposition of any Lien on any Property of it or any of its Subsidiaries (other
than the Liens created by the Loan Documents).



     Section 7.04 Financial Condition; No Material Adverse Change.



          (a) The Parent has heretofore furnished to the Lenders its consolidated balance sheet and
statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended
December 31, 2007, reported on by Ernst & Young LLP, independent public accountants, and (ii) as of
and for the fiscal quarter and the portion of the fiscal year ended June 30, 2008, certified by its
chief financial officer. Such financial statements present fairly, in all material respects, the
financial position and results of operations and cash flows of the Parent and its Consolidated
Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the unaudited quarterly financial
statements.



          (b) Since December 31, 2007, (i) there has been no event, development or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect and (ii) the business of the
Parent and its Subsidiaries has been conducted only in the ordinary course consistent with past
business practices.



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          (c) Neither the Parent nor any of its Subsidiaries has on the date hereof any material Debt
(including Disqualified Capital Stock) or any contingent liabilities, off-balance
sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements.



     Section 7.05 Litigation.



          (a) Except as set forth on Schedule 7.05, there are no actions, suits, investigations or
proceedings by or before any arbitrator or Governmental Authority pending against or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any of the Borrower’s
Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that, if
adversely determined, could reasonably be expected, individually or in the aggregate, to result in
a Material Adverse Effect or (ii) that involve any Loan Document or the Transactions.



          (b) Since the date of this Agreement, there has been no change in the status of the matters
disclosed in Schedule 7.05 that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.



     Section 7.06 Environmental Matters. Except for such matters that, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse Effect:



          (a) the Borrower and the Borrower’s Subsidiaries and each of their respective Properties and
operations thereon are, and within all applicable statute of limitation periods have been, in
compliance with all applicable Environmental Laws.



          (b) the Borrower and the Borrower’s Subsidiaries have obtained all Environmental Permits
required for their respective operations and each of their Properties, with all such Environmental
Permits being currently in full force and effect, and none of the Borrower or the Borrower’s
Subsidiaries has received any written notice or otherwise has knowledge that any such existing
Environmental Permit will be revoked or that any application for any new Environmental Permit or
renewal of any existing Environmental Permit will be protested or denied.



          (c) there are no claims, demands, suits, orders, inquiries, or proceedings concerning any
violation of, or any liability (including as a potentially responsible party) under, any applicable
Environmental Laws that is pending or, to its knowledge, threatened against the Borrower or any of
the Borrower’s Subsidiaries or any of their respective Properties or as a result of any operations
at such Properties.



          (d) none of the Properties of the Borrower or any of the Borrower’s Subsidiaries contain or
have contained any: (i) underground storage tanks; (ii) asbestos-containing materials; (iii)
landfills or dumps; (iv) hazardous waste management units as defined pursuant to RCRA or any
comparable state law; or (v) sites on or nominated for the National Priority List promulgated
pursuant to CERCLA or any state remedial priority list promulgated or published pursuant to any
comparable state law.



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          (e) there has been no Release or, to the Borrower’s knowledge, threatened Release, of
Hazardous Materials at, on, under or from Borrower or any of the Borrower’s
Subsidiaries’ Properties, there are no investigations, remediations, abatements, removals, or
monitorings of Hazardous Materials required under applicable Environmental Laws at such Properties
and, to the knowledge of the Borrower, none of such Properties are adversely affected by any
Release or threatened Release of a Hazardous Material originating or emanating from any other real
property.



          (f) neither the Borrower nor any of the Borrower’s Subsidiaries has received any written
notice asserting an alleged liability or obligation under any applicable Environmental Laws with
respect to the investigation, remediation, abatement, removal, or monitoring of any Hazardous
Materials at, under, or Released or threatened to be Released from any real properties offsite the
Borrower or any of the Borrower’s Subsidiaries’ Properties and, to the Borrower’s knowledge, there
are no conditions or circumstances that could reasonably be expected to result in the receipt of
such written notice.



          (g) there has been no exposure of any Person or Property to any Hazardous Materials as a
result of or in connection with the operations and businesses of the Borrower’s or any of the
Borrower’s Subsidiaries’ Properties that could reasonably be expected to form the basis for a claim
for damages or compensation.



          (h) the Borrower and the Borrower’s Subsidiaries have provided to the Lenders complete and
correct copies of all environmental site assessment reports, investigations, studies, analyses, and
correspondence on environmental matters (including matters relating to any alleged non-compliance
with or liability under Environmental Laws) that are in any of the Borrower’s or the Borrower’s
Subsidiaries’ possession or control and relating to their respective Properties or operations
thereon.



     Section 7.07 Compliance with the Laws and Agreements; No Defaults.



          (a) It and each of its Subsidiaries is in compliance with all Governmental Requirements
applicable to it or its Property and all agreements and other instruments binding upon it or its
Property, and possesses all licenses, permits, franchises, exemptions, approvals and other
governmental authorizations necessary for the ownership of its Property and the conduct of its
business, except where the failure to do so, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect.



          (b) Neither it nor any of its Subsidiaries is in default nor has any event or circumstance
occurred which, but for the expiration of any applicable grace period or the giving of notice, or
both, would constitute a default or would require it or any of its Subsidiaries to Redeem or make
any offer to Redeem under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which it or any of its Subsidiaries or any of their
Properties is bound.



          (c) No Default has occurred and is continuing.



     Section 7.08 Investment Company Act. Neither the Borrower nor any of the Borrower’s
Subsidiaries is an “investment company” or a company “controlled” by an “investment company,”
within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as
amended.



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     Section 7.09 Taxes. It and its Subsidiaries each has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid or caused to be paid all
Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which it or such Subsidiary, as applicable, has set aside on its
books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and
reserves on the books of it and its Subsidiaries in respect of Taxes and other governmental charges
are, in the reasonable opinion of it, adequate. No Tax Lien has been filed and, to the knowledge
of it, no claim is being asserted with respect to any such Tax or other such governmental charge.



     Section 7.10 ERISA.



          (a) The Borrower, each of the Borrower’s Subsidiaries and each ERISA Affiliate have complied
in all material respects with ERISA and, where applicable, the Code regarding each Plan.



          (b) Each Plan is, and has been, established and maintained in substantial compliance with its
terms, ERISA and, where applicable, the Code.



          (c) No act, omission or transaction has occurred which could result in imposition on the
Borrower, any of the Borrower’s Subsidiaries or any ERISA Affiliate (whether directly or
indirectly) of (i) either a civil penalty assessed pursuant to subsections (c), (i), (l) or (m) of
section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.



          (d) Full payment when due has been made of all amounts which the Borrower, any of the
Borrower’s Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan as of the date hereof.



          (e) None of the Borrower, any of the Borrower’s Subsidiaries or any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA,
including, without limitation, any such plan maintained to provide benefits to former employees of
such entities, that may not be terminated by the Borrower, any of the Borrower’s Subsidiaries or
any ERISA Affiliate in the Borrower’s sole discretion at any time without any material liability.



          (f) None of the Borrower, any of the Borrower’s Subsidiaries or any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period preceding the date hereof
sponsored, maintained or contributed to, any employee pension benefit plan, as defined in section
3(2) of ERISA, that is subject to Title IV of ERISA, section 302 of ERISA or section 412 of the
Code.



     Section 7.11 Disclosure; No Material Misstatements. It has disclosed to the
Administrative Agent and the Lenders all agreements, instruments and corporate or other
restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect. Neither the Information Memorandum nor any of the other reports, financial
statements,



48









 







certificates or other information furnished by or on behalf of it or any of its Subsidiaries
to the Administrative Agent or any Lender or any of their Affiliates in connection with the
negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other
Loan Document (as modified or supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading; provided
that, with respect to projected financial information, it represents only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the time. There is no
fact peculiar to it or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or the other documents,
certificates and statements furnished to the Administrative Agent or the Lenders by or on behalf of
it or any of its Subsidiaries prior to, or on, the date hereof in connection with the transactions
contemplated hereby. There are no statements or conclusions in any Reserve Report which are based
upon or include misleading information or fail to take into account material information regarding
the matters reported therein, it being understood that projections concerning volumes attributable
to the Oil and Gas Properties of it and its Subsidiaries and production and cost estimates
contained in each Reserve Report are necessarily based upon professional opinions, estimates and
projections and that it and its Subsidiaries do not warrant that such opinions, estimates and
projections will ultimately prove to have been accurate.



     Section 7.12 Insurance. The Borrower has, and has caused all of the Borrower’s
Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with
all material Governmental Requirements and all material agreements and (b) insurance coverage in at
least amounts and against such risk (including, without limitation, public liability) that are
usually insured against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and the Borrower’s Subsidiaries. The
Administrative Agent and the Lenders have been named as additional insureds in respect of said
insurance policies insuring against physical damage to equipment and facilities owned by the
Borrower and the Administrative Agent has been named as loss payee with respect to Property loss
insurance.



     Section 7.13 Restriction on Liens. Neither the Borrower nor any of the Borrower’s
Subsidiaries is a party to any material agreement or arrangement (other than Capital Leases
creating Liens permitted by Section 9.03(c), but then only on the Property subject of such Capital
Lease), or subject to any order, judgment, writ or decree, which either restricts or purports to
restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in respect of
their Properties to secure the Indebtedness and the Loan Documents.



     Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as disclosed in
writing to the Administrative Agent (which shall promptly furnish a copy to the Lenders), which
shall be a supplement to Schedule 7.14, it has no Subsidiaries. Each of its Subsidiaries is a
Wholly-Owned Subsidiary and it has no Foreign Subsidiaries. As of the Effective Date, all Excluded
Subsidiaries are listed on Schedule 7.14.



49









 





     Section 7.15 Location of Business and Offices. The Parent’s jurisdiction of
organization is Delaware; the name of the Parent as listed in the public records of its
jurisdiction
of organization is PetroQuest Energy, Inc.; and the organizational identification number of
the Parent in its jurisdiction of organization is 2895656 (or, in each case, as set forth in a
notice delivered to the Administrative Agent pursuant to Section 8.01(m) in accordance with Section
12.01). The Parent’s principal place of business and chief executive offices are located at the
address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section
8.01(m) and Section 12.01(c)). The Borrower’s jurisdiction of organization is Louisiana; the name
of the Borrower as listed in the public records of its jurisdiction of organization is PetroQuest
Energy, L.L.C.; and the organizational identification number of the Borrower in its jurisdiction of
organization is 34487931 K (or, in each case, as set forth in a notice delivered to the
Administrative Agent pursuant to Section 8.01(m) in accordance with Section 12.01). The Borrower’s
principal place of business and chief executive offices are located at the address specified in
Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(m) and Section
12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the public records of
its jurisdiction of organization, organizational identification number in its jurisdiction of
organization, and the location of its principal place of business and chief executive office is
stated on Schedule 7.14 (or as set forth in a notice delivered pursuant to Section 8.01(m)).



     Section 7.16 Properties; Titles, Etc.



          (a) The Borrower and the Borrower’s Subsidiaries each has good and defensible title to the Oil
and Gas Properties evaluated in the most recently delivered Reserve Report and good title to all
its personal Properties, in each case, free and clear of all Liens except Liens permitted by
Section 9.03. After giving full effect to the Excepted Liens, the Borrower or any of the
Borrower’s Subsidiaries specified as the owner owns the net interests in production attributable to
the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the
ownership of such Properties shall not in any material respect obligate the Borrower or such
Subsidiary to bear the costs and expenses relating to the maintenance, development and operations
of each such Property in an amount in excess of the working interest of each Property set forth in
the most recently delivered Reserve Report that is not offset by a corresponding proportionate
increase the Borrower’s or such Subsidiary’s net revenue interest in such Property.



          (b) All material leases and agreements necessary for the conduct of the business of the
Borrower and the Borrower’s Subsidiaries are valid and subsisting, in full force and effect, and
there exists no default or event or circumstance which with the giving of notice or the passage of
time or both would give rise to a default under any such lease or leases, which could reasonably be
expected to have a Material Adverse Effect.



          (c) The rights and Properties presently owned, leased or licensed by the Borrower and the
Borrower’s Subsidiaries including, without limitation, all easements and rights of way, include all
rights and Properties necessary to permit the Borrower and the Borrower’s Subsidiaries to conduct
their business in all material respects in the same manner as the Borrower’s business has been
conducted prior to the date hereof.



          (d) All of the Properties of the Borrower and the Borrower’s Subsidiaries which are reasonably
necessary for the operation of their businesses are in good working condition and are maintained in
accordance with prudent business standards.



50









 





          (e) The Borrower and each of the Borrower’s Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual Property material to the
Borrower’s business, and the use thereof by the Borrower and such Subsidiary does not infringe upon
the rights of any other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower
and the Borrower’s Subsidiaries either own or have valid licenses or other rights to use all
databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations
and other technical information used in their businesses as presently conducted, subject to the
limitations contained in the agreements governing the use of the same, which limitations are
customary for companies engaged in the business of the exploration and production of Hydrocarbons,
with such exceptions as could not reasonably be expected to have a Material Adverse Effect.



     Section 7.17 Maintenance of Properties. Except for such acts or failures to act as
could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and
Properties unitized therewith) of the Borrower and the Borrower’s Subsidiaries have been
maintained, operated and developed in a good and workmanlike manner and in conformity with all
Governmental Requirements and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming
a part of the Oil and Gas Properties of the Borrower and the Borrower’s Subsidiaries. Specifically
in connection with the foregoing, except for those as could not be reasonably expected to have a
Material Adverse Effect, (i) no Oil and Gas Property of the Borrower or any of the Borrower’s
Subsidiaries is subject to having allowable production reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any overproduction (whether or not the
same was permissible at the time) and (ii) none of the wells comprising a part of the Oil and Gas
Properties (or Properties unitized therewith) of the Borrower or any of the Borrower’s Subsidiaries
is deviated from the vertical more than the maximum permitted by Governmental Requirements, and
such wells are, in fact, bottomed under and are producing from, and the well bores are wholly
within, the Oil and Gas Properties (or in the case of wells located on Properties unitized
therewith, such unitized Properties) of the Borrower or such Subsidiary. All pipelines, wells, gas
processing plants, platforms and other material improvements, fixtures and equipment owned in whole
or in part by the Borrower or any of the Borrower’s Subsidiaries that are necessary to conduct
normal operations are being maintained in a state adequate to conduct normal operations, and with
respect to such of the foregoing which are operated by the Borrower or any of the Borrower’s
Subsidiaries, in a manner consistent with the Borrower’s or the Borrower’s Subsidiaries’ past
practices (other than those the failure of which to maintain in accordance with this Section 7.17
could not reasonably be expected to have a Material Adverse Effect).



     Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule 7.18 or on
the most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas
imbalances, take or pay or other prepayments which would require the Borrower or any of the
Borrower’s Subsidiaries to deliver Hydrocarbons produced from their Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor exceeding one-half bcf of
gas (on an mcf equivalent basis) in the aggregate.



51









 





     Section 7.19 Marketing of Production. Except for contracts listed and in effect on
the date hereof on Schedule 7.19, and thereafter either disclosed in writing to the Administrative
Agent or included in the most recently delivered Reserve Report (with respect to all of which
contracts the Borrower represents or that the Borrower or the Borrower’s Subsidiaries are receiving
a price for all production sold thereunder which is computed substantially in accordance with the
terms of the relevant contract and are not having deliveries curtailed substantially below the
subject Property’s delivery capacity), no material agreements exist which are not cancelable on 60
days notice or less without penalty or detriment for the sale of production from the Borrower or
the Borrower’s Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights
to purchase, production, whether or not the same are currently being exercised) that (a) pertain to
the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six
(6) months from the date hereof.



     Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and after the
date hereof, each report required to be delivered by it pursuant to Section 8.01(d), sets forth, a
true and complete list of all Swap Agreements of the Borrower and each of the Borrower’s
Subsidiaries, the material terms thereof (including the type, term, effective date, termination
date and notional amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied) and the counterparty to
each such agreement.



     Section 7.21 Use of Loans and Letters of Credit. The proceeds of the Loans and the
Letters of Credit shall be used to provide working capital for exploration and production
operations and for general corporate purposes. It and its Subsidiaries are not engaged
principally, or as one of its or their important activities, in the business of extending credit
for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan or
Letter of Credit will be used for any purpose which violates the provisions of Regulations T, U or
X of the Board.



     Section 7.22 Solvency. After giving effect to the transactions contemplated hereby,
(a) the aggregate assets (after giving effect to amounts that could reasonably be received by
reason of indemnity, offset, insurance or any similar arrangement), at a fair valuation, of the
Borrower and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower and
the Guarantors on a consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors will not have incurred or intended to incur, and will not believe that
it will incur, Debt beyond its ability to pay such Debt (after taking into account the timing and
amounts of cash to be received by each of the Borrower and the Guarantors and the amounts to be
payable on or in respect of its liabilities, and giving effect to amounts that could reasonably be
received by reason of indemnity, offset, insurance or any similar arrangement) as such Debt becomes
absolute and matures and (c) each of the Borrower and the Guarantors will not have (and will have
no reason to believe that it will have thereafter) unreasonably small capital for the conduct of
its business.



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ARTICLE VIII

Affirmative Covenants




     Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents
shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Parent and the Borrower, in each case with respect to
itself and each of its Subsidiaries, each covenants and agrees with the Lenders that:



     Section 8.01 Financial Statements; Other Information. The Parent will furnish to the
Administrative Agent and each Lender:



          (a) Annual Financial Statements. As soon as available, but in any event in accordance
with then applicable law and not later than 90 days after the end of each fiscal year of the
Parent, its audited consolidated balance sheet and related statements of operations, stockholders’
equity and cash flows as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by Ernst & Young LLP or other
independent public accountants of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Parent and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently applied.



          (b) Quarterly Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of each of the first
three fiscal quarters of each fiscal year of the Parent, its consolidated balance sheet and related
statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results of operations of the
Parent and its Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the absence of footnotes.



          (c) Certificate of Financial Officer — Compliance. Concurrently with any delivery of
financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer
in substantially the form of Exhibit D hereto (i) certifying as to whether a Default has occurred
and, if a Default has occurred, specifying the details thereof and any action taken or proposed to
be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating
compliance with Section 8.13(b) and Section 9.01 and (iii) stating whether any change in GAAP or in
the application thereof has occurred since the date of the audited financial statements referred to
in Section 7.04 and, if any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate.



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          (d) Certificate of Financial Officer — Swap Agreements. Concurrently with the
delivery of each Reserve Report hereunder, a certificate of a Financial Officer, in form and
substance satisfactory to the Administrative Agent, setting forth as of a recent date, a true and
complete list of all Swap Agreements of the Parent and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts or volumes), the
net mark-to-market value therefor, any new credit support agreements relating thereto not listed on
Schedule 7.20, any margin required or supplied under any credit support document, any amendments
relating thereto and the counterparty to each such agreement.



          (e) Certificate of Insurer — Insurance Coverage. Each year, promptly upon renewal
thereof, a certificate of insurance coverage from each insurer with respect to the insurance
required by Section 8.07, in form and substance reasonably satisfactory to the Administrative
Agent, and, if requested by the Administrative Agent or any Lender, all copies of the applicable
policies.



          (f) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Parent or any of its Subsidiaries by independent accountants in
connection with any annual, interim or special audit made by them of the books of the Parent or any
such Subsidiary, and a copy of any response by the Parent or any such Subsidiary, or the board of
directors or other relevant governing body of the Parent or any such Subsidiary, to such letter or
report.



          (g) SEC and Other Filings; Reports to Shareholders. Promptly after the same become
publicly available, copies of all periodic and other reports, proxy statements and other materials
filed by the Parent or any Subsidiary with the SEC, or with any national securities exchange, or
distributed by the Parent to its shareholders generally, as the case may be.



          (h) Notices Under Material Instruments. Promptly after the furnishing thereof, copies
of any financial statement, report or notice furnished to or by any Person pursuant to the terms of
any preferred stock designation, indenture, loan or credit or other similar agreement, other than
this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.



          (i) Lists of Purchasers. Concurrently with the delivery of each Reserve Report
effective as of the previous January 1st for each year to the Administrative Agent
pursuant to Section 8.12, a list of all Persons purchasing Hydrocarbons from the Parent or any
Subsidiary.



          (j) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any of
the Borrower’s Subsidiaries intends to sell, transfer, assign or otherwise dispose of any Oil or
Gas Properties or any Equity Interests in any Subsidiary in accordance with Section 9.12, prior
written notice of such disposition, the price thereof and the anticipated date of closing and any
other details thereof requested by the Administrative Agent or any Lender.



          (k) Notice of Casualty Events. Prompt written notice, and in any event within three
Business Days after it obtains knowledge thereof, of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to result in a Casualty
Event.



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          (l) Issuance of Permitted Refinancing Debt. In the event the Parent or the Borrower
intends to refinance any Debt with the proceeds of Permitted Refinancing Debt as contemplated by
Section 9.02(h), prior written notice of such intended offering therefor, the amount thereof and
the anticipated date of closing and will furnish a copy of the preliminary offering memorandum (if
any) and the final offering memorandum (if any).



          (m) Information Regarding Borrower and Guarantors. Prompt written notice (and in any
event within thirty (30) days prior thereto) of any change (i) in the Borrower’s or any Guarantor’s
corporate name or in any trade name used to identify such Person in the conduct of its business or
in the ownership of its Properties, (ii) in the location of the Borrower’s or any Guarantor’s chief
executive office or principal place of business, (iii) in the Borrower’s or any Guarantor’s
identity or corporate structure or in the jurisdiction in which such Person is incorporated or
formed, (iv) in the Borrower’s or any Guarantor’s jurisdiction of organization or such Person’s
organizational identification number in such jurisdiction of organization, and (v) in the
Borrower’s or any Guarantor’s federal taxpayer identification number.



          (n) Production Report and Lease Operating Statements. Concurrently with the delivery
of any Reserve Report to the Administrative Agent pursuant to Section 8.12, a report setting forth,
for each calendar month during the then current fiscal year to date, the volume of production and
sales attributable to production (and the prices at which such sales were made and the revenues
derived from such sales) for each such calendar month from the Oil and Gas Properties, and setting
forth the related ad valorem, severance and production taxes and lease operating expenses
attributable thereto and incurred for each such calendar month.



          (o) Notices of Certain Changes. Promptly, but in any event within five (5) Business
Days after the execution thereof, copies of any amendment, modification or supplement to the
certificate or articles of incorporation, by-laws, any preferred stock designation or any other
organic document of the Parent or any Subsidiary.



          (p) Patriot Act. Promptly upon any request therefor, all documentation and other
information requested by the Administrative Agent or any Lender that is required by any regulatory
authorities under applicable “know your customer” and anti-money laundering rules and regulations,
including the USA Patriot Act.



          (q) Certificate of Financial Officer — Consolidating Information for Excluded
Subsidiaries. If, at any time, the net income of all Excluded Subsidiaries is greater than
$1,000,000 in any fiscal year, then concurrently with any delivery of financial statements under
Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer setting forth
consolidating spreadsheets that show all Excluded Subsidiaries and the eliminating entries, in such
form as would be presentable to the auditors of the Borrower.



          (r) Other Requested Information. Promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition of the Parent or any
Subsidiary (including, without limitation, any Plan and any reports or other information required
to be filed with respect thereto under the Code or under ERISA), or compliance with the terms of
this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably
request.



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     Documents required to be delivered pursuant to Section 8.01(a), Section 8.01(b) or Section
8.01(g) (to the extent any such documents are included in materials otherwise filed with the
Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be
deemed to have been delivered on the date (1) on which the Parent posts such documents, or provides
a link thereto on the Parent’s website on the Internet at www.petroquest.com; or (2) on which such
documents are posted on the Parent’s behalf on an Internet or intranet website, if any, to which
each Lender and the Administrative Agent have access (whether a commercial, third-party website or
whether sponsored by the Administrative Agent); provided that the Borrower shall notify the
Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such
documents and provide to the Administrative Agent by electronic mail electronic versions (i.e.,
soft copies) of such documents. Notwithstanding anything contained herein, in every instance the
Parent shall be required to provide paper copies of the compliance certificate required by Section
8.01(c) to the Administrative Agent and the Lenders. Except for such compliance certificates, the
Administrative Agent shall have no obligation to request the delivery or to maintain copies of the
documents referred to above, and in any event shall have no responsibility to monitor compliance by
the Parent with any such request for delivery, and each Lender shall be solely responsible for
requesting delivery to it or maintaining its copies of such documents.



     Section 8.02 Notices of Material Events. The Parent and the Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:



          (a) the occurrence of any Default;



          (b) the filing or commencement of, or the threat in writing of, any action, suit, proceeding,
investigation or arbitration by or before any arbitrator or Governmental Authority against or
affecting the Parent or any Affiliate thereof not previously disclosed in writing to the Lenders or
any material adverse development in any action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders) that, in either case, if adversely determined,
could reasonably be expected to result in liability in excess of $2,500,000; and



          (c) any other development that results in, or could reasonably be expected to result in, a
Material Adverse Effect.


Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible
Officer setting forth the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.




     Section 8.03 Existence; Conduct of Business. It will, and will cause each Subsidiary
to, do or cause to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence and the rights, licenses, permits, privileges and franchises material to
the conduct of its business and maintain, if necessary, its qualification to do business in each
other jurisdiction in which its Oil and Gas Properties is located or the ownership of its
Properties requires such qualification, except where the failure to so qualify could not reasonably
be expected to have a Material Adverse Effect; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.11.



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     Section 8.04 Payment of Obligations. It will, and will cause each Subsidiary to, pay
its obligations, including Tax liabilities of it and all of its Subsidiaries before the same shall
become delinquent or in default, except where (a) the validity or amount thereof is being contested
in good faith by appropriate proceedings, (b) it or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material Adverse Effect or
result in the seizure or levy of any Property of it or any of its Subsidiaries.



     Section 8.05 Performance of Obligations under Loan Documents. The Borrower will pay
the Notes according to the reading, tenor and effect thereof, and the Parent and the Borrower each
will, and will cause each of its Subsidiaries to, do and perform every act and discharge all of the
obligations to be performed and discharged by them under the Loan Documents, including, without
limitation, this Agreement, at the time or times and in the manner specified.



     Section 8.06 Operation and Maintenance of Properties. The Borrower, at the Borrower’s
own expense, will, and will cause each of the Borrower’s Subsidiaries to:



          (a) operate its Oil and Gas Properties and other material Properties or cause such Oil and Gas
Properties and other material Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with all applicable contracts and
agreements and in compliance with all Governmental Requirements, including, without limitation,
applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and
regulations of every other Governmental Authority from time to time constituted to regulate the
development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons
and other minerals therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.



          (b) keep and maintain all Property material to the conduct of its business in good working
order and condition (ordinary wear and tear excepted), preserve, maintain and keep in good repair,
working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas
Properties and other material Properties, including, without limitation, all equipment, machinery
and facilities.



          (c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid
and discharged, all delay rentals, royalties, expenses and indebtedness, except those contested in
good faith by appropriate proceedings, accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired
their rights with respect thereto and prevent any forfeiture thereof or default thereunder.



          (d) promptly perform or make reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the material obligations required by each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil
and Gas Properties and other material Properties.



          (e) to the extent it is not the operator of any Property, it shall use reasonable efforts to
cause the operator to comply with this Section 8.06.




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     Section 8.07 Insurance. The Borrower will, and will cause each of the Borrower’s
Subsidiaries to, maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies engaged in the same
or similar businesses operating in the same or similar locations. The loss payable clauses or
provisions in said insurance policy or policies insuring against physical damage to equipment and
facilities owned by the Borrower shall be endorsed in favor of and made payable to the
Administrative Agent as its interests may appear and such policies shall name the Administrative
Agent and the Lenders as “additional insureds” and provide that the insurer will endeavor to give
at least 30 days prior notice of any cancellation to the Administrative Agent.



     Section 8.08 Books and Records; Inspection Rights. The Borrower will, and will cause
each of the Borrower’s Subsidiaries to, keep proper books of record and account in which full, true
and correct entries are made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of the Borrower’s Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice,
to visit and inspect its Properties, to examine and make extracts from its books and records, and
to discuss its affairs, finances and condition with its officers and independent accountants, all
at such reasonable times and as often as reasonably requested.



     Section 8.09 Compliance with Laws. The Borrower will, and will cause each of the
Borrower’s Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its Property, except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse Effect.



     Section 8.10 Environmental Matters.



          (a) The Borrower shall at the Borrower’s sole expense: (i) comply, and shall cause the
Borrower’s Properties and operations and each of the Borrower’s Subsidiaries and each such
Subsidiary’s Properties and operations to comply, with all applicable Environmental Laws, the
breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not Release or
threaten to Release, and shall cause each Subsidiary not to Release or threaten to Release, any
Hazardous Material on, under, about or from any of the Borrower’s or the Borrower’s Subsidiaries’
Properties or any other property offsite the Property to the extent caused by the Borrower or any
of the Borrower’s Subsidiaries’ operations except in compliance with applicable Environmental Laws,
the Release or threatened Release of which could reasonably be expected to have a Material Adverse
Effect; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all
Environmental Permits, if any, required under applicable Environmental Laws to be obtained or filed
in connection with the operation or use of the Borrower or the Borrower’s Subsidiaries’ Properties,
which failure to obtain or file could reasonably be expected to have a Material Adverse Effect;
(iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to
promptly commence and diligently prosecute to completion, any assessment, evaluation,
investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other
remedial obligations (collectively, the “Remedial Work”) in the event any Remedial Work is
required or reasonably necessary under applicable Environmental Laws because of or in connection
with the actual or suspected past, present or future Release or threatened Release of any Hazardous
Material on,



58









 







under, about or from any of the Borrower’s or the Borrower’s Subsidiaries’ Properties, which
failure to commence and diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; (v) conduct, and cause its Subsidiaries to conduct, their respective
operations and businesses in a manner that will not expose any Property or Person to Hazardous
Materials that could reasonably be expected to form the basis for a claim for damages or
compensation; and (vi) establish and implement, and shall cause each Subsidiary to establish and
implement, such procedures as may be necessary to continuously determine and assure that the
Borrower’s and the Borrower’s Subsidiaries’ obligations under this Section 8.10(a) are timely and
fully satisfied, which failure to establish and implement could reasonably be expected to have a
Material Adverse Effect.



          (b) The Borrower will promptly, but in no event later than five days of the occurrence of a
triggering event, notify the Administrative Agent and the Lenders in writing of any threatened
action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit
by any Person against it or its Subsidiaries or their Properties of which the Borrower has
knowledge in connection with any Environmental Laws if the Borrower could reasonably anticipate
that such action will result in liability (whether individually or in the aggregate) in excess of
$2,500,000, not fully covered by insurance, subject to normal deductibles.



          (c) The Borrower will, and will cause each of the Borrower’s Subsidiaries to, provide
environmental assessments, audits and tests in accordance with the most current version of the
American Society of Testing Materials standards upon request by the Administrative Agent and the
Lenders and no more than once per year in the absence of any Event of Default (or as otherwise
required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority),
in connection with any future acquisitions of Oil and Gas Properties or other Properties.



     Section 8.11 Further Assurances.



          (a) It will at its sole expense, and will cause each of its Subsidiaries to, promptly execute
and deliver to the Administrative Agent all such other documents, agreements and instruments
reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the
conditions precedent, covenants and agreements of it or any of its Subsidiaries, as the case may
be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the
collateral intended as security for the Indebtedness, or to correct any omissions in this Agreement
or the Security Instruments, or to state more fully the obligations secured therein, or to perfect,
protect or preserve any Liens created pursuant to this Agreement or any of the Security Instruments
or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as
may be reasonably necessary or appropriate, in the sole discretion of the Administrative Agent, in
connection therewith.



          (b) The Borrower hereby authorizes the Administrative Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of the Mortgaged
Property without the signature of the Borrower or any other Guarantor where permitted by law. A
carbon, photographic or other reproduction of the Security Instruments or
any financing statement covering the Mortgaged Property or any part thereof shall be
sufficient as a financing statement where permitted by law.



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     Section 8.12 Reserve Reports.



          (a) On or before March 1st and September 1st of each year, commencing March 1, 2009, the
Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report evaluating the
Oil and Gas Properties of the Borrower and the Borrower’s Subsidiaries as of the immediately
preceding January 1st and July 1st. The Reserve Report as of January 1 of each year shall be
prepared by one or more Approved Petroleum Engineers, and the July 1st Reserve Report of each year
shall be prepared by or under the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate and to have been prepared in accordance with
the procedures used in the immediately preceding January 1st Reserve Report.



          (b) In the event of an Interim Redetermination, the Borrower shall furnish to the
Administrative Agent and the Lenders a Reserve Report prepared by or under the supervision of the
chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to
have been prepared in accordance with the procedures used in the immediately preceding January 1st
Reserve Report. For any Interim Redetermination requested by the Administrative Agent or the
Borrower pursuant to Section 2.07(b), the Borrower shall provide such Reserve Report with an “as
of” date as required by the Administrative Agent as soon as possible, but in any event no later
than thirty (30) days following the receipt of such request.



          (c) With the delivery of each Reserve Report, the Borrower shall provide to the Administrative
Agent and the Lenders a certificate from a Responsible Officer certifying that in all material
respects: (i) the information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct in all material respects, (ii) the Borrower or the
Borrower’s Subsidiaries owns good and defensible title to the Oil and Gas Properties evaluated in
such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section
9.03, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.18 with
respect to the Oil and Gas Properties evaluated in such Reserve Report which would require the
Borrower or any of the Borrower’s Subsidiaries to deliver Hydrocarbons either generally or produced
from such Oil and Gas Properties at some future time without then or thereafter receiving full
payment therefor, (iv) none of their Oil and Gas Properties have been sold since the date of the
last Borrowing Base determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably
required by the Administrative Agent, (v) attached to the certificate is a list of all marketing
agreements entered into subsequent to the later of the date hereof or the most recently delivered
Reserve Report which the Borrower could reasonably be expected to have been obligated to list on
Schedule 7.19 had such agreement been in effect on the date hereof and (vi) attached thereto is a
schedule of the Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged
Properties and demonstrating the percentage of the total value of the Oil and Gas Properties that
the value of such Mortgaged Properties represent in compliance with Section 8.14(a).



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     Section 8.13 Title Information.



          (a) On or before the delivery to the Administrative Agent and the Lenders of each Reserve
Report required by Section 8.12(a), the Borrower will deliver title information in form and
substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties
evaluated by such Reserve Report that were not included in the immediately preceding Reserve
Report, so that the Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information on at least 85% of
the total value of the proved reserves attributable to the Oil and Gas Properties evaluated by such
Reserve Report.



          (b) If the Borrower has provided title information for additional Properties under Section
8.13(a), the Borrower shall, within 90 days of notice from the Administrative Agent that title
defects or exceptions exist with respect to such additional Properties, either (i) cure any such
title defects or exceptions (including defects or exceptions as to priority) which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other than Excepted Liens
described in clauses (e), (g) and (h) of such definition) having an equivalent value or (iii)
deliver title information in form and substance acceptable to the Administrative Agent so that the
Administrative Agent shall have received, together with title information previously delivered to
the Administrative Agent, satisfactory title information on at least 85% of the value of the Oil
and Gas Properties evaluated by such Reserve Report.



          (c) If the Borrower is unable to cure any title defect requested by the Administrative Agent
or the Lenders to be cured within the 90-day period or the Borrower does not comply with the
requirements to provide acceptable title information covering 85% of the value of the Oil and Gas
Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but
instead the Administrative Agent and/or the Required Lenders shall have the right to exercise the
following remedy in their sole discretion from time to time, and any failure to so exercise this
remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative
Agent or the Lenders. To the extent that the Administrative Agent or the Required Lenders are not
satisfied with title to any Mortgaged Property after the 90-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 85% requirement, and the Administrative
Agent may send a notice to the Borrower and the Lenders that the then outstanding Borrowing Base
shall be reduced by an amount as determined by the Required Lenders to cause the Borrower to be in
compliance with the requirement to provide acceptable title information on 85% of the value of the
proved reserves attributable to the Oil and Gas Properties. This new Borrowing Base shall become
effective immediately after receipt of such notice.



     Section 8.14 Additional Collateral; Additional Guarantors.



          (a) In connection with each redetermination of the Borrowing Base, the Borrower shall review
the Reserve Report and the list of current Mortgaged Properties (as described in Section
8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 85% of the total
value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,



61









 







dispositions and production. In the event that the Mortgaged Properties do not represent at
least 85% of such total value, then the Borrower shall, and shall cause the Borrower’s Subsidiaries
to, grant, within thirty (30) days of delivery of the certificate required under Section 8.12(c),
to the Administrative Agent as security for the Indebtedness a first-priority Lien interest
(provided that Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such definition) on
additional Oil and Gas Properties not already subject to a Lien of the Security Instruments such
that after giving effect thereto, the Mortgaged Properties will represent at least 85% of such
total value. All such Liens will be created and perfected by and in accordance with the provisions
of deeds of trust, security agreements and financing statements or other Security Instruments, all
in form and substance reasonably satisfactory to the Administrative Agent and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for recording purposes.



          (b) It shall promptly cause each of its Subsidiaries (other than the Borrower) to guarantee
the Indebtedness pursuant to the Guaranty Agreement. The Parent shall at all times guarantee the
Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, it shall,
or shall cause such Subsidiary to promptly (but with respect to any Subsidiary formed or acquired
after the date hereof, no later than ten (10) days after the date of such formation or
acquisition), (i) execute and deliver the Guaranty Agreement or a supplement to the Guaranty
Agreement as required by the Administrative Agent, (ii) pledge all of the Equity Interests of such
Subsidiary (including, without limitation, delivery of original certificates evidencing the Equity
Interests of such Subsidiary, together with an appropriate undated stock powers for each
certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver
such other additional closing documents, certificates and legal opinions as shall reasonably be
requested by the Administrative Agent in connection with this Section 8.14(b).



     Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will cause the
Borrower’s Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent (i)
promptly after the filing thereof with the United States Secretary of Labor or the Internal Revenue
Service, copies of each annual and other report with respect to each Plan or any trust created
thereunder, and (ii) immediately upon becoming aware of the occurrence of any “prohibited
transaction,” as described in section 406 of ERISA or in section 4975 of the Code, in connection
with any Plan or any trust created thereunder, a written notice signed by the President or the
principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying
the nature thereof, what action the Borrower, the Borrower’s Subsidiaries or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action taken or proposed by
the Internal Revenue Service or the Department of Labor with respect thereto.



     Section 8.16 Swap Agreements. The Parent or the Borrower shall maintain the hedge
position established by the Swap Agreements identified in the most recent certificate delivered
under Section 8.01(d) during the period specified therein and shall neither assign, terminate or
unwind any such Swap Agreements nor sell any Swap Agreements if the effect of such action (when
taken together with any other Swap Agreements executed contemporaneously with the taking of such
action) would have the effect of canceling its positions under such Swap Agreements; provided that
the Parent or the Borrower may terminate or otherwise cancel or



62









 







unwind any Swap Agreement if (a) the Parent or the Borrower shall have given prior written
notice to the Administrative Agent of such action, (b) the economic effect of such Swap Agreement
was to increase the Borrowing Base then in effect, the Required Lenders shall have the right to
adjust the Borrowing Base to reflect such termination and (c) the Borrower shall have (after giving
effect to any termination payments associated with termination) unused availability under this
Agreement of not less than 15% of the then current Borrowing Base.



     Section 8.17 Marketing Activities. The Borrower will not, and will not permit any of
the Borrower’s Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into
any contracts related thereto other than (i) contracts for the sale of Hydrocarbons scheduled or
reasonably estimated to be produced from their proved Oil and Gas Properties during the period of
such contract, (ii) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be
produced from proved Oil and Gas Properties of third parties during the period of such contract
associated with the Oil and Gas Properties of the Borrower and the Borrower’s Subsidiaries that the
Borrower or one of the Borrower’s Subsidiaries has the right to market pursuant to joint operating
agreements, unitization agreements or other similar contracts that are usual and customary in the
oil and gas business and (iii) other contracts for the purchase and/or sale of Hydrocarbons of
third parties (A) which have generally offsetting provisions (i.e. corresponding pricing mechanics,
delivery dates and points and volumes) such that no “position” is taken and (B) for which
appropriate credit support has been taken to alleviate the material credit risks of the
counterparty thereto.



ARTICLE IX

Negative Covenants




     Until the Commitments have expired or terminated and the principal of and interest on each
Loan and all fees payable hereunder and all other amounts payable under the Loan Documents have
been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Parent and the Borrower, in each case with respect to itself and
each of its Subsidiaries, each covenants and agrees with the Lenders that:



     Section 9.01 Financial Covenants.



          (a) Ratio of Total Debt to EBITDAX. The Parent will not, at any time, permit its
ratio of Total Debt as of such time to EBITDAX for the four fiscal quarters ending on the last day
of the fiscal quarter immediately preceding the date of determination for which financial
statements are available to be greater than 3.0 to 1.0.



          (b) Current Ratio. The Parent will not permit, as of the last day of any fiscal
quarter, its ratio of (i) consolidated current assets (including the unused amount of the total
Commitments, but excluding non-cash assets under FAS 133) to (ii) consolidated current liabilities
(excluding non-cash obligations under FAS 133 and FAS 143) to be less than 1.0 to 1.0.



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     Section 9.02 Debt. It will not, and will not permit any of its Subsidiaries to,
incur, create, assume or suffer to exist any Debt, except:



          (a) the Notes or other Indebtedness arising under the Loan Documents or any guaranty of or
suretyship arrangement for the Notes or other Indebtedness arising under the Loan Documents.



          (b) Debt of the Parent and its Subsidiaries existing on the date hereof that is reflected in
the Financial Statements, and any Permitted Refinancing Debt in respect thereof.



          (c) accounts payable and accrued expenses, liabilities or other obligations to pay the
deferred purchase price of Property or services, from time to time incurred in the ordinary course
of business which are not greater than ninety (90) days past the date of invoice or delinquent or
which are being contested in good faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP.



          (d) Debt under Capital Leases not to exceed $2,000,000.



          (e) Debt associated with bonds or surety obligations required by Governmental Requirements in
connection with the operation of the Oil and Gas Properties.



          (f) intercompany Debt between the Parent and any Guarantor or between Guarantors to the extent
permitted by Section 9.05(g); provided that such Debt is not held, assigned, transferred,
negotiated or pledged to any Person other than the Parent or one of the Guarantors; and,
provided further, that any such Debt owed by either the Borrower or a Guarantor
shall be subordinated to the Indebtedness on terms set forth in the Guaranty Agreement.



          (g) endorsements of negotiable instruments for collection in the ordinary course of business.



          (h) Debt (i) under the Senior Notes and any guarantees thereof, the principal amount of which
does not exceed $150,000,000 in the aggregate and (ii) Debt which constitutes Permitted Refinancing
Debt of the Senior Notes and any guarantees thereof.



          (i) Debt incurred to finance premiums for insurance policies required under Section 7.12.



          (j) other Debt not to exceed $5,000,000 in the aggregate at any one time outstanding.



     Section 9.03 Liens. It will not, and will not permit any of its Subsidiaries to,
create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter
acquired), except:



          (a) Liens securing the payment of any Indebtedness.



          (b) Excepted Liens.



          (c) Liens securing Capital Leases permitted by Section 9.02(d) but only on the Property under
lease.



64









 





          (d) Liens on any insurance policy or on any prepaid premiums on any such insurance policy
securing Debt related to the payment of insurance premiums with respect to such insurance policy
which Debt is permitted under Section 9.02(i).



          (e) Liens on Property not constituting collateral for the Indebtedness and not otherwise
permitted by the foregoing clauses of this Section 9.03; provided that neither (i) the
aggregate principal or face amount of all Debt secured under this Section 9.03(e) nor (ii) the
aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject
thereto (as to the Parent and all Subsidiaries) exceeds $5,000,000 at any one time.



     Section 9.04 Dividends, Distributions and Redemptions; Repayment of Senior Notes.



          (a) Restricted Payments. The Parent will not, and will not permit any of its
Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, return any capital to its Equity Interest holders or make any distribution of its Property
to its Equity Interest holders, except: (i) the Parent may declare and pay dividends with respect
to its Equity Interests payable solely in additional shares of its Equity Interests (other than
Disqualified Capital Stock), (ii) Subsidiaries of the Borrower may declare and pay dividends
ratably with respect to their Equity Interests, (iii) the Parent may make Restricted Payments
pursuant to and in accordance with stock option plans or other benefit plans for management or
employees of the Parent and its Subsidiaries, (iv) so long as no Default, Event of Default or
Borrowing Base Deficiency exists, the Borrower may, for any period, declare and pay cash dividends
to the Parent to permit and to pay accrued dividends for such period on the Convertible Preferred
Stock in accordance with the terms of the certificate of designation as in effect on the Effective
Date and (v) so long as no Default, Event of Default or Borrowing Base Deficiency exists, the
Parent may, for any period, declare and pay cash dividends accrued and payable for such period on
the Convertible Preferred Stock in accordance with the terms of the certificate of designation as
in effect on the Effective Date.



          (b) Redemption of Senior Notes; Amendment of Senior Indenture. It will not, and will
not permit any of its Subsidiaries to, prior to the date that is ninety-one (91) days after the
Maturity Date: (i) call, make or offer to make any optional or voluntary Redemption of or
otherwise optionally or voluntarily Redeem (whether in whole or in part) the Senior Notes or any
Permitted Refinancing Debt in respect thereof; provided that the Borrower and/or the Parent
may prepay the Senior Notes with the proceeds of any Permitted Refinancing Debt or with the net
cash proceeds of any sale of Equity Interests (other than Disqualified Capital Stock) of the
Parent; or (ii) amend, modify, waive or otherwise change, consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Senior Notes, any Permitted
Refinancing Debt or the Senior Indenture if (A) the effect thereof would be to shorten its maturity
or average life or increase the amount of any payment of principal thereof or increase the rate or
shorten any period for payment of interest thereon or (B) such action requires the payment of a
consent fee (howsoever described); provided that the foregoing shall not prohibit the
execution of other indentures or agreements in connection with the issuance of Permitted
Refinancing Debt or the execution of supplemental indentures to add guarantors if required by the
terms of any Senior Indenture; and, provided further, such Person complies with Section
8.14(b).



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     Section 9.05 Investments, Loans and Advances. The Borrower will not, and will not
permit any of the Borrower’s Subsidiaries to, make or permit to remain outstanding any Investments
in or to any Person, except that the foregoing restriction shall not apply to:



          (a) Investments reflected in the Financial Statements or which are disclosed to the Lenders in
Schedule 9.05.



          (b) accounts receivable arising in the ordinary course of business.



          (c) direct obligations of the United States or any agency thereof, or obligations guaranteed
by the United States or any agency thereof, in each case maturing within one year from the date of
creation thereof.



          (d) commercial paper maturing within one year from the date of creation thereof rated in the
highest grade by S&P or Moody’s.



          (e) deposits maturing within one year from the date of creation thereof with, including
certificates of deposit issued by, any Lender or any office located in the United States of any
other bank or trust company which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as of the
date of such bank or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s,
respectively or, in the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which
the Foreign Subsidiary conducts operations having assets in excess of $500,000,000 (or its
equivalent in another currency).



          (f) deposits in money market funds investing exclusively in Investments described in Section
9.05(c), Section 9.05(d) or Section 9.05(e).



          (g) intercompany Investments (i) made by the Borrower in or to any Person that, prior to such
Investment, is a Guarantor and (ii) made by the Parent or any Subsidiary in or to (A) the Borrower
or (B) any Person that, prior to such Investment, is a Guarantor.



          (h) subject to the limits in Section 9.06, Investments (including, without limitation, capital
contributions) in general or limited partnerships or other types of entities (each a
“venture”) entered into by the Parent or a Subsidiary with others in the ordinary course of
business; provided that (i) any such venture is engaged exclusively in oil and gas
exploration, development, production, processing and related activities, including transportation,
(ii) the interest in such venture is acquired in the ordinary course of business and on fair and
reasonable terms and (iii) such venture interests acquired and capital contributions made (valued
as of the date such interest was acquired or the contribution made) do not exceed, in the aggregate
at any time outstanding an amount equal to $5,000,000.



          (i) Investments in direct ownership interests in additional Oil and Gas Properties and gas
gathering systems related thereto or related to farm-out, farm-in, joint operating, joint venture
or area of mutual interest agreements, gathering systems, pipelines or other similar arrangements
which are usual and customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America.



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          (j) loans or advances to employees, officers or directors in the ordinary course of business
of the Parent or any of its Subsidiaries, in each case only as permitted by applicable law,
including Section 402 of the Sarbanes Oxley Act of 2002, but in any event not to exceed $250,000 in
the aggregate at any time.



          (k) Investments in stock, obligations or securities received in settlement of debts arising
from Investments permitted under this Section 9.05 owing to the Borrower or any of the Borrower’s
Subsidiaries as a result of a bankruptcy or other insolvency proceeding of the obligor in respect
of such debts or upon the enforcement of any Lien in favor of the Borrower or any of the Borrower’s
Subsidiaries; provided that the Borrower shall give the Administrative Agent prompt written
notice in the event that the aggregate amount of all Investments held at any one time under this
Section 9.05(k) exceeds $2,000,000.



          (l) other Investments not to exceed $2,000,000 in the aggregate at any time.



     Section 9.06 Nature of Business; International Operations. The Borrower will not, and
will not permit any of the Borrower’s Subsidiaries to, (a) allow any material change to be made in
the character of its business as an independent oil and gas exploration and production company or
(b) acquire or make any expenditure (whether such expenditure is capital, operating or otherwise)
in or related to, any Oil and Gas Properties not located within the geographical boundaries of the
United States.



     Section 9.07 Limitation on Leases. It will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any obligation for the payment of rent or
hire of Property of any kind whatsoever (real or personal but excluding Capital Leases and leases
of Hydrocarbon Interests), under leases or lease agreements which would cause the aggregate amount
of all payments made by the Parent and any of its Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of any lease, to exceed
$2,000,000 in any period of twelve consecutive calendar months during the life of such leases.



     Section 9.08 Proceeds of Notes. The Borrower will not permit the proceeds of the
Notes to be used for any purpose other than those permitted by Section 7.21. Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or will take any action which might cause
any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or
to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereinafter be in effect. If requested by the
Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other
form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be.



     Section 9.09 ERISA Compliance. It will not, and will not permit any of its
Subsidiaries to, at any time:



          (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with
which it, any of its Subsidiaries or any ERISA Affiliate could be subjected to
either a civil penalty assessed pursuant to subsections (c), (i), (l) or (m) of section 502 of
ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code.



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          (b) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all
amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, it,
any of its Subsidiaries or any ERISA Affiliate is required to pay as contributions thereto.



          (c) contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to
contribute to or assume an obligation to contribute to (i) any employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to
provide benefits to former employees of such entities, that may not be terminated by such entities
in their sole discretion at any time without any material liability, or (ii) any employee pension
benefit plan, as defined in section 3(2) of ERISA, that is subject to Title IV of ERISA, section
302 of ERISA or section 412 of the Code.



     Section 9.10 Sale or Discount of Receivables. Except for receivables obtained by the
Borrower or any of the Borrower’s Subsidiaries out of the ordinary course of business or the
settlement of joint interest billing accounts in the ordinary course of business or discounts
granted to settle collection of accounts receivable or the sale of defaulted accounts arising in
the ordinary course of business in connection with the compromise or collection thereof and not in
connection with any financing transaction, the Borrower will not, and will not permit any of the
Borrower’s Subsidiaries to, discount or sell (with or without recourse) any of its notes receivable
or accounts receivable.



     Section 9.11 Mergers, Etc. It will not, and it will not permit any of its
Subsidiaries to, merge into or with or consolidate with any other Person, or permit any other
Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially all of its
Property to any other Person (whether now owned or hereafter acquired), or liquidate or dissolve;
except that so long as no Default has occurred and is continuing at such time or would exist after
giving effect thereto: (i) the Borrower may merge with any Wholly-owned Subsidiary so long as the
Borrower is the surviving Person, (ii) any Guarantor may merge with any other Guarantor; provided
that if a Guarantor merges with the Parent, the Parent is the surviving Person.



     Section 9.12 Sale of Properties. The Borrower will not, and will not permit any of
the Borrower’s Subsidiaries to, sell, assign, farm-out, convey or otherwise transfer any Property
except for (a) the sale of Hydrocarbons in the ordinary course of business; (b) transfers of
interests in Oil and Gas Properties in the ordinary course of the joint development of Oil and Gas
Properties with others, including without limitation transfers to other parties pursuant to joint
development agreements, participation agreements, farmout agreements, farmin agreements,
exploration agreements, operating agreements and unit agreements;(c) the sale or transfer of
equipment that is no longer necessary for the business of it or such Subsidiary or is replaced by
equipment of at least comparable value and use; (d) the sale or other disposition (including
Casualty Events) of any Oil and Gas Property or any interest therein or any of its Subsidiaries
(other than the Borrower) owning Oil and Gas Properties; provided that with respect to this
clause (d), (i) 100% of the consideration received in respect of such sale or other disposition
shall



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be cash, (ii) the consideration received in respect of such sale or other disposition shall be
equal to or greater than the fair market value of the Oil and Gas Property, interest therein or
Subsidiary subject of such sale or other disposition (as reasonably determined by its board of
directors and, if requested by the Administrative Agent, the Borrower shall deliver a certificate
of its Responsible Officer certifying to that effect), (iii) if such sale or other disposition of
Oil and Gas Property or Subsidiary owning Oil and Gas Properties under this clause (d) (together
with any transfers or dispositions under clause (b)) included in the most recently delivered
Reserve Report during any period between two successive Scheduled Redetermination Dates has a fair
market value in excess of five percent (5%) of the Borrowing Base as then in effect (as determined
by the Administrative Agent), individually or in the aggregate, the Borrowing Base shall be
reduced, effective immediately upon such sale or disposition, by an amount equal to the value, if
any, attributed to such Property in the Borrowing Base based on the most recently delivered Reserve
Report and (iv) if any such sale or other disposition is of a Subsidiary owning Oil and Gas
Properties, such sale or other disposition shall include all the Equity Interests of such
Subsidiary; and (e) sales and other dispositions of Properties not regulated by Section 9.12(a) to
(d) having a fair market value not to exceed $1,000,000 during any 12-month period; and (f) sales
of the Oklahoma Gas Gathering Assets.



     Section 9.13 Environmental Matters. It will not, and will not permit any of its
Subsidiaries to, cause or permit any of its Property to be in violation of, or do anything or
permit anything to be done which will subject any such Property to a Release or threatened Release
of Hazardous Materials, exposure to any Hazardous Materials, or to any Remedial Work under any
Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where such violations,
Release or threatened Release, exposure, or Remedial work could reasonably be expected to have a
Material Adverse Effect.



     Section 9.14 Transactions with Affiliates. It will not, and will not permit any of
its Subsidiaries to, enter into any transaction, including, without limitation, any purchase, sale,
lease or exchange of Property or the rendering of any service, with any Affiliate (other than with
any Guarantor and the Borrower) unless such transactions are otherwise permitted under this
Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a
comparable arm’s length transaction with a Person not an Affiliate.



     Section 9.15 Subsidiaries. It will not, and will not permit any of its Subsidiaries
to, create or acquire any additional Subsidiary unless it gives written notice to the
Administrative Agent of such creation or acquisition and complies with Section 8.14(b). It will
not, and will not permit any of its Subsidiaries to, sell, assign or otherwise dispose of any
Equity Interests in any Subsidiary except in compliance with Section 9.12(d). It will not, and
will not permit any of its Subsidiaries to, have any Subsidiaries that are not Wholly-owned
Subsidiaries or have any Foreign Subsidiaries.



     Section 9.16 Negative Pledge Agreements; Dividend Restrictions. It will not, and will
not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any contract,
agreement or understanding (other than this Agreement, the Security Instruments or Capital Leases
creating Liens permitted by Section 9.03(c)) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property in favor of the



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Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or
making distributions to the Borrower or any Guarantor, or which requires the consent of or notice
to other Persons in connection therewith.



     Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. It will not, and will
not permit any of its Subsidiaries to, allow gas imbalances (except those arising out of a third
party’s election not to take its share of gas), take-or-pay or other prepayments with respect to
the Oil and Gas Properties of it or any of its Subsidiaries that would require it or such
Subsidiary to deliver Hydrocarbons at some future time without then or thereafter receiving full
payment therefor to exceed one half bcf of gas (on an mcf equivalent basis) in the aggregate.



     Section 9.18 Swap Agreements. It will not, and will not permit any of its
Subsidiaries to, enter into any Swap Agreements with any Person other than (a) Swap Agreements in
respect of commodities (i) with an Approved Counterparty and (ii) the notional volumes for which
(when aggregated with other commodity Swap Agreements then in effect other than basis differential
swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date
such Swap Agreement is executed and for the period of 18 months thereafter, 100% of the reasonably
anticipated projected production from proved, developed, producing Oil and Gas Properties for each
month during such period, for each month from the nineteenth month through the thirty-sixth month
during which such Swap Agreement is in effect, 85% of the reasonably anticipated projected
production from proved, developed, producing Oil and Gas Properties and no such Swap Agreement
shall have a tenor longer than 36 months, and (b) Swap Agreements in respect of interest rates with
an Approved Counterparty, as follows: (i) Swap Agreements effectively converting interest rates
from fixed to floating, the notional amounts of which (when aggregated with all other Swap
Agreements of the Parent and its Subsidiaries then in effect effectively converting interest rates
from fixed to floating) do not exceed 50% of the then outstanding principal amount of the Parent’s
and its Subsidiaries’ Debt for borrowed money which bears interest at a fixed rate and (ii) Swap
Agreements effectively converting interest rates from floating to fixed, the notional amounts of
which (when aggregated with all other Swap Agreements of the Parent and its Subsidiaries then in
effect effectively converting interest rates from floating to fixed) do not exceed 75% of the then
outstanding principal amount of the Parent’s and its Subsidiaries’ Debt for borrowed money which
bears interest at a floating rate. In no event shall any Swap Agreement contain any requirement,
agreement or covenant for it or any of its Subsidiaries to post collateral or margin to secure
their obligations under such Swap Agreement or to cover market exposures.



     Section 9.19 Holding Company. The Parent covenants and agrees with the Administrative
Agent and the Lenders that:



          (a) The Parent shall not conduct or otherwise engage in any business or operations other than
(i) transactions contemplated by the Loan Documents or the provision of administrative, legal,
accounting and management services to or on behalf of the Borrower or any of its Subsidiaries and
Excluded Subsidiaries, (ii) the ownership of the equity interests of the Borrower and the Excluded
Subsidiaries and the exercise of rights and performance of obligations (including entering into
guarantees of any such obligations subject to Section 9.05) in connection therewith, (iii) the
entry into, and exercise of rights and performance of obligations in respect of, (1) this Agreement
and the other Loan Documents to which the Parent is a party, and



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any other agreement to which the Parent is a party on the date hereof, in each case as
amended, supplemented, waived or otherwise modified from time to time, and any refinancings,
refundings, renewals or extensions thereof, (2) contracts and agreements with officers, directors
and employees of the Parent or the Borrower relating to their employment or directorships, (3)
insurance policies and related contracts and agreements, and (4) equity subscription agreements,
registration rights agreements, voting and other stockholder agreements, engagement letters,
underwriting agreements and other agreements in respect of its debt and equity securities or any
offering, issuance or sale thereof, (iv) the offering, issuance and sale of its debt and equity
securities, (v) the filing of registration statements, and compliance with applicable reporting and
other obligations, under federal, state or other securities laws, (vi) the listing of its debt and
equity securities and compliance with applicable reporting and other obligations in connection
therewith, (vii) the retention of transfer agents, private placement agents, underwriters, counsel,
accountants and other advisors and consultants, (viii) the performance of obligations under and
compliance with the Parent’s organic documents, or any applicable law, ordinance, regulation, rule,
order, judgment, decree or permit, including, without limitation, as a result of or in connection
with the activities of the Borrower and its Subsidiaries, (ix) the incurrence and payment of its
operating and business expenses and any taxes for which it may be liable, and (x) other activities
incidental or related to the foregoing.



          (b) The Parent shall not own, lease, manage or otherwise operate any properties or assets
(other than in connection with the activities described in Section 9.19(a)), or incur, create,
assume or suffer to exist any Indebtedness of the Parent (other than such as may be incurred,
created or assumed or exist in connection with the activities described in Section 9.19(a)).



ARTICLE X

Events of Default; Remedies




     Section 10.01 Events of Default. One or more of the following events shall constitute
an “Event of Default”:



          (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation
in respect of any LC Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise.



          (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as
the same shall become due and payable, and such failure shall continue unremedied for a period of
three (3) Business Days.



          (c) any representation or warranty made or deemed made by or on behalf of the Parent, the
Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or
modification of any Loan Document or waiver under such Loan Document, or in any report,
certificate, financial statement or other document furnished pursuant to or in connection with any
Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have
been materially incorrect when made or deemed made.



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          (d) the Parent, the Borrower or any Subsidiary shall fail to observe or perform any covenant,
condition or agreement contained in Section 8.01(h), Section 8.01(m), Section 8.02, Section 8.03,
Section 8.14, Section 8.15 or in Article IX.



          (e) the Parent, the Borrower or any Subsidiary shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those specified in Section 10.01(a),
Section 10.01(b), Section 10.01(c) or Section 10.01(d)) or any other Loan Document, and such
failure shall continue unremedied for a period of 30 days after the earlier to occur of (A) notice
thereof from the Administrative Agent to the Borrower (which notice will be given at the request of
any Lender) or (B) a Responsible Officer of the Parent, the Borrower or such Subsidiary otherwise
becoming aware of such default.



          (f) the Parent, the Borrower or any Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material Indebtedness, when and
as the same shall become due and payable.



          (g) any event or condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled
maturity or require the Parent, the Borrower or any Subsidiary to make an offer in respect thereof.



          (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Parent, the Borrower or
any Subsidiary or its or their debts, or of a substantial part of its assets, under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or
(ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar
official for the Parent, the Borrower or any Subsidiary or for a substantial part of its or their
assets, and, in any such case, such proceeding or petition shall continue undismissed for thirty
(30) days or an order or decree approving or ordering any of the foregoing shall be entered.



          (i) the Parent, the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under any Federal, state
or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Parent,
the Borrower or any Subsidiary or for a substantial part of its or their assets, (iv) file an
answer admitting the material allegations of a petition filed against it or them in any such
proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for
the purpose of effecting any of the foregoing.



          (j) the Parent, the Borrower or any Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due.



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          (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of
$5,000,000 (to the extent not covered by independent third party insurance provided by insurers of
the highest claims paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one or more non-monetary
judgments that have, or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, shall be rendered against the Parent, the Borrower, any Subsidiary or any
combination thereof and the same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Parent, the Borrower or any Subsidiary
to enforce any such judgment.



          (l) the Loan Documents after delivery thereof shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms against the Borrower or a Guarantor party thereto or
shall be repudiated by any of them, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Parent, the Borrower or any Subsidiary or any of
their Affiliates shall so state in writing.



          (m) a Change in Control shall occur.



     Section 10.02 Remedies.



          (a) In the case of an Event of Default other than one described in Section 10.01(g), Section
10.01(h) or Section 10.01(i), at any time thereafter during the continuance of such Event of
Default, the Administrative Agent may, and at the request of the Required Lenders, shall, by notice
to the Borrower, take either or both of the following actions, at the same or different times: (i)
terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be due and payable),
and thereupon the principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower and the Guarantors accrued
hereunder and under the Notes and the other Loan Documents (including, without limitation, the
payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become
due and payable immediately, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower
and each Guarantor; and in case of an Event of Default described in Section 10.01(h), Section
10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and the Notes and the
principal of the Loans then outstanding, together with accrued interest thereon and all fees and
the other obligations of the Borrower and the Guarantors accrued hereunder and under the Notes and
the other Loan Documents (including, without limitation, the payment of cash collateral to secure
the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower and each Guarantor.



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          (b) In the case of the occurrence of an Event of Default, the Administrative Agent and the
Lenders will have all other rights and remedies available at law and equity.



          (c) All proceeds realized from the liquidation or other disposition of collateral or otherwise
received after maturity of the Notes, whether by acceleration or otherwise, shall be applied:



               (i) first, to payment or reimbursement of that portion of the Indebtedness constituting fees,
expenses and indemnities payable to the Administrative Agent in its capacity as such;



               (ii) second, pro rata to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Lenders;



               (iii) third, pro rata to payment of accrued interest on the Loans;



               (iv) fourth, pro rata to payment of principal outstanding on the Loans and Indebtedness
referred to in Clause (b) of the definition of Indebtedness owing to a Lender or an Affiliate of a
Lender and to serve as cash collateral to be held by the Administrative Agent to secure the LC
Exposure;



               (v) fifth, pro rata to any other Indebtedness; and



               (vi) sixth, any excess, after all of the Indebtedness shall have been indefeasibly paid in
full in cash, shall be paid to the Borrower or as otherwise required by any Governmental
Requirement.



ARTICLE XI

The Agents




     Section 11.01 Appointment; Powers. Each of the Lenders and the Issuing Bank hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent
to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof and the other Loan Documents, together with such actions
and powers as are reasonably incidental thereto.



     Section 11.02 Duties and Obligations of Administrative Agent. The Administrative
Agent shall not have any duties or obligations except those expressly set forth in the Loan
Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall
not be subject to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing (the use of the term “agent” herein and in the other Loan Documents with
reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law; rather, such term is used
merely as a matter of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative Agent shall have no
duty to take any discretionary action or exercise any discretionary powers, except as provided in
Section 11.03, and (c) except as expressly set forth herein, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to



74









 







disclose, any information relating to the Parent, the Borrower or any of their Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until written notice thereof is given to the Administrative Agent by the Parent,
the Borrower or a Lender, and shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made in or in connection with this Agreement or
any other Loan Document, (ii) the contents of any certificate, report or other document delivered
hereunder or under any other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set
forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the Administrative Agent or
as to those conditions precedent expressly required to be to the Administrative Agent’s
satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the
financial or other condition of the Parent, the Borrower and each of their Subsidiaries or any
other obligor or guarantor, or (vii) any failure by the Parent or the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any other Loan Document or
the performance or observance of any covenants, agreements or other terms or conditions set forth
herein or therein. For purposes of determining compliance with the conditions specified in Article
VI, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to a Lender unless the Administrative Agent shall have received written notice from
such Lender prior to the proposed closing date specifying its objection thereto.



     Section 11.03 Action by Administrative Agent. The Administrative Agent shall have no
duty to take any discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby or by the other Loan Documents that the
Administrative Agent is required to exercise in writing as directed by the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be fully justified in
failing or refusing to act hereunder or under any other Loan Documents unless it shall (a) receive
written instructions from the Required Lenders or the Lenders, as applicable, (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as provided in Section
12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders
against any and all liability and expenses which may be incurred by it by reason of taking or
continuing to take any such action. The instructions as aforesaid and any action taken or failure
to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, then the Administrative Agent shall take such action with
respect to such Default as shall be directed by the requisite Lenders in the written instructions
(with indemnities) described in this Section 11.03; provided that, unless and until the
Administrative Agent shall have received such directions, the 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 in the best interests of the Lenders. In no event, however,
shall the Administrative Agent be required to take any action which exposes the Administrative
Agent to personal liability or which is contrary to this Agreement, the Loan Documents or



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applicable law. If a Default has occurred and is continuing, neither the Syndication Agent
nor the Documentation Agent shall have any obligation to perform any act in respect thereof. The
Administrative Agent shall not be liable for any action taken or not taken by it with the consent
or at the request of the Required Lenders or the Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 12.02), and otherwise
the Administrative Agent shall not be liable for any action taken or not taken by it hereunder or
under any other Loan Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE,
except for its own gross negligence or willful misconduct.



     Section 11.04 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon and each of the Parent, the Borrower, the
Lenders and the Issuing Bank hereby waives the right to dispute the Administrative Agent’s record
of such statement, except in the case of gross negligence or willful misconduct by the
Administrative Agent. The Administrative Agent may consult with legal counsel (who may be counsel
for the Parent and/or the Borrower), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with the advice of any
such counsel, accountants or experts. The Administrative Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with the Administrative
Agent.



     Section 11.05 Subagents. The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its
duties and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding Sections of this Article XI shall apply to any such
sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Administrative Agent.



     Section 11.06 Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided in this Section 11.06,
the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the
Borrower, and the Administrative Agent may be removed at any time with or without cause by the
Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right,
in consultation with the Borrower, to appoint a successor. If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation or removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Agent which shall be
a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance
of its appointment as Agent hereunder by a



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successor, such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. The fees payable by the Borrower to a successor Agent shall be
the same as those payable to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this Article XI and Section
12.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Agent.



     Section 11.07 Agents as Lenders. Each bank serving as an Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and may exercise the
same as though it were not an Agent, and such bank and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with the Parent, the Borrower or any
Subsidiary or other Affiliate thereof as if it were not an Agent hereunder.



     Section 11.08 No Reliance. Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent, any other Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and each other Loan Document to which it is a party. Each
Lender also acknowledges that it will, independently and without reliance upon the Administrative
Agent, any other Agent or any other Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document, any related agreement or any
document furnished hereunder or thereunder. The Agents shall not be required to keep themselves
informed as to the performance or observance by the Parent, the Borrower or any of their
Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided
for herein or to inspect the Properties or books of the Parent, the Borrower or any of their
Subsidiaries. Except for notices, reports and other documents and information expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, no Agent or any Arranger
shall have any duty or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Parent or the Borrower (or any of
their Affiliates) which may come into the possession of such Agent or any of its Affiliates. In
this regard, each Lender acknowledges that Vinson & Elkins LLP is acting in this transaction as
special counsel to the Administrative Agent only, except to the extent otherwise expressly stated
in any legal opinion or any Loan Document. Each other party hereto will consult with its own legal
counsel to the extent that it deems necessary in connection with the Loan Documents and the matters
contemplated therein.



     Section 11.09 Administrative Agent May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Parent, the Borrower or any of their
Subsidiaries, the Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on the Parent or the Borrower) shall be
entitled and empowered, by intervention in such proceeding or otherwise:




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          (a) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file
such other documents as may be necessary or advisable in order to have the claims of the Lenders
and the Administrative Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their respective agents
and counsel and all other amounts due the Lenders and the Administrative Agent under Section 12.03)
allowed in such judicial proceeding; and




          (b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;



and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its
agents and counsel, and any other amounts due the Administrative Agent under Section 12.03.



Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize
the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.




     Section 11.10 Authority of Administrative Agent to Release Collateral and Liens. Each
Lender and the Issuing Bank hereby authorizes the Administrative Agent to release any collateral
that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender
and the Issuing Bank hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination
statements, assignments or other documents reasonably requested by the Borrower in connection with
any sale or other disposition of Property to the extent such sale or other disposition is permitted
by the terms of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.



     Section 11.11 The Arrangers, the Syndication Agent and the Documentation Agent. None
of the Arrangers, the Syndication Agent or the Documentation Agent shall have any duties,
responsibilities or liabilities under this Agreement and the other Loan Documents other than their
duties, responsibilities and liabilities in their capacity as Lenders hereunder.



ARTICLE XII

Miscellaneous




     Section 12.01 Notices.



          (a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and subject to Section 12.01(b)), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by telecopy, as follows:



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               (i) if to the Parent, to PetroQuest Energy, Inc., 400 E. Kaliste Saloom Road, Suite 6000,
Lafayette, Louisiana, 70508, Attention of W. Todd Zehnder, Executive Vice President, Chief
Financial Officer and Treasurer (Telecopy No. (337) 232-0044);



               (ii) if to the Borrower, to PetroQuest Energy, L.L.C., 400 E. Kaliste Saloom Road, Suite 6000,
Lafayette, Louisiana, 70508, Attention of W. Todd Zehnder, Executive Vice President, Chief
Financial Officer & Treasurer (Telecopy No. (337) 232-0044);



               (iii) if to the Administrative Agent or to JPMorgan Chase Bank, N.A., as the Issuing Bank, to
JPMorgan Chase Bank, N.A., Mid-Corp Loan Administration, 10 South Dearborn, Floor 07, Chicago, IL
60603-2003, Attention of Teresita R. Siao (Facsimile No. 312-385-7096), with a copy to JPMorgan
Chase Bank, N.A., 712 Main Street, Floor 8 South, Houston, TX 77002, Attention of Jo Linda
Papadakis (Facsimile No. 713-216-7770); and



               (iv) if to any other Lender, to it at its address (or telecopy number) set forth in its
Administrative Questionnaire.



          (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Administrative Agent;
provided that the foregoing shall not apply to notices pursuant to Article II, Article III,
Article IV and Article V unless otherwise agreed by the Administrative Agent and the applicable
Lender. The Administrative Agent, the Parent or the Borrower may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be limited to
particular notices or communications.




          (c) Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.




     Section 12.02 Waivers; Amendments.



          (a) No failure on the part of the Administrative Agent, any other Agent, the Issuing Bank or
any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any
right, power or privilege, or any abandonment or discontinuance of steps to enforce such right,
power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Administrative Agent, any other Agent, the Issuing Bank
and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive
of any rights or remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Parent or the Borrower
therefrom shall in any event be effective unless the same shall be permitted by Section 12.02(b),
and then such waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a
waiver of any Default, regardless of whether the Administrative Agent, any other Agent, any
Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.




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          (b) Neither this Agreement nor any provision hereof nor any Security Instrument nor any
provision thereof may be waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Parent, the Borrower and the Required Lenders or by the Parent, the
Borrower and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment or the Maximum Credit Amount of any Lender
without the written consent of such Lender, (ii) increase the Borrowing Base without the written
consent of each Lender (other than Defaulting Lenders), decrease or maintain the Borrowing Base
without the consent of the Required Lenders, or modify Section 2.07 in any manner without the
consent of each Lender (other than Defaulting Lenders), (iii) reduce the principal amount of any
Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable
hereunder, or reduce any other Indebtedness hereunder or under any other Loan Document, without the
written consent of each Lender affected thereby, (iv) postpone the scheduled date of payment or
prepayment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any
fees payable hereunder, or any other Indebtedness hereunder or under any other Loan Document, or
reduce the amount of, waive or excuse any such payment, or postpone or extend the Termination Date
without the written consent of each Lender affected thereby, (v) change Section 4.01(b) or Section
4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (vi) waive or amend Section 3.04(b), Section 6.01, Section 8.14,
Section 10.02(c) or Section 12.14 or change the definition of the terms “Domestic Subsidiary”,
“Foreign Subsidiary” or “Subsidiary”, without the written consent of each Lender (other than
Defaulting Lenders), (vii) release any Guarantor (except as set forth in the Guaranty Agreement),
release any of the collateral (other than as provided in Section 11.10), or reduce the percentage
set forth in Section 8.14(a) to less than 85%, without the written consent of each Lender (other
than Defaulting Lenders), or (viii) change any of the provisions of this Section 12.02(b) or the
definitions of “Required Lenders” or any other provision hereof specifying the number or percentage
of Lenders required to waive, amend or modify any rights hereunder or under any other Loan
Documents or make any determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender (other than Defaulting Lenders); provided
further that no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent, any other Agent, or the Issuing Bank hereunder or under any other Loan
Document without the prior written consent of the Administrative Agent, such other Agent or the
Issuing Bank, as the case may be. Notwithstanding the foregoing, any supplement to Schedule 7.14
(Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental
schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a
copy thereof to the Lenders.




     Section 12.03 Expenses, Indemnity; Damage Waiver.



          (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including, without limitation, the reasonable fees,
charges and disbursements of counsel and other outside consultants for the Administrative Agent,
the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses, and the
cost of environmental invasive and non-invasive assessments and audits and surveys and



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appraisals, in connection with the syndication of the credit facilities provided for herein,
the preparation, negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as to the rights and
duties of the Administrative Agent and the Lenders with respect thereto) of this Agreement and the
other Loan Documents and any amendments, modifications or waivers of or consents related to the
provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by any
Agent or any Lender in connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in
connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand
for payment thereunder, (iv) all out-of-pocket expenses incurred by any Agent, the Issuing Bank or
any Lender, including the fees, charges and disbursements of any counsel for any Agent, the Issuing
Bank or any Lender, in connection with the enforcement or protection of its rights in connection
with this Agreement or any other Loan Document, including its rights under this Section 12.03, or
in connection with the Loans made or Letters of Credit issued hereunder, including, without
limitation, all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.




          (b) THE PARENT AND THE BORROWER SHALL INDEMNIFY EACH AGENT, EACH ARRANGER, THE ISSUING BANK
AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING
CALLED AN “INDEMNITEE”) AGAINST, AND DEFEND AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, PENALTIES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE REASONABLE
FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST
ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY
OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR
RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE PARENT, THE BORROWER OR ANY
SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY
GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY
OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR LETTER
OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY
THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED
IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR
(B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE,
NON-DELIVERY OR OTHER



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IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (v) ANY OTHER ASPECT
OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE PARENT, THE BORROWER AND EACH OF
THEIR SUBSIDIARIES BY THE PARENT, THE BORROWER AND EACH OF THEIR SUBSIDIARIES, (vii) ANY ASSERTION
THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY
INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE PARENT, THE BORROWER OR ANY SUBSIDIARY
OR ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF HAZARDOUS
MATERIALS ON OR AT ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE PARENT, THE
BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE PARENT, THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE PARENT, THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR
PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE
AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR
ARRANGEMENT FOR DISPOSAL OF HAZARDOUS MATERIALS ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY
THE PARENT, THE BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF
HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE PARENT, THE BORROWER OR ANY OF
ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE PARENT, THE BORROWER
OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,
INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND)
OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT
ON ANY ONE OR MORE OF THE INDEMNITEES, INCLUDING ITS ORDINARY NEGLIGENCE; PROVIDED THAT
SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES,
CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE.




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          (c) To the extent that the Parent or the Borrower fails to pay any amount required to be paid
by it to any Agent, any Arranger or the Issuing Bank under Section 12.03(a)
or (b), each Lender severally agrees to pay to such Agent, such Arranger or the Issuing Bank,
as the case may be, such Lender’s Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against such Agent, such Arranger
or the Issuing Bank in its capacity as such.




          (d) To the extent permitted by applicable law, the Parent or the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out
of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement
or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the
use of the proceeds thereof.




          (e) All amounts due under this Section 12.03 shall be payable not later than five days after
written demand therefor.




     Section 12.04 Successors and Assigns.



          (a) 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 (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that (i) neither the Parent
nor the Borrower may assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of each Lender (and any attempted assignment or transfer by the
Parent or the Borrower without such consent shall be null and void) and (ii) no Lender may assign
or otherwise transfer its rights or obligations hereunder except in accordance with this Section
12.04. 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
(including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants (to
the extent provided in Section 12.04(c)) and, to the extent expressly contemplated hereby, the
Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.




          (b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender may assign to
one or more assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing to it) with the prior
written consent (such consent not to be unreasonably withheld) of:




                    (A) the Borrower; provided that no consent of the Borrower shall be required if such
assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default
has occurred and is continuing, is to any other assignee; and



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                    (B) the Administrative Agent; provided that no consent of the Administrative Agent
shall be required for an assignment to an assignee that is a Lender immediately prior to giving
effect to such assignment.



               (ii) Assignments shall be subject to the following additional conditions:



                    (A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount
of the Commitment or 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 the
Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent; provided that no such consent of the Borrower shall
be required if an Event of Default has occurred and is continuing;



                    (B) 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;



                    (C) the parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of $3,500; and



                    (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire.



               (iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after
the effective date specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto 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 of Section 5.01, Section 5.02,
Section 5.03 and Section 12.03). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this Section 12.04 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 Section 12.04(c).



               (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall
maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the Maximum Credit
Amount of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to
the terms hereof from time to time (the “Register”). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register
shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any
reasonable time and from time to time upon reasonable prior notice. In connection with any changes
to the Register, if necessary, the
Administrative Agent will reflect the revisions on Annex I and forward a copy of such revised
Annex I to the Borrower, the Issuing Bank and each Lender.



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               (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning
Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee
shall already be a Lender hereunder), the processing and recordation fee referred to in Section
12.04(a)(ii)(C) and any written consent to such assignment required by Section 12.04(a)(i), the
Administrative Agent shall accept such Assignment and Assumption and record the information
contained therein in the Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this Section 12.04(b).



          (c) (i) Any Lender may, without the consent of the Borrower, the Administrative Agent or the
Issuing Bank, sell participations to one or more banks or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this Agreement (including all or
a portion of its Commitment and the Loans owing to it); provided that (A) such Lender’s
obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations and (C) the
Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights and obligations under
this Agreement. 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 proviso to Section
12.02 that affects such Participant. In addition such agreement must provide that the Participant
be bound by the provisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees
that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and Section
5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant
to Section 12.04(a). To the extent permitted by law, each Participant also shall be entitled to
the benefits of Section 12.08 as though it were a Lender; provided such Participant agrees
to be subject to Section 4.01(c) as though it were a Lender.




               (ii) A Participant shall not be entitled to receive any greater payment under Section 5.01 or
Section 5.03 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant is
made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it
were a Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 5.03(d) as though it were a Lender.



          (d) 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, without
limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank, and this
Section 12.04(d) shall not apply to any such pledge or assignment of a security interest;
provided that no such pledge or assignment of a security interest shall release a
Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.




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     Section 12.05 Survival; Revival; Reinstatement.



          (a) All covenants, agreements, representations and warranties made by the Parent and the
Borrower herein and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon
by the other parties hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the Administrative Agent, any other
Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The provisions of
Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and Article XI shall survive and remain
in full force and effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement, any other Loan Document or any provision hereof
or thereof.




          (b) To the extent that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be
repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law,
common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived
and continue as if such payment or proceeds had not been received and the Administrative Agent’s
and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect. In such event, each Loan Document
shall be automatically reinstated and the Parent and the Borrower shall, and shall cause each of
its Subsidiaries to, take such action as may be reasonably requested by the Administrative Agent
and the Lenders to effect such reinstatement.




     Section 12.06 Counterparts; Integration; Effectiveness.



          (a) This Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract.




          (b) This Agreement, the other Loan Documents and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and thereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof and thereof. THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO 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.




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          (c) Except as provided in Section 6.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart of a signature
page of this Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.




     Section 12.07 Severability. Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining provisions hereof or
thereof; and the invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.



     Section 12.08 Right of Setoff. If an Event of Default shall have occurred and be
continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other obligations (of
whatsoever kind, including, without limitations obligations under Swap Agreements) at any time
owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any
Subsidiary against any of and all the obligations of the Borrower or any Subsidiary owed to such
Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of
whether or not such Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each Lender under this
Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which
such Lender or its Affiliates may have.



     Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.



          (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER
TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE
STATE WHERE SUCH LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT
OR THE NOTES.




          (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH



87









 






PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO
JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER
ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.




          (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS
SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.




          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF 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, AND (iv) ACKNOWLEDGES THAT IT HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 12.09.




     Section 12.10 Headings. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and shall not affect
the construction of, or be taken into consideration in interpreting, this Agreement.



     Section 12.11 Confidentiality. Each of the Administrative Agent, the Issuing Bank and
the Lenders agrees to maintain the confidentiality of the Information (as defined below), except
that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and



88









 







agents, including accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the extent requested by
any regulatory authority, (c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan
Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan
Document or any suit, 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 12.11, 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
Agreement relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h)
to the extent such Information (i) becomes publicly available other than as a result of a breach of
this Section 12.11 or (ii) becomes available to the Administrative Agent, the Issuing Bank or any
Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this
Section 12.11, “Information” means all information received from the Parent, the Borrower
or any Subsidiary relating to the Parent, the Borrower or any Subsidiary and their businesses,
other than any such information that is available to the Administrative Agent, the Issuing Bank or
any Lender on a nonconfidential basis prior to disclosure by the Parent, the Borrower or a
Subsidiary; provided that, in the case of information received from the Parent, the
Borrower or any Subsidiary 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 12.11 shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own confidential
information. Notwithstanding anything herein to the contrary, “Information” shall not include, and
the Parent, the Parent’s Subsidiaries, the Borrower, the Borrower’s Subsidiaries, the
Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the
respective partners, directors, officers, employees, agents, advisors and other representatives of
the aforementioned Persons), and any other party, may disclose to any and all Persons, without
limitation of any kind (a) any information with respect to the U.S. federal and state income tax
treatment of the transactions contemplated hereby and any facts that may be relevant to
understanding the U.S. federal or state income tax treatment of such transactions (“tax
structure”), which facts shall not include for this purpose the names of the parties or any
other person named herein, or information that would permit identification of the parties or such
other persons, or any pricing terms or other nonpublic business or financial information that is
unrelated to such tax treatment or tax structure, and (b) all materials of any kind (including
opinions or other tax analyses) that are provided to the Parent, the Borrower, the Administrative
Agent or such Lender relating to such tax treatment or tax structure.



     Section 12.12 Interest Rate Limitation. It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby would be usurious as to any Lender under laws applicable to it
(including the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as security for the
Notes, it is



89









 







agreed as follows: (i) the aggregate of all consideration which constitutes interest under
law applicable to any Lender that is contracted for, taken, reserved, charged or received by such
Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on
the principal amount of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an
election of the holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been
or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or
agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and
spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that
the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such
Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation
period the amount of interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then
the amount of interest payable to such Lender in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the
total amount of interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been computed without
giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is
relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender
elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time
to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Parent’s or the
Borrower’s obligations hereunder.



     Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES
THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT
IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE
TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS; AND



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THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND
RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”



     Section 12.14 Collateral Matters; Swap Agreements. The benefit of the Security
Instruments and of the provisions of this Agreement relating to any collateral securing the
Indebtedness shall also extend to and be available to those Lenders or their Affiliates which are
counterparties to any Swap Agreement with the Borrower or any of its Subsidiaries on a pro rata
basis in respect of any obligations of the Borrower or any of its Subsidiaries which arise under
any such Swap Agreement while such Person or its Affiliate is a Lender, but only while such Person
or its Affiliate is a Lender, including any Swap Agreements between such Persons in existence prior
to the date hereof. No Lender or any Affiliate of a Lender shall have any voting rights under any
Loan Document as a result of the existence of obligations owed to it under any such Swap
Agreements.



     Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan Documents,
and the agreement of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or
extend Letters of Credit hereunder are solely for the benefit of the Borrower, and no other Person
(including, without limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges
hereunder or under any other Loan Document against the Administrative Agent, any other Agent, the
Issuing Bank or any Lender for any reason whatsoever. There are no third party beneficiaries.



     Section 12.16 Acknowledgements. Each of the Parent and the Borrower hereby
acknowledges that:



          (a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents;




          (b) neither the Administrative Agent nor any Lender has a fiduciary relationship with or duty
to the Parent or the Borrower or any of their Subsidiaries arising out of or in connection with
this Agreement or any other Loan Document, and the relationship between the Administrative Agent
and the Lenders, on the one hand, and the Parent and the Borrower, on the other hand, in connection
herewith and therewith is solely that of debtor and creditor;




          (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by
virtue of the transactions contemplated hereby among the Lenders or among the Parent, the Borrower
and the Lenders.




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     Section 12.17 USA Patriot Act Notice. Each Lender hereby notifies the Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law
October 26, 2001)) (the “Act”), it is required to obtain, verify and record information
that identifies the Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in accordance with the Act.



[SIGNATURES BEGIN NEXT PAGE]




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     The parties hereto have caused this Agreement to be duly executed as of the day and year first
above written.



	 	 	 	 	 
	BORROWER: 	PETROQUEST ENERGY, L.L.C.

 	 
	 	By:  	                                        /s/ W. Todd Zehnder
 	 
	 	 	Name:  	W. Todd Zehnder 	 
	 	 	Title:  	Executive Vice President,

Chief Financial Officer and Treasurer 	 
	 
	PARENT: 	PETROQUEST ENERGY, INC.

 	 
	 	By:  	                                        /s/ W. Todd Zehnder
 	 
	 	 	Name:  	W. Todd Zehnder 	 
	 	 	Title:  	Executive Vice President,

Chief Financial Officer and Treasurer 	 
	 



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	ADMINISTRATIVE AGENT: 

AND LENDER	 	 	 	JPMORGAN CHASE BANK, N.A.

individually and as Administrative Agent and
 Issuing Bank
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	/s/ Jo Linda Papadakis
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:

Title:
	 	Jo Linda Papadakis

Vice President






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	SYNDICATION AGENT: 

AND LENDER	 	 	 	CALYON NEW YORK BRANCH
	 	 	 	 	By:	 	/s/ Page Dillehunt
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:

Title:
	 	Page Dillehunt

Managing Director






	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	/s/ Michael D. Willis
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Michael D. Willis
	 

	 	 	 	 	 	Title:
	 	 Director






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	DOCUMENTATION AGENT: 

AND LENDER	 	 	 	BANK OF AMERICA, N.A.
	 	 	 	 	By:	 	/s/ Jeffrey H. Rathkamp
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Jeffrey H. Rathkamp
	 

	 	 	 	 	 	Title:
	 	 Managing Director






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	LENDER: 	WELLS FARGO BANK, N.A.

 	 
	 	By:  	/s/ Scott Hodges
 	 
	 	 	Name:  	Scott Hodges 	 
	 	 	Title:  	Vice President 	 
	 



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	LENDER: 	WHITNEY NATIONAL BANK

 	 
	 	By:  	/s/ William Jochetz
 	 
	 	 	Name:  	William Jochetz 	 
	 	 	Title:  	Lending Officer 	 
	 



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