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Exhibit 10.2    
    


 
 

EXECUTION COPY    
    


 
 

SECOND LIEN TERM LOAN AGREEMENT    
    


DATED AS OF

NOVEMBER 23, 2004  


 AMONG  


 PETROHAWK ENERGY CORPORATION,

AS BORROWER,  


 BNP PARIBAS,

AS ADMINISTRATIVE AGENT,  


 AND  


 THE LENDERS PARTY HERETO  


 LEAD ARRANGER AND SOLE BOOKRUNNER  


 BNP PARIBAS  







 
  
 

    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	 	Terms Generally; Rules of Construction	 	17
	Section 1.04	 	Accounting Terms and Determinations; GAAP	 	18
	

ARTICLE II

THE LOANS	
 	

 
	

Section 2.01	
 	

Term Loans	
 	

18
	Section 2.02	 	Loans	 	18
	Section 2.03	 	Requests for the Loans	 	19
	Section 2.04	 	Interest Elections	 	19
	Section 2.05	 	Funding the Loans	 	20
	Section 2.06	 	Termination	 	21
	Section 2.07	 	Total PV	 	21
	Section 2.08	 	Subordination of Loans	 	22
	

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES	
 	

 
	

Section 3.01	
 	

Repayment of the Loans	
 	

22
	Section 3.02	 	Interest	 	22
	Section 3.03	 	Alternate Rate of Interest	 	23
	Section 3.04	 	Prepayments	 	23
	Section 3.05	 	Fees	 	24
	

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS	
 	

 
	

Section 4.01	
 	

Payments Generally; Pro Rata Treatment; Sharing of Set-offs	
 	

24
	Section 4.02	 	Presumption of Payment by the Borrower	 	25
	Section 4.03	 	Certain Deductions by the Administrative Agent	 	25
	Section 4.04	 	Disposition of Proceeds	 	25
	

ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY	
 	

 
	

Section 5.01	
 	

Increased Costs	
 	

26
	Section 5.02	 	Break Funding Payments	 	27
	Section 5.03	 	Taxes	 	27
	Section 5.04	 	Mitigation Obligations; Replacement of Lenders	 	28
	Section 5.05	 	Illegality	 	28
	

ARTICLE VI

CONDITIONS PRECEDENT	
 	

 
	

Section 6.01	
 	

Effective Date	
 	

29
	Section 6.02	 	Each Credit Event	 	32
	 	 	 	 	 





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ARTICLE VII

REPRESENTATIONS AND WARRANTIES	
 	

 
	

Section 7.01	
 	

Organization; Powers	
 	

32
	Section 7.02	 	Authority; Enforceability	 	32
	Section 7.03	 	Approvals; No Conflicts	 	39
	Section 7.04	 	Financial Condition; No Material Adverse Change	 	33
	Section 7.05	 	Litigation	 	34
	Section 7.06	 	Environmental Matters	 	34
	Section 7.07	 	Compliance with the Laws and Agreements; No Defaults	 	35
	Section 7.08	 	Investment Company Act	 	35
	Section 7.09	 	Public Utility Holding Company Act	 	35
	Section 7.10	 	Taxes	 	35
	Section 7.11	 	ERISA	 	35
	Section 7.12	 	Disclosure; No Material Misstatements	 	36
	Section 7.13	 	Insurance	 	37
	Section 7.14	 	Restriction on Liens	 	37
	Section 7.15	 	Subsidiaries	 	37
	Section 7.16	 	Location of Business and Offices	 	37
	Section 7.17	 	Properties; Titles, Etc	 	37
	Section 7.18	 	Maintenance of Properties	 	38
	Section 7.19	 	Gas Imbalances, Prepayments	 	39
	Section 7.20	 	Marketing of Production	 	39
	Section 7.21	 	Swap Agreements	 	39
	Section 7.22	 	Use of Proceeds	 	39
	Section 7.23	 	Solvency	 	39
	Section 7.24	 	Senior Indebtedness	 	39
	Section 7.25	 	Mergers	 	40
	

ARTICLE VIII

AFFIRMATIVE COVENANTS	
 	

 
	

Section 8.01	
 	

Financial Statements; Ratings Change; Other Information	
 	

40
	Section 8.02	 	Notices of Material Events	 	43
	Section 8.03	 	Existence; Conduct of Business	 	43
	Section 8.04	 	Payment of Obligations	 	44
	Section 8.05	 	Performance of Obligations under Loan Documents	 	44
	Section 8.06	 	Operation and Maintenance of Properties	 	44
	Section 8.07	 	Insurance	 	45
	Section 8.08	 	Books and Records; Inspection Rights	 	45
	Section 8.09	 	Compliance with Laws	 	45
	Section 8.10	 	Environmental Matters	 	45
	Section 8.11	 	Further Assurances	 	46
	Section 8.12	 	Reserve Reports	 	46
	Section 8.13	 	Title Information	 	47
	Section 8.14	 	Additional Collateral; Additional Guarantors	 	48
	Section 8.15	 	ERISA Compliance	 	48
	Section 8.16	 	Swap Agreements	 	49
	Section 8.17	 	Unrestricted Subsidiaries	 	49
	Section 8.18	 	Marketing Activities	 	49
	 	 	 	 	 



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ARTICLE IX

NEGATIVE COVENANTS	
 	

 
	

Section 9.01	
 	

Financial Covenants	
 	

50
	Section 9.02	 	Debt	 	50
	Section 9.03	 	Liens	 	51
	Section 9.04	 	Dividends, Distributions and Redemptions, Repayment of Senior Subordinated Convertible Note	 	51
	Section 9.05	 	Investments, Loans and Advances	 	52
	Section 9.06	 	Designation and Conversion of Restricted and Unrestricted Subsidiaries; Debt of Unrestricted Subsidiaries	 	53
	Section 9.07	 	Nature of Business; International Operations	 	54
	Section 9.08	 	Limitation on Leases	 	54
	Section 9.09	 	Proceeds of Notes	 	54
	Section 9.10	 	ERISA Compliance	 	54
	Section 9.11	 	Sale or Discount of Receivables	 	55
	Section 9.12	 	Mergers, Etc	 	55
	Section 9.13	 	Sale of Properties	 	55
	Section 9.14	 	Environmental Matters	 	56
	Section 9.15	 	Transactions with Affiliates	 	56
	Section 9.16	 	Subsidiaries	 	57
	Section 9.17	 	Negative Pledge Agreements; Dividend Restrictions	 	57
	Section 9.18	 	Gas Imbalances, Take-or-Pay or Other Prepayments	 	57
	Section 9.19	 	Swap Agreements	 	57
	Section 9.20	 	Merger Documents	 	57
	Section 9.21	 	Anti-Layering	 	57
	

ARTICLE X

EVENTS OF DEFAULT; REMEDIES	
 	

 
	

Section 10.01	
 	

Events of Default	
 	

58
	Section 10.02	 	Remedies	 	59
	

ARTICLE XI

THE ADMINISTRATIVE AGENT	
 	

 
	

Section 11.01	
 	

Appointment; Powers	
 	

60
	Section 11.02	 	Duties and Obligations of Administrative Agent	 	60
	Section 11.03	 	Action by Administrative Agent	 	61
	Section 11.04	 	Reliance by Administrative Agent	 	61
	Section 11.05	 	Subagents	 	61
	Section 11.06	 	Resignation or Removal of Administrative Agent	 	62
	Section 11.07	 	Administrative Agent as a Lender	 	62
	Section 11.08	 	No Reliance	 	62
	Section 11.09	 	Authority of Administrative Agent to Release Collateral and Liens	 	63
	Section 11.10	 	The Arranger	 	63
	

ARTICLE XII

MISCELLANEOUS	
 	

 
	

Section 12.01	
 	

Notices	
 	

63
	Section 12.02	 	Waivers; Amendments	 	63
	Section 12.03	 	Expenses, Indemnity; Damage Waiver.	 	64
	 	 	 	 	 





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	Section 12.04	 	Successors and Assigns	 	66
	Section 12.05	 	Survival; Revival; Reinstatement	 	69
	Section 12.06	 	Counterparts; Integration; Effectiveness	 	69
	Section 12.07	 	Severability	 	70
	Section 12.08	 	Right of Setoff	 	70
	Section 12.09	 	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	 	70
	Section 12.10	 	Headings	 	71
	Section 12.11	 	Confidentiality	 	71
	Section 12.12	 	Interest Rate Limitation	 	72
	Section 12.13	 	EXCULPATION PROVISIONS	 	72
	Section 12.14	 	No Third Party Beneficiaries	 	73
	Section 12.15	 	USA Patriot Act Notice	 	87




iv







 
 
 

ANNEXES, EXHIBITS AND SCHEDULES    
    



	Annex I	 	Commitments
	Annex II	 	Terms of Subordination
	

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 Hinkle Elkouri Law Firm L.L.C., 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 Collateral Agreement
	Exhibit G	 	Form of Assignment and Assumption
	

Schedule 7.05	
 	

Litigation
	Schedule 7.15	 	Subsidiaries and Partnerships; Unrestricted Subsidiaries
	Schedule 7.19	 	Gas Imbalances
	Schedule 7.20	 	Marketing Contracts
	Schedule 7.21	 	Swap Agreements
	Schedule 9.05	 	Investments




v










        THIS SECOND LIEN TERM LOAN AGREEMENT dated as of November 23, 2004, is among: Petrohawk Energy Corporation, a corporation duly
formed and existing under the laws of the State of Delaware (the "Borrower"); each of the Lenders from time to time party hereto; BNP Paribas (in its
individual capacity, "BNP Paribas"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative
Agent"). 


R E C I T A L S  


        A.    The
Borrower has requested that the Lenders provide a $50,000,000 second lien term loan to the Borrower. 


        B.    The
Lenders have severally agreed to make such loan 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 Tranche, refers to whether such Tranche is bearing interest at a rate determined by reference to the
Alternate Base Rate. 


        "Adjusted LIBO Rate" means, with respect to any Eurodollar Tranche for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 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. 


        "Affected Tranche" has the meaning assigned such term in Section 5.05. 


        "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. 


        "Agreement" means this Second Lien Term Loan 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 (a) with respect to each Eurodollar Tranche, a rate per annum equal to 4.0%, which rate shall increase by
0.25% per annum on the nineteenth (19th) day of each February, May, August and November after the Effective Date, commencing February 19, 2005, until such rate per annum is equal to 5.0%; and
thereafter a rate equal to 5.0%; and (b) with respect to each ABR Tranche, a rate per annum equal to 3.0%, which rate shall increase by 0.25% per annum on the nineteenth (19th) day of each
February, May, August and November after the Effective Date, commencing February 19, 2005, until such rate per annum is equal to 4.0%; and thereafter a rate equal to 4.0%. 







 



        "Approved Counterparty" means (a) any Lender or any Affiliate of a Lender or (b) any other Person whose long term senior
unsecured debt rating is A/A2 by S&P or Moody's (or their equivalent) or higher. 


        "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 Netherland, Sewell & Associates, Inc., and any other independent petroleum engineers
reasonably acceptable to the Administrative Agent. 


        "Arranger" means BNP Paribas, in its capacity as the lead arranger and sole bookrunner 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(b)), and accepted by the Administrative Agent, in the form of Exhibit G or any other form approved by the Administrative Agent. 


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


        "Borrowing Request" means the request by the Borrower for the Loans 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 Tranche 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 Tranche or a notice by the Borrower with respect to any such Tranche or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day
on which dealings in dollar deposits are carried out in the London interbank market. 


        "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. 


        "Cash Equivalent" means cash held in US dollars and all Investments of the type identified in Section 9.05(c). 


        "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 Property of the Borrower or any of its Restricted Subsidiaries having a fair market value in excess of $250,000. 


        "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) other than the Permitted Holders, of Equity Interests representing
more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower, (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated or
(c) the acquisition of direct or indirect Control of the Borrower by any Person or group other than the Permitted Holders. 


        "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 


2







 



by
any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the 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 its Loan on the Effective Date hereunder. The
initial amount of each Lender's Commitment is set forth on Annex I. 


        "Consolidated Net Income" means with respect to the Borrower and the Consolidated Restricted Subsidiaries, for any period, the aggregate
of the net income (or loss) of the Borrower and the Consolidated Restricted 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 Person in which the Borrower or any Consolidated Restricted 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 Borrower and the Consolidated Restricted 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 Borrower or to a Consolidated Restricted Subsidiary, as the case may be; (b) the
net income (but not loss) during such period of any Consolidated Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that
Consolidated Restricted 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
Restricted Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (c) any extraordinary non-cash gains or losses during such period
and (d) any gains or losses attributable to writeups or writedowns of assets, including ceiling test writedowns; and provided further that if the Borrower or any Consolidated Restricted
Subsidiary shall acquire or dispose of any Property during such period or a Subsidiary shall be redesignated as either an Unrestricted Subsidiary or a Restricted Subsidiary, then Consolidated Net
Income shall be calculated after giving pro forma effect to such acquisition, merger, disposition or redesignation, as if such acquisition, merger,
disposition or redesignation had occurred on the first day of such period. 


        "Consolidated Restricted Subsidiaries" means any Restricted Subsidiaries that are Consolidated Subsidiaries. 


        "Consolidated Subsidiaries" means each Subsidiary of the Borrower (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 Borrower in accordance with GAAP. 



        "Consolidated Unrestricted Subsidiaries" means any Unrestricted Subsidiaries that are Consolidated Subsidiaries. 


        "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. 


        "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 


3







 



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 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 whether or
not such goods or services are 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. 


        "Designated Preferred Stock" means the Borrower's Series B 8% Automatically Convertible Preferred Stock issued under certificate of
designation dated November 23, 2004. 


        "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, 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 or other obligations hereunder outstanding. 


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


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


        "EBITDA" 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 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). 


        "Engineering Reports" has the meaning assigned such term in Section 2.07(b); provided that each such report hereafter delivered
must (a) separately report on Proved Developed Producing Reserves, 


4







 



Proved
Developed Nonproducing Reserves and Proved Undeveloped Reserves and separately calculate the PV of each such category of Proved Reserves for the Borrower's or any Restricted Subsidiary's
interest, (b) take into account the Borrower's actual experiences with leasehold operating expenses and other costs in determining projected leasehold operating expenses and other costs,
(c) identify and take into account any "over-produced" or "under-produced" status under gas balancing arrangements, (d) contain information and analysis comparable in scope
to that contained in the Initial Engineering Report, and (e) otherwise be in form and substance reasonably satisfactory to the Required Lenders. 


        "Environmental Laws" means any and all Governmental Requirements pertaining in any way to health, safety the environment or the
preservation or reclamation of natural resources, in effect in any and all jurisdictions in which the Borrower or any Restricted Subsidiary is conducting or at any time has conducted business, or
where any Property of the Borrower or any Restricted Subsidiary is located, including without limitation, 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 Act, as amended, and other environmental conservation or protection Governmental Requirements. The term "oil" shall have
the meaning specified in OPA, the terms "hazardous substance" and "release" (or
"threatened release") have the meanings specified in CERCLA, the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA and the term "oil
and gas waste" shall have the meaning specified in Section 91.1011 of the Texas Natural
Resources Code ("Section 91.1011"); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended
so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or
other jurisdiction in which any Property of the Borrower or any Restricted Subsidiary is located establish a meaning for "oil,"
"hazardous substance," "release," "solid waste,"
"disposal" or "oil and gas waste" which is broader than that specified in either OPA, CERCLA, RCRA or
Section 91.1011, such broader meaning shall apply. 


        "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 a 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. 



        "ERISA Event" means (a) a "Reportable Event" described in section 4043 of ERISA and the regulations issued thereunder,
(b) the withdrawal of the Borrower, a Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA,
(c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to
terminate a Plan by the PBGC, (e) receipt of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute grounds
under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 



        "Eurodollar", when used in reference to any Tranche, refers to whether such Tranche is bearing interest at a rate determined by reference
to the Adjusted LIBO Rate. 


5







 



        "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 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 Restricted Subsidiary 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 Borrower or any of its Restricted 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 Restricted Subsidiary 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 Restricted Subsidiary 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. 


6







 



        "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, 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(b)), 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 or Section 5.03(c). 


        "Existing Credit Agreements" means: 



          (i)  that
certain Credit Agreement dated as of September 30, 1996, between Wynn-Crosby 1994, Ltd., a Texas limited partnership, and Union Bank of
California, N.A. ("UBOC"), as agent, and the lenders party thereto; 


         (ii)  that
certain Credit Agreement dated as of January 24, 1996, between Wynn-Crosby 1995, Ltd., a Texas limited partnership, and UBOC, as agent,
and the lenders party thereto; 


        (iii)  that
certain Credit Agreement dated as of February 28, 1997, between Wynn-Crosby 1996, Ltd., a Texas limited partnership, and UBOC, as agent,
and the lenders party thereto; 


        (iv)  that
certain Credit Agreement dated as of August 31, 2000, among Wynn-Crosby 1997, Ltd., a Texas limited partnership, and UBOC, as agent, and
the lenders party thereto; 


         (v)  that
certain Credit Agreement dated as of April 30, 2001, among Wynn-Crosby 1998, Ltd., a Texas limited partnership, and UBOC, as agent, and
the lenders party thereto; 


        (vi)  that
certain Credit Agreement dated as of May 30, 2000, among Wynn-Crosby 1999, Ltd., a Texas limited partnership, and UBOC, as agent, and the
lenders party thereto; 


       (vii)  that
certain Revolving Credit Agreement dated as of March 30, 2001, among Wynn-Crosby 2000, Ltd., a Texas limited partnership, and UBOC, as
agent, and the lenders party thereto; 


      (viii)  that
certain Credit and Security Agreement dated as of February 21, 2003 between Wynn-Crosby 2002, Ltd., a Texas limited partnership, and
UBOC, as agent, and the lenders party thereto; 


        (ix)  that
certain Credit and Security Agreement dated as of November 14, 1997 between Wynn-Crosby Energy, Inc., a Texas corporation, and UBOC, as
agent, and the lenders party thereto; and 


         (x)  that
certain Credit and Security Agreement dated as of March 30, 1999 between the Borrower, and Bank of Oklahoma, as agent, and the lenders party thereto; 




        in
each case as amended prior to the Effective Date. 


        "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 


7







 



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 Borrower. 



        "Financial Statements" means the financial statement or statements of the Borrower 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 Restricted Subsidiary that is not a Domestic Subsidiary. 



        "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 1.04. 


        "Gas Balancing Obligations" means those obligations set forth on Schedule 7.19. 


        "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 over the Borrower, any Restricted Subsidiary, any of their Properties, the Administrative Agent or any Lender. 


        "Governmental Requirement" means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or requirement, whether now or hereinafter in effect, including, without limitation, Environmental Laws, energy regulations
and occupational, safety and health standards or controls, of any Governmental Authority. 



        "GP" means, collectively: 



	•
	Kara
Nicole Limited, a Texas limited partnership;



	•
	Kristen
Lee Limited, a Texas limited partnership;



	•
	Eric
Wynn Limited, a Texas limited partnership;



	•
	Christopher
David Limited, a Texas limited partnership;



	•
	Paige
Lee Limited, a Texas limited partnership;



	•
	Bernadien
Wynn Limited, a Texas limited partnership;



	•
	Roger
Lee Limited, a Texas limited partnership; and



	•
	George
Heaps Limited, a Texas limited partnership. 




        "Guarantors" means, collectively: 



        (a)   


	•
	WCE;



	•
	P-H
Energy, LLC, a Texas limited liability company;



	•
	Wynn-Crosby
1994, Ltd., a Texas limited partnership; 



8







 



	•
	Wynn-Crosby
1995, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
1996, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
1997, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
1998, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
1999, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
2000, Ltd., a Texas limited partnership;



	•
	Wynn-Crosby
2002, Ltd., a Texas limited partnership;



	•
	Beta
Operating Company, L.L.C., Oklahoma limited liability company;



	•
	TCM,
L.L.C., an Oklahoma limited liability company; and



	•
	Red
River Field Services, L.L.C., an Oklahoma limited liability company. 



        (b)   each
other Material Domestic Subsidiary or other Domestic 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. 



        "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. 


        "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 Restricted Subsidiary or any Guarantor to the
Administrative Agent or any Lender under any Loan Document and 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 November 2004 relating to the Borrower and the
Transactions. 


        "Initial Reserve Report" means the reports of Netherland, Sewell & Associates, Inc. dated as of July 1, 2004, with
respect to certain Oil and Gas Properties of the Borrower and its Restricted Subsidiaries and of the Targets. 


        "Intercreditor Agreement" means in respect of the Second Lien Term Loan Agreement, the terms of subordination as attached as Annex II and
in respect to the Senior Subordinated Convertible Note, the Subordination Agreement. 



        "Interest Election Request" means a request by the Borrower to convert or continue a Tranche in accordance with Section 2.04. 


9







 

        "Interest Payment Date" means (a) with respect to any ABR Tranche, the last day of each March, June, September and December and
(b) with respect to any Eurodollar Tranche, the last day of the Interest Period applicable to the Tranche and, in the case of a Eurodollar Tranche 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 Tranche, the period commencing on the date of such Tranche and ending on the
numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or twelve 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 Tranche 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 Tranche initially shall be the date on which such Loan that such Tranche is a part of is made and
thereafter shall be the effective date of the most recent conversion or continuation of such Tranche. 


        "Interim Redetermination" has the meaning assigned such term in Section 2.07(a). 



        "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 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) or (c) 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. 


        "Knowledge" means, with respect to an individual, his or her actual knowledge and with respect to any corporation, limited liability
company, partnership or other business entity, the actual knowledge of any officer, general partner or individual being a member of the executive management of such entity. 



        "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. 


        "LIBO Rate" means, with respect to any Eurodollar Tranche for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market
Service (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 Tranche for such Interest
Period shall be the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered
by the principal London office of the 


10







 



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 Borrower and its Restricted 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 Security Instruments, the Intercreditor Agreement and the Subordination Agreement. 


        "Loans" means the term loan made by each Lender to the Borrower pursuant to this Agreement. 


        "Majority Lenders" means, at any time while no Loans are outstanding, Lenders having at least sixty-six and
two-thirds percent (662/3%) of the Commitments; and at any time while any Loans are outstanding, Lenders holding at least sixty-six and two-thirds
percent (662/3%) of the outstanding principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)). 


        "Material Adverse Effect" means a material adverse effect on (a) the business, operations, Property, condition (financial or
otherwise) or prospects of the Borrower and the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower, any Restricted Subsidiary or any Guarantor to perform any of its
obligations under any Loan Document, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Administrative Agent or any
Lender under any Loan Document. 


        "Material Domestic Subsidiary" means, as of any date, any Domestic Subsidiary that (a) is a Wholly-Owned Subsidiary and
(b) together with its Restricted Subsidiaries, owns Property having a fair market value of $250,000 or more. 


        "Material Indebtedness" means Debt (other than the Loans), or obligations in respect of one or more Swap Agreements, of any one or more of
the Borrower and its Restricted Subsidiaries in an aggregate principal amount exceeding $500,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the
Borrower or any Restricted Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary
would be required to pay if such Swap Agreement were terminated at such time. 


        "Maturity Date" means February 24, 2009. 


        "Mergers" means the merger of a Wholly-Owned Subsidiary of the Borrower into WCE pursuant to the WCE Merger Agreement and the merger of
eight (8) limited partnership subsidiaries of the Borrower into the Guarantors (other than P-H Energy, LLC) pursuant to the Partnerships Merger Agreement. 



        "Merger Documents" means the Partnerships Merger Agreement and the WCE Merger Agreement, both of which are dated as of October 13,
2004, and all other agreements, instruments and documents executed in connection with the Mergers. 


11







 



        "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. 


        "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of ERISA. 


        "New Total PV Notice" has the meaning assigned such term in Section 2.07(c). 



        "Non-Recourse Debt" means any Debt of any Unrestricted Subsidiary, in each case in respect of which: (a) the holder or
holders thereof (i) shall have recourse only to, and shall have the right to require the obligations of such Unrestricted Subsidiary to be performed, satisfied, and paid only out of, the
Property of such Unrestricted Subsidiary and/or one or more of its Subsidiaries (but only to the extent that such Subsidiaries are Unrestricted Subsidiaries) and/or any other Person (other than
Borrower and/or any Restricted Subsidiary) and (ii) shall have no direct or indirect recourse (including by way of guaranty, support or indemnity) to the Borrower or any Restricted Subsidiary
or to any of the Property of Borrower or any Restricted Subsidiary, whether for principal, interest, fees, expenses or otherwise; and (b) the terms and conditions relating to the
non-recourse nature of such Debt are in form and substance reasonably acceptable to the Administrative Agent. 


        "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, 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. 


        "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. 


12







 



        "Participant" has the meaning assigned to such term in Section 12.04(c)(i). 


        "Partnerships Merger Agreement" means the Agreement and Plan of Merger dated October 13, 2004 between the Borrower, the Targets and
others. 


        "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. 



        "PDP PV" means the PV of Proved Developed Producing Reserves of the Borrower and its Restricted Subsidiaries as described in the most
recently delivered Reserve Report. 


        "Permitted Holders" means PHAWK LLC, a Delaware limited liability company, EnCap Investments, L.P., Liberty Energy Holdings, each of their
respective Affiliates, and Floyd C. Wilson. 


        "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, a 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 a Subsidiary or an ERISA Affiliate. 


        "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent 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 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 Total PV" has the meaning assigned to such term in Section 2.07(b). 


        "Proposed Total PV Notice" has the meaning assigned to such term in Section 2.07(b)(ii). 



        "Proved Reserves" means "Proved Reserves" as defined in the Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions")
promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question. "Proved Developed Producing
Reserves" means Proved Reserves which are categorized as both "Developed" and "Producing" in the Definitions, "Proved Developed Nonproducing
Reserves" means Proved Reserves which are categorized as both "Developed" and "Nonproducing" in the Definitions, and "Proved Undeveloped
Reserves" means Proved Reserves which are categorized as "Undeveloped" in the Definitions. 



        "PV" means, with respect to any Proved Reserves expected to be produced from any Oil and Gas Properties, the net present value, discounted
at 10% per annum, of the future net revenues expected to accrue to the Borrower's and its Restricted Subsidiaries' collective interests in such reserves during the remaining expected economic lives of
such reserves. PV means, with respect to the Borrower's and its Restricted Subsidiaries' separate interests in such Proved Reserves, the net present value, discounted at 10% per annum, of the future
net revenues expected to accrue to such separate interests in such reserves during the remaining expected economic lives of such reserves. Each calculation of such expected future net revenues shall
be made in accordance with the then existing standards of the Society of Petroleum Engineers, provided that in any event (a) appropriate deductions shall be made for severance and ad valorem
taxes, and for operating, gathering, transportation and marketing costs required for the production and sale of such reserves, (b) appropriate adjustments shall be made for 


13







 



hedging
operations, provided that Swap Agreements with non-investment grade counterparties shall not be taken into account to the extent that such Swap Agreements improve the position of
or otherwise benefit the Borrower or any of its Subsidiaries, (c) the pricing assumptions used in determining PV for any particular reserves shall be based upon the following price decks:
(i) for natural gas, the quotation for deliveries of natural gas for each such year from the New York Mercantile Exchange for Henry Hub, provided that with respect to quotations for calendar
years after the fifth calendar year, the quotation for the fifth calendar year shall be applied and (ii) for crude oil, the quotation for deliveries of crude oil for each such calendar year
from the New York Mercantile Exchange for Cushing, Oklahoma, provided that with respect to quotations for calendar years after the fifth calendar year, the quotation for the fifth calendar year shall
be applied and (d) the cash-flows derived from the pricing assumptions set forth in clause (b) above shall be further adjusted to account for the historical basis
differentials for each month during the preceding 12-month period calculated by comparing realized crude oil and natural gas prices to Cushing, Oklahoma and Henry Hub NYMEX prices for each
month during such period. 


        "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. 


        "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. 


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


14









   
        "Required Lenders" means, at any time while no Loans are outstanding, Lenders having greater than eighty-seven and one-half
percent (871/2%) of the Commitments; and at any time while any Loans are outstanding, Lenders holding greater than eighty-seven and one-half percent (871/2%)
of the outstanding principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)). 



        "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
Restricted 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 pricing assumptions consistent with SEC reporting requirements at the time. 


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


        "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity
Interests in the Borrower, 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 Borrower or any option, warrant or other right to acquire any such Equity Interests in the Borrower. 



        "Restricted Subsidiary" means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary. 


        "Restructured Subordinated Note" means any unsecured note issued by the Borrower in exchange for the Senior Subordinated Convertible Note
in an amount not to exceed $35,000,000, the cash-pay coupon of which does not exceed 8% per annum, the maturity of which is at least February 24, 2010, which is not guaranteed by
any Subsidiary of the Borrower and which is subordinated on terms substantially identical to the Senior Subordinated Convertible Note, as amended pursuant to Section 9.04(b). 



        "Scheduled Redetermination" has the meaning assigned such term in Section 2.07(a). 


        "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 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 or this Agreement, as such agreements may be amended, modified, supplemented or
restated from time to time. 


        "Senior Subordinated Convertible Note" means that certain $35,000,000 8% Convertible Promissory Note dated as of May 25, 2004, due
2009, made by the Borrower, as issuer, in favor of PHAWK, LLC, as payee, as hereafter amended or supplemented pursuant to Section 9.04(b). 



        "Senior Revolving Credit Agreement" means that certain $400,000,000 Senior Revolving Credit Agreement dated as of the Effective Date
between the Borrower, as borrower, BNP Paribas, as administrative agent and the other agents and revolving lenders from time to time parties thereto and any "Loan Documents" (as defined therein)
executed in connection therewith, in each case, as hereafter amended or supplemented from time to time, subject to Section 9.03(e) and Section 9.02(i). 


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        "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 Tranches 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. 


        "Subordination Agreement" means that certain Subordination Agreement dated as of the Effective Date among the Borrower, BNP Paribas, as
the Administrative Agent and PHAWK, LLC. 


        "Subsidiary" means: (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (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) is at the time directly or indirectly owned or controlled by the Borrower or one or more of
its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated
herein, each reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower. 


        "Swap Agreement" means any agreement with respect to any swap, forward, future or derivative transaction, collar 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 Borrower or the
Subsidiaries shall be a Swap Agreement. 


        "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. 


        "Target" means, collectively, the GP and the Guarantors (other than P-H Energy, LLC). 


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


        "Total Debt" means, at any date, all Debt of the Borrower and the Consolidated Restricted Subsidiaries on a consolidated basis net of Cash
Equivalents and excluding the Senior Subordinated Convertible Note (but not excluding the Restructured Subordinate Note or any other Debt that refinances or replaces the Senior Subordinated
Convertible Note). 


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        "Total PV" means at any time an amount determined in accordance with Section 2.07(a), as the same may be adjusted from time to time
pursuant to Section 8.13(b) or Section 9.13(e). No category of reserves other than Proved Reserves shall be taken into account in determining Total PV and at least 70% of Total PV must
be comprised of PDP PV. 


        "Tranche" means that portion of the Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar
Tranches, as to which a single Interest Period is in effect. 


        "Transactions" means, with respect to (a) the Borrower, the execution, delivery and performance by the Borrower of this Agreement,
each other Loan Document and each Merger Document to which it is a party, the Mergers, the borrowing of Loans, the use of the proceeds thereof, 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 and Merger Document
to which it is a party, the Mergers, 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 thereunder, 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, refers to whether the rate of interest on such Loan, is determined by reference to the
Alternate Base Rate or the Adjusted LIBO Rate. 


        "Unrestricted Subsidiary" means any Subsidiary of the Borrower designated as such on Schedule 7.15 or which the Borrower has
designated in writing to the Administrative Agent to be an Unrestricted Subsidiary pursuant to Section 9.06. 


        "WCE" means Wynn-Crosby Energy, Inc., a Texas corporation. 


        "WCE Merger Agreement" means that certain Agreement and Plan of Merger between the Borrower and WCE. 


        "Wholly-Owned Subsidiary" means any Restricted Subsidiary of which all of the outstanding Equity Interests (other than any directors'
qualifying shares mandated by applicable law), on a fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or by the Borrower and one or more of the
Wholly-Owned Subsidiaries. 


        "Wildcard Management Agreements" means those management agreements between WCE and Wildcard Oil & Gas Company, Inc.,
Wildcard Family partnership and Wynn-Crosby Royalty Company, as referenced in the Merger Documents. 


        Section 1.03    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 herein), (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 herein), (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" 


17







 



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 1.04    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 Borrower'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 Borrower and the Majority 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. 


ARTICLE II

The Loans  


        Section 2.01    Term Loans.    Subject to the terms and conditions set forth herein, each Lender agrees on the
Effective Date to make a Loan in dollars to the Borrower in an aggregate principal amount equal to such Lender's Commitment. The Commitments are not revolving and amounts repaid may not be
re-borrowed. 


        Section 2.02    Loans.    


        (a)    Several Obligations.    Each Loan shall be made on the Effective Date by the Lenders ratably in accordance with
their respective Commitments. The failure of any Lender to fund its Loan 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 fund its Loan as required. 


        (b)    Types of Tranches.    Subject to Section 3.03, each Loan shall be comprised entirely of ABR Tranches or
Eurodollar Tranches as the Borrower may request in accordance herewith. Each Lender at its option (but subject to Section 5.04) may fund any Eurodollar Tranche by causing any domestic or
foreign branch or Affiliate of such Lender to fund such Tranche; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Lender's Loan in accordance
with the terms of this Agreement. 


        (c)    Minimum Amounts.    At the commencement of each Interest Period for any Eurodollar Tranche, such Tranche shall
be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $10,000,000. At the time that each ABR Tranche is made, such Tranche shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. Tranches 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 five
Eurodollar Tranches outstanding. 


        (d)    Notes.    The Loan 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 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 such Lender's funded Loan as in effect on
such date, and otherwise duly completed. The date, amount, Type, interest rate and, if applicable, Interest Period of each Tranche made by each Lender, and all payments made on account of the 


18







 



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 its Loan or affect the validity of such transfer by any Lender of its Note. 


        Section 2.03    Requests for the Loans    Not later than 12:00 noon, New York City time, three Business Days
before the Effective Date, the Borrower shall request the Loans by notifying the Administrative Agent by telephone, fax (or electronic communication, if arrangements for doing so have been approved by
the Administrative Agent), and shall confirm such request by delivering to the Administrative Agent and the Lenders a written Borrowing Request in substantially the form of Exhibit B and signed
by the Borrower. Such telephonic, electronic or written request shall specify the following information in compliance with Section 2.02: 



          (i)  the
aggregate amount of the requested Loans; 



         (ii)  the
Effective Date, which shall be a Business Day; 


        (iii)  whether
any portion of such Loans is to be an ABR Tranche or a Eurodollar Tranche; 


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


         (v)  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 is specified, then the entire portion of the Loans shall be an ABR Tranche. If no Interest Period is specified with respect to any requested Eurodollar
Tranche, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. 


        Promptly
following receipt of the 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. 


        Section 2.04    Interest Elections.    



        (a)    Conversion and Continuance.    Each Tranche initially shall be of the Type specified in the Borrowing Request
and, in the case of a Eurodollar Tranche, shall have an initial Interest Period as specified in the Borrowing Request. Thereafter, the Borrower may elect to convert such Tranche to a different Type or
to continue such Tranche and, in the case of a Eurodollar Tranche, 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 Tranche, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Tranche, and the Loans comprising
each such portion shall be considered a separate Tranche. 



        (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, fax (or transmit by electronic communication, if arrangements for doing so have been approved by the Administrative Agent) (i) in
the case of a Eurodollar Tranche, not later than 12:00 noon, New York City time, three Business Days before the first day of the Interest Period related to such Tranche and (ii) in the case of
an ABR Tranche, not later than 12:00 noon, New York City time, on the same Business Day of the proposed conversion or continuation. Each such telephonic (or electronic communication) 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. 


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



          (i)  the
Tranche 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 Tranche (in which case the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting Tranche); 


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


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


        (iv)  if
the resulting Tranche is a Eurodollar Tranche, 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 Tranche but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
month's duration. 


        (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 Tranche. 


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


        Section 2.05    Funding the Loans.    


        (a)    Funding by Lenders.    Each Lender shall make its Loan on the Effective Date by wire transfer of immediately
available funds by 1:00 p.m., New York, New York 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 New York,
New York and designated by the Borrower in the Borrowing Request. 


        (b)    Presumption of Funding by the Lenders.    Unless the Administrative Agent shall have received notice from a
Lender prior to the Effective Date that such Lender will not make available to the Administrative Agent such Lender's Loan, the Administrative Agent may assume that such Lender has made its Loan
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 Loan 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 


20







 



(ii) in
the case of the Borrower, the interest rate applicable to ABR Tranches. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's
Loan. 


        Section 2.06    Termination    The Commitments shall terminate at 3.00 p.m., New York, New York time on
the Effective Date. 


        Section 2.07    Total PV    



        (a)    Scheduled and Interim Redeterminations.    The Total PV shall be redetermined semi-annually in
accordance with this Section 2.07 (a "Scheduled Redetermination") and, subject to Section 2.07(c), such redetermined Total PV shall become
effective and applicable to the Borrower and the Lenders on April 1st and October 1st of each year, commencing April 1, 2005. In addition, the Borrower may, by notifying the
Administrative Agent thereof, and the Administrative Agent may, at the direction of the Majority Lenders, by notifying the Borrower thereof, one time during any 12-month period, each elect
to cause the Total PV to be redetermined between Scheduled Redeterminations (an "Interim Redetermination") in accordance with this Section 2.07. 


        (b)    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 Majority 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 good faith, calculate a proposed Total PV (the "Proposed Total PV")
based upon the Total PV 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)
as the Administrative Agent deems appropriate and consistent with its normal oil and gas lending criteria as it exists at the particular time. 


         (ii)  The
Administrative Agent shall notify the Borrower and the Lenders of the Proposed Total PV based on the criteria set forth in the definition of Total PV (the
"Proposed Total PV 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 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 Total PV in
accordance with Section 2.07(b)(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 Total PV that would increase the Total PV then in effect must be approved or deemed to have been approved by all of the Lenders as provided in this
Section 2.07(b)(iii); and any Proposed Total PV that would decrease or maintain the Total PV then in effect must be approved or be deemed to have been approved by the Required Lenders as
provided in this 



21







 

Section 2.07(b)(iii).
Upon receipt of the Proposed Total PV Notice, each Lender shall have fifteen (15) days to agree with the Proposed Total PV or disagree with the Proposed Total PV by
proposing an alternate Total PV. 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 Total PV. If, at the end of such 15-day period, the Required Lenders, in the case of a Proposed Total PV that would decrease or maintain the
Total PV then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Total PV shall become the new Total PV, effective on the date specified in Section 2.07(c).
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 Total PV then acceptable to a number of Lenders sufficient to constitute the Required Lenders, for purposes of this
Section 2.07 and, so long as such amount does not increase the Total PV then in effect, such amount shall become the new Total PV, effective on the date specified in Section 2.07(c). 




        (c)    Effectiveness of a Redetermined Total PV.    After a redetermined Total PV 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(b)(iii), the Administrative Agent shall notify the Borrower and the Lenders of the amount of
the redetermined Total PV (the "New Total PV Notice"), and such amount shall become the new Total PV, effective and applicable to the Borrower, the
Administrative Agent 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 April 1st or October 1st, as applicable, following such notice, or (B) 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 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
Total PV shall then become the Total PV until the next Scheduled Redetermination, the next Interim Redetermination or the next adjustment to the Total PV under
Section 8.13(c) or Section 9.13, whichever occurs first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New Total
PV Notice is received by the Borrower. 


        Section 2.08    Subordination of Loans.    The Loans, the Notes, this Agreement and the other Loan Documents;
the rights and remedies of the Lenders and the Administrative Agent hereunder and thereunder and the Liens created thereby are subject to the Terms of Subordination attached hereto as Annex II. 


ARTICLE III

Payments of Principal and Interest; Prepayments; Fees  



        Section 3.01    Repayment of the Loans.    On the nineteenth (19th) day of each November prior to the Maturity
Date, commencing November 19, 2005, the Borrower shall repay the aggregate principal amount of the Loans in the principal amount equal to $500,000; and on the Maturity Date, the Borrower shall
repay the outstanding principal balance of the Loans in full. 


        Section 3.02    Interest.    



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


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


        (c)    Post-Default Rate.    Notwithstanding the foregoing, 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, such
overdue amount 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 Tranches as provided in Section 3.02(a), but
in no event to exceed the Highest Lawful Rate. 


        (d)    Interest Payment Dates.    Accrued interest on each Loan shall be payable in arrears on each Interest Payment
Date for such Tranche; provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable on demand, (ii) in the event of any prepayment of any Loan, accrued interest
on the principal amount prepaid shall be payable on the date of such prepayment, and (iii) in the event of any conversion of any Eurodollar Tranche 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 Tranche: 



        (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 Majority 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 Tranche 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 Tranche to, or continuation of
any Tranche as, a Eurodollar Tranche shall be ineffective, and (ii) if the Borrowing Request requests a Eurodollar Tranche, such Tranche shall be made as an ABR Tranche. 




        Section 3.04    Prepayments.    


        (a)    Optional Prepayments.    Subject to any breakage funding costs payable pursuant to Section 5.02, the
Borrower shall have the right at any time and from time to time to prepay the Loans in whole or in part without premium or penalty, provided that each prepayment is in an amount that is an integral of
$1,000,000 and not less than $1,000,000, or if such amount is less than $1,000,000, the outstanding principal amount of the Loans, subject to prior notice in accordance with Section 3.04(b). 


23







 



        (b)    Notice and Terms of Optional Prepayment.    The Borrower shall notify the Administrative Agent by telephone,
electronic communication and/or fax (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Tranche, not later than 12:00 noon, New York City time,
three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Tranche, 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 the Loans or portion thereof to be prepaid. Promptly following receipt of any such
notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each prepayment of a Tranche shall be applied ratably to the Loans of all Lenders. Prepayments shall be accompanied
by accrued and unpaid interest to the extent required by Section 3.02. 


        (c)    Mandatory Prepayment.    The net cash proceeds of any asset sale under Section 9.13(e), to the extent
not applied in the manner specified therein, shall be used to repay the Loans. Such payment shall be due on the 91st day after the asset sale giving rise to such net cash proceeds. 


        Section 3.05    Fees.    


        (a)    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. 



        (b)    Payment of Fees.    All fees payable hereunder shall be paid on the dates due, in immediately available funds,
to the Administrative Agent. Fees paid shall not be refundable under any circumstances. 


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 or fees, 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 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, 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. 


        (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, 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 then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. 


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        (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 its Loan resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loan
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 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; 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 its Loan 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 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 the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender 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. 



        Section 4.03    Certain Deductions by the Administrative Agent.    If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.05(b) 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 Lender to satisfy such 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 its Restricted Subsidiaries 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 such Restricted Subsidiaries. 


25







 


ARTICLE V

Increased Costs; Break Funding Payments; Taxes; Illegality  


        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 Tranches of 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 Tranche (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 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 capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loan made by such
Lender, to a level below that which such Lender or the or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the
policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered. 


        (c)    Certificates.    A certificate of a Lender setting forth the amount or amounts necessary to compensate such
Lender 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 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 to demand
compensation pursuant to this Section 5.01 shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a
Lender pursuant to this Section 5.01 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law
giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 


26









  





        Section 5.02    Break Funding Payments.    In the event of (a) the payment of any principal of any
Eurodollar Tranche 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 Tranche into an ABR
Tranche other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Tranche on the date specified in any notice
delivered pursuant hereto, or (d) the assignment of any Eurodollar Tranche 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(b), 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 Tranche, 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. 



        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), the Administrative Agent or any Lender (as the case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such 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 and each Lender,
within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender 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 or a Lender 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 


27







 



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 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 Loan hereunder or to assign its rights and obligations hereunder to 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 Lenders.    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, or if any Lender defaults in its obligation to fund its
Loan hereunder, 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(b)), 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, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loan, 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) and
(iii) in the case of any such assignment resulting from a claim for compensation under Section 5.01 or payments required to be made pursuant to Section 5.03, such assignment will
result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. 


        Section 5.05    Illegality.    Notwithstanding any other provision of this Agreement, in the event that it
becomes unlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Tranches either generally or having a particular Interest Period hereunder, then
(a) such Lender shall promptly notify the Borrower and the Administrative Agent thereof and such Lender's obligation to make such Eurodollar Tranches shall be suspended (the
"Affected Tranches") until such time as such Lender may again make and maintain such Eurodollar Tranches and (b) all Affected Tranches which
would otherwise be made by such Lender shall be made instead as ABR Tranches (and, if such Lender so requests by notice to the Borrower and the Administrative Agent, all Affected Tranches of such
Lender then outstanding shall be automatically converted into ABR Tranches on the date specified by such Lender in such notice) and, to the extent that Affected Tranches 


28







 



are
so made as (or converted into) ABR Tranches, all payments of principal which would otherwise be applied to such Lender's Affected Tranches shall be applied instead to its ABR Tranches. 


 
 

ARTICLE VI
  Conditions Precedent    
    


        Section 6.01    Effective Date.    The obligations of each Lender to make its Loans 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 Arranger and the Lenders shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. 


        (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 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 organizational 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. 


        (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 date of 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 Commitment 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 80% of the total value of the Oil and Gas Properties evaluated in the
Initial Reserve Report; 




29







 


         (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 and not less than 65% of all of the issued and outstanding capital stock of each Foreign Subsidiary with total assets in excess of $250,000 that is not a Guarantor, which is directly
owned by either the Borrower or a Domestic Subsidiary; and 


        (iii)  be
reasonably satisfied that it has a Lien on all Property constituting security for the Senior Revolving Credit Agreement. 




        (h)   The
Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower certifying that (i) the Borrower shall be selling shares of
the Borrower's preferred stock which shall result in net cash proceeds of not less than $150,000,000, (ii) the Borrower shall be contemporaneously closing the Senior Revolving Credit Agreement
pursuant to which the Borrower shall have not less than $200,000,000 of available credit of which not more than $185,000,000 is drawn, or to be drawn, on the Effective Date and (iii) attached
to such certificate is a true and complete copy of the Senior Subordinated Convertible Note. The structure, terms, conditions and documentation, including execution and delivery of appropriate
inter-creditor and/or subordination documentation for each of the foregoing shall be reasonably satisfactory to the Administrative Agent. 


        (i)    The
Administrative Agent shall have received an opinion of (i) Hinkle Elkouri Law Firm L.L.C., special counsel to the Borrower, substantially in the form of
Exhibit E-1 hereto, and (ii) local counsel in each of the following states: Texas, Oklahoma, New Mexico and Louisiana, and any other jurisdictions requested by the
Administrative Agent, substantially in the form of Exhibit E-2. 



        (j)    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 7.13. 


        (k)   The
Administrative Agent shall be reasonably satisfied with the status of title to the Oil and Gas Properties evaluated in the Initial Reserve Report. 


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



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


        (n)   The
Administrative Agent shall have received evidence satisfactory to it that the Borrower is repaying in full and terminating the Existing Credit Agreements, and all
credit facilities and funded Debt of the Targets are being repaid and terminated, contemporaneously with the funding of the initial Loans under this Agreement, and the Administrative Agent shall have
received a certificate dated as of the Effective Date, signed by a Responsible Officer, to that effect. The Administrative Agent shall have received evidence satisfactory to it that all Liens
associated with the Existing Credit Agreements and all credit facilities and funded Debt of the Targets have been released or terminated contemporaneously with the making of such payments and that
arrangements satisfactory to the Administrative Agent has been made for recording and filing of such releases. 


        (o)   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). 



        (p)   The
Administrative Agent shall have received appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrower and the Restricted 



30







 




Subsidiaries
for each of the following jurisdictions: Texas, Oklahoma, Louisiana and New Mexico 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. 



        (q)   The
Administrative Agent shall have received evidence that the Borrower or one of its Restricted Subsidiaries has purchased one or more commodity price floors, collars
or price swaps with one or more Approved Counterparties, which have (i) a fixed price payor or floor prices acceptable to the Administrative
Agent, and (ii) aggregate notional volumes of not less than 80% during the calendar year 2005 and 2006 and 50% during calendar year 2007 and 2008
of the reasonably estimated projected crude oil production and of the reasonably estimated projected natural gas production, in each case, from its proved developed, producing Oil and Gas Properties
as determined by reference to the Initial Reserve Reports for each year during the period commencing with the Effective Date and ending on December 31, 2006. 



        (r)   The
Administrative Agent shall have received (i) a certificate of a Responsible Officer of the Borrower certifying: (A) that the Borrower is concurrently
consummating the Mergers in accordance with the terms of the Merger Documents (with all of the material conditions precedent thereto having been satisfied in all material respects by the parties
thereto, including termination of the Wildcard Management Agreements); and (B) as to the final purchase price after giving effect to all adjustments as of the closing date contemplated by the
Merger Documents and specifying, by category, the amount of such adjustment as (1) title defect, (2) casualty loss, (3) environmental defect, (4) gas imbalance,
(5) cash distributions made to equity owners subsequent to June 30, 2004, (6) state income tax liability for the accounting period of January 1, 2004 through
June 30, 2004, (7) current liabilities as of June 30, 2004, (8) long-term outstanding debt as of June 30, 2004, (9) negative or positive amount
(if any) of the marked-to-market value of commodity derivatives as of June 30, 2004, determined in accordance with GAAP, (10) cost of preparing such Target's tax
returns and (11) an amount equal to any damages incurred pursuant to Section I.F.(xi) of the Merger Documents; (ii) a true and complete executed copy of each of the Merger
Documents and (iii) such other related documents and information as the Administrative Agent shall have reasonably requested. 


        The
Administrative Agent shall be reasonably satisfied with the terms, conditions and documentation of the Mergers and the Merger Documents. The Borrower recognizes and agrees that
(a) it shall have delivered to the Administrative Agent notice of any price adjustments to the purchase price of the Mergers for the items listed in B(1), (2), (3) and (4) above
not less than three (3) days prior to the Effective Date and (b) if the purchase price adjustment is greater than $2,500,000, then the Administrative Agent shall suggest to the Majority
Lenders a reduced Total PV and the Majority Lenders shall reach a consensus as to an adjusted Total PV. Promptly upon the decision by the Majority Lenders of such new values, the Administrative Agent
shall notify the Borrower and each Lender of such allocation. 


        (s)   The
Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower certifying that: (i) Targets and the Borrower are concurrently
consummating the Mergers in accordance with the terms of the Merger Documents (with all of the material conditions thereto having been satisfied in all material respects by the parties thereto), and
(ii) attached thereto is a true and complete copy of each Certificate of Merger to be filed with the Texas Secretary of State. 


        (t)    The
Administrative Agent shall have received a copy, certified by a Responsible Officer as true and complete, of the Merger Documents (together with all amendments, if
any), the Senior Subordinated Convertible Note and the Senior Revolving Credit Agreement, the terms and conditions of which shall be reasonably acceptable to the Administrative Agent. 



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



31







 





        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 its Loans 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 December 15, 2004 (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 fund its Loan is subject to the
satisfaction of the following conditions: 



        (a)   At
the time of and immediately after giving effect to the Loans, no Default shall have occurred and be continuing. 



        (b)   At
the time of and immediately after giving effect to the Loans, 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 Effective Date, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the Effective Date, such representations and
warranties shall continue to be true and correct as of such specified earlier date. 



        (d)   The
making of such Loan, would not conflict with, or cause any Lender 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, 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 the Borrowing Request in accordance with Section 2.03. 



ARTICLE VII

Representations and Warranties  


        The Borrower represents and warrants to the Lenders that: 


        Section 7.01    Organization; Powers.    Each of the Borrower and the Restricted 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. 


        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 Borrower, whether interested or disinterested, in order to ensure the due authorization of the Transactions). Each Loan Document and Merger 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, 


32







 



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, 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, 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 the Borrower or any Restricted Subsidiary 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 the Borrower or any Restricted Subsidiary or its Properties, or give rise to a right thereunder to require any payment to be
made by the Borrower or such Restricted Subsidiary and (d) will not result in the creation or imposition of any Lien on any Property of the Borrower or any Restricted Subsidiary (other than the
Liens created by the Loan Documents). 


        Section 7.04    Financial Condition; No Material Adverse Change.    


        (a)   The
Borrower has heretofore furnished to the Lenders (i) its consolidated balance sheet and statements of income, stockholders equity and cash flows (x) as
of and for the fiscal year ended December 31, 2003, reported on by Ernst & Young LLP, independent public accountants, and (y) as of and for the fiscal quarter and the portion of
the fiscal year ended June 30, 2004, reviewed by KPMG LLP, (ii) the consolidated balance sheet and statements of income, stockholders equity and cash flows of each Target (x) as
of and for the 2001, 2002 and 2003 fiscal years, reported on by KPMG LLP, independent public accountants and (y) as of and for the fiscal quarter and the portion of the fiscal year ended
June 30, 2004, certified by its chief financial officer and (iii) the consolidated balance sheet and statements of income, stockholders equity and cash flows of each GP as of and for the
fiscal quarter and the portion of the fiscal year ended June 30, 2004, 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 Borrower 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. The Borrower has heretofore furnished to the Lenders the unaudited, pro
forma consolidated balance sheet and statements of income, stockholders equity and cash flows as of and for the six-month period ended June 30, 2004 adjusted to give effect to the
Mergers, this Agreement, and the other transactions contemplated by Section 6.01(h), certified by its chief financial officer as presenting fairly, in all material respects, the consolidated
pro forma financial position and results of operations and cash flows of the Borrower and its Consolidated Subsidiaries as of such date and for such period 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, 2003, (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 Borrower and its Restricted Subsidiaries has been conducted only in the ordinary course consistent with past business practices. 


        (c)   Neither
the Borrower nor any Restricted Subsidiary 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 (other than the Gas Balancing Obligations and 


33







 



the
Swap Agreements listed on Schedule 7.21) which are not 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, any Restricted Subsidiary, any Target or
involving the Mergers (i) not fully covered by insurance (except for normal deductibles) 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, (ii) that involve any Loan Document, any Merger Document or the Transactions or
(iii) that could impair the consummation of the Mergers on the time and in the manner contemplated by the Merger Documents. 



        (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 as could not be reasonably expected to have a Material Adverse
Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect): 



        (a)   neither
any Property of the Borrower or any Restricted Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental
Authority or any Environmental Laws. 


        (b)   no
Property of the Borrower or any Restricted Subsidiary nor the operations currently conducted thereon or, to the Knowledge of the Borrower, by any prior owner or
operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental
Authority or to any remedial obligations under Environmental Laws. 



        (c)   all
notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any
and all Property of the Borrower and each Restricted Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or
solid waste into the environment, have been duly obtained or filed, and the Borrower and each Restricted Subsidiary are in compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations. 


        (d)   all
hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of the Borrower or any Restricted Subsidiary have in the past been
transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the
Knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws. 


        (e)   the
Borrower has taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been
disposed of or otherwise released and there has been no threatened release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of the Borrower or any Restricted
Subsidiary 



34







 

except
in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment. 


        (f)    to
the extent applicable, all Property of the Borrower and each Restricted Subsidiary currently satisfies all design, operation, and equipment requirements imposed by
the OPA, and the Borrower does not have any reason to believe that such Property, to the extent subject to the OPA, will not be able to maintain compliance with the OPA requirements during the term of
this Agreement. 


        (g)   neither
the Borrower nor any Restricted Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil,
hazardous substance, solid waste or oil and gas waste into the environment. 




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



        (a)   Each
of the Borrower and each Restricted Subsidiary 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
the Borrower nor any Restricted Subsidiary 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 the Borrower or a Restricted Subsidiary 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 the Borrower or any Restricted Subsidiary 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 Subsidiary 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. 



        Section 7.09    Public Utility Holding Company Act.    Neither the Borrower nor any Subsidiary is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of,
or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. 


        Section 7.10    Taxes.    Each of the Borrower and its Subsidiaries 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 the Borrower 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 the Borrower and its Subsidiaries in respect of Taxes and other
governmental charges are, in the reasonable opinion of the Borrower, adequate. No Tax Lien has been filed and, to the Knowledge of the Borrower, no claim is being asserted with respect to any such Tax
or other such governmental charge. 


        Section 7.11    ERISA.    


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


35







 



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


        (c)   No
act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of
(i) either a civil penalty assessed pursuant to subsections (c), (i) or (l) 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)   No
Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC
(other than for the payment of current premiums which are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or is expected by the Borrower, any Subsidiary or any ERISA
Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. 


        (e)   Full
payment when due has been made of all amounts which the Borrower, the 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, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any Plan. 


        (f)    The
actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrower's most recently
ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 



        (g)   Neither
the Borrower, the Subsidiaries nor 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, a Subsidiary or any ERISA
Affiliate in its sole discretion at any time without any material liability. 


        (h)   Neither
the Borrower, the Subsidiaries nor 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 Multiemployer Plan. 



        (i)    Neither
the Borrower, the Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the Plan. 


        Section 7.12    Disclosure; No Material Misstatements.    The Borrower has disclosed to the Administrative
Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Restricted 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,
certificates or other information furnished by or on behalf of the Borrower or any Restricted Subsidiary 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, the Borrower 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 the Borrower or any Restricted Subsidiary which could reasonably be expected to have a Material Adverse 


36







 



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 the Borrower or any Restricted Subsidiary prior to, or on, the date hereof in connection with the transactions
contemplated hereby. No statements or conclusions exist in any Reserve Report which are based upon or include misleading information or which fail to take into account material information regarding
the matters reported therein to the extent such misstatement, misleading information or failure could reasonably be expected to have a Material Adverse Effect. 


        Section 7.13    Insurance.    The Borrower has, and has caused all its Restricted 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 its Restricted Subsidiaries. The Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies
and the Administrative Agent has been named as loss payee with respect to Property loss insurance. 


        Section 7.14    Restriction on Liens.    Neither the Borrower nor any of the Restricted 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 7.15    Subsidiaries.    Except as set forth on Schedule 7.15 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 7.15, the Borrower has no Subsidiaries and the Borrower has no Foreign
Subsidiaries. Schedule 7.15 identifies each Subsidiary as either Restricted or Unrestricted, and each Restricted Subsidiary on such schedule is a Wholly-Owned Subsidiary. 



        Section 7.16    Location of Business and Offices.    The Borrower's jurisdiction of organization is Delaware;
the name of the Borrower as listed in the public records of its jurisdiction of organization is Petrohawk Energy Corporation; and the organizational identification number of the Borrower in its
jurisdiction of organization is 3828463 (or, in each case, as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(n) 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(n) and Section 12.01(c)). Each Restricted 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 7.15 (or as set forth in a notice
delivered pursuant to Section 8.01(n)). 


        Section 7.17    Properties; Titles, Etc.    


        (a)   Each
of the Borrower and the Restricted Subsidiaries 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
the Restricted Subsidiary 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 Restricted 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 


37







 



not
offset by a corresponding proportionate increase in the Borrower's or such Restricted 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 Restricted 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 Restricted Subsidiaries including, without limitation, all easements and rights of
way, include all rights and Properties necessary to permit the Borrower and the Restricted Subsidiaries to conduct their business in all material respects in the same manner as its business has been
conducted prior to the date hereof. 


        (d)   All
of the Properties of the Borrower and the Restricted 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. 



        (e)   The
Borrower and each Restricted Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual Property material to its
business, and the use thereof by the Borrower and such Restricted 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 its Restricted 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 7.18    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 its Restricted Subsidiaries have been maintained, operated and
developed in a good and workmanlike manner and in conformity with all Government 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 its Restricted 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 Restricted Subsidiary 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 Restricted Subsidiary is deviated from the vertical more than
the maximum permitted by Government 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 Restricted 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 its Restricted 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 its Restricted Subsidiaries, in a manner consistent with the Borrower's or
its Restricted Subsidiaries' past 


38







 



practices
(other than those the failure of which to maintain in accordance with this Section 7.18 could not reasonably be expected to have a Material Adverse Effect). 


        Section 7.19    Gas Imbalances, Prepayments.    As of the date hereof, except as set forth on
Schedule 7.19 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 its Restricted Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor
exceeding 0.8 bcf of gas (on an mcf equivalent basis) in the aggregate. 



        Section 7.20    Marketing of Production.    Except for contracts listed and in effect on the date hereof on
Schedule 7.20, 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 that it or its Restricted 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's or its Restricted 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 7.21    Swap Agreements.    Schedule 7.21, as of the date hereof, and after the date hereof,
each report required to be delivered by the Borrower pursuant to Section 8.01(e), sets forth, a true and complete list of all Swap Agreements of the Borrower and each Restricted Subsidiary, 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 7.22    Use of Proceeds.    The proceeds of the Loans shall be used to provide working capital for
exploration and production operations, to refinance Debt under the Existing Credit Agreements, to provide funding in connection with the Mergers and for general corporate purposes. The Borrower 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 will be used for any purpose which violates the provisions of Regulations
T, U or X of the Board. 


        Section 7.23    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. 


        Section 7.24    Senior Indebtedness.    The Indebtedness of the Borrower constitutes "Senior Indebtedness" and
the Indebtedness of each Guarantor under the Loan Documents to which it is a 


39







 



party
constitutes "Guarantor Senior Indebtedness" under and as defined in the Senior Subordinated Convertible Note. 


        Section 7.25    Mergers.    The copies of the Merger Documents previously delivered by the Borrower to the
Administrative Agent are true, accurate and complete and have not been amended or modified in any manner, other than pursuant to amendments or modifications previously delivered to the Administrative
Agent. Neither the Borrower nor any Person constituting a Subsidiary prior to the effectiveness of the Mergers is in default in respect of any material term or obligation set forth in the Merger
Documents. To the Knowledge of the Borrower, none of the Targets or any of each Target's
respective shareholders, members, partners or other holders of Equity Interests is in default in respect of any material term or obligation set forth in the Merger Documents. 


ARTICLE VIII

Affirmative Covenants  


        Until 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, the Borrower covenants and agrees with the Lenders that: 


        Section 8.01    Financial Statements; Ratings Change; Other Information.    The Borrower 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 Borrower, 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 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 Borrower 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 Borrower, 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 Borrower 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. 



40







 




        (d)    Certificate of Financial Officer—Consolidating Information.    If, at any time, all of the
Consolidated Subsidiaries of the Borrower are not Consolidated Restricted Subsidiaries, 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 Consolidated Unrestricted Subsidiaries and the eliminating entries, in such form as
would be presentable to the auditors of the Borrower. 


        (e)    Certificate of Financial Officer—Swap Agreements.    Concurrently with any delivery of financial
statements under Section 8.01(a) and Section 8.01(b), a certificate of a Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth as of the last
Business Day of such fiscal quarter or fiscal year, a true and complete list of all Swap Agreements of the Borrower and each Restricted 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 7.21, any margin required or supplied under any credit support document, and the counterparty to each such agreement. 


        (f)    Certificate of Insurer—Insurance Coverage.    Concurrently with any delivery of financial
statements under Section 8.01(a), a certificate of insurance coverage from each insurer with respect to the insurance required by Section 8.07, in form and substance satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any Lender, all copies of the applicable policies. 


        (g)    Other Accounting Reports.    Promptly upon receipt thereof, a copy of each other report or letter submitted to
the Borrower 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 Borrower or any such Subsidiary, and a copy
of any response by the Borrower or any such Subsidiary, or the Board of Directors of the Borrower or any such Subsidiary, to such letter or report. 



41









  



        (h)    SEC and Other Filings; Reports to Shareholders.    Promptly after the same become publicly available, and upon
the request of the Lenders, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or with any national securities
exchange and distributed by the Borrower to its shareholders. 



        (i)    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. 


        (j)    Lists of Purchasers.    Concurrently with the delivery of any Reserve Report to the Administrative Agent
pursuant to Section 8.12, a list of Persons who purchase (or did purchase in the last six months) at least 70% of the Hydrocarbons from the Borrower or any Restricted Subsidiary. 


        (k)    Notice of Sales of Oil and Gas Properties.    In the event the Borrower or any Restricted Subsidiary intends to
sell, transfer, assign or otherwise dispose of at least $250,000 worth of any Oil or Gas Properties or any Equity Interests in any Subsidiary in accordance with Section 9.13, prior written
notice of such disposition, the price thereof and the anticipated date of closing. 



        (l)    Notice of Casualty Events.    Prompt written notice, and in any event within three Business Days, 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. 


        (m)    Certificate of Responsible Officer—Total Debt.    Upon (A) any change to Total PV pursuant
to a Scheduled Redetermination or an Interim Redetermination or pursuant to Section 8.12(b) or Section 9.13 or (B) the incurrence of any Debt by the Borrower or any of its
Consolidated Subsidiaries, the Borrower will promptly, but in any event within fifteen (15) days after any such event, deliver a certificate of a Responsible Officer of the Borrower setting
forth the Total Debt of the Borrower and the Total PV, both prior to and after giving effect to such event, and demonstrating compliance with Section 2.07. 


        (n)    Information Regarding Borrower and Guarantors.    Prompt written notice (and in any event within thirty
(10) days prior thereto) of any change (i) in the Borrower 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 or any Guarantor's chief executive office or principal place of business, (iii) in the Borrower or any Guarantor's identity or corporate
structure or in the jurisdiction in which such Person is incorporated or formed, (iv) in the Borrower or any Guarantor's jurisdiction of organization or such Person's organizational
identification number in such jurisdiction of organization, and (v) in the Borrower or any Guarantor's federal taxpayer identification number. 


        (o)    Production Report and Lease Operating Statements.    With the delivery of quarterly financial statements under
Section 8.01(b) and in any event, no later than 60 days after the end of each fiscal quarter, a report setting forth, for each calendar month during the then current fiscal year to date
on a production date basis, 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. 


        (p)    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 



42







 




certificate
or articles of incorporation, by-laws, any preferred stock designation or any other organic document of the Borrower or any Restricted Subsidiary. 


        (q)    Ratings Change.    Promptly after Moody's or S&P shall have announced a change in the rating, established or
deemed to have been established for the Borrower or any Material Indebtedness, written notice of such rating change. 


        (r)    Notices Relating to Mergers.    In the event that the purchase price of the Mergers is adjusted, the Borrower
shall promptly give the Administrative Agent notice in reasonable detail of such circumstances as set forth in Section 6.01(r). 



        (s)    Other Requested Information.    Promptly following any request therefor, such other information regarding the
operations, business affairs and financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to
be filed 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. 


        (t)    Delivery of Information Electronically.    Notices to the Administrative Agent and the Lenders under this
Section 8.01 may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent, including broadcast email to the Lenders that the available
information has been made available to the Lenders on either the Borrower's "Intralinks" page or the Borrower's website at  www.petrohawk.com. 




        Section 8.02    Notices of Material Events.    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 Borrower 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 previously disclosed to the Lenders that, if adversely determined, could reasonably be expected to result in liability in excess of $1,000,000 not fully covered by
insurance, subject to normal deductibles; 


        (c)   the
occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the
Borrower and its Subsidiaries in an aggregate amount exceeding $500,000; and 


        (d)   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.    The Borrower will, and will cause each Restricted 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 9.12. 


43







 



        Section 8.04    Payment of Obligations.    The Borrower will, and will cause each Restricted Subsidiary to, pay
its obligations, including Tax liabilities of the Borrower 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) the Borrower or such Restricted 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 the
Borrower or any Subsidiary. 


        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 Borrower will, and will cause each Restricted Subsidiary 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 its own expense, will, and will
cause each Restricted Subsidiary 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 Oil and Gas Properties and other Properties, including, without limitation, all equipment, machinery and
facilities except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 


        (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 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 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)   operate
its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other
material Properties to be operated in accordance with the practices of the industry and in material compliance with all applicable contracts and agreements and in compliance in all material respects
with all Governmental Requirements. 


        (f)    to
the extent the Borrower is not the operator of any Property, the Borrower 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 Restricted Subsidiary 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 any of the collateral for the Loans 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 Restricted
Subsidiary 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 Restricted Subsidiary 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 Restricted Subsidiary 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 its sole expense: (i) comply, and shall cause its Properties and operations and each Subsidiary and each 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 dispose of or otherwise release, and
shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any of the Borrower's or its Subsidiaries'
Properties or any other Property to the extent caused by the Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the disposal or 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 notices, permits, licenses,
exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower's or
its 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 disposal or other release of any oil, oil and gas waste, hazardous substance or solid
waste on, under, about or from any of the Borrower's or its Subsidiaries' Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material
Adverse Effect; and (v) 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 its 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, 


45







 



investigation
or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against the Borrower or its Subsidiaries or their Properties of which
the Borrower has Knowledge in connection with any Environmental Laws (excluding routine testing and corrective action) if the Borrower reasonably anticipates that such action will result in liability
(whether individually or in the aggregate) in excess of $500,000, not fully covered by insurance, subject to normal deductibles. 


        (c)   The
Borrower will, and will cause each Subsidiary to, provide environmental audits and tests in accordance with 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)   The
Borrower at its expense will, and will cause each Restricted Subsidiary 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 the Borrower or any
Restricted Subsidiary, 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. 


        Section 8.12    Reserve Reports.    


        (a)   On
or before March 1st and September 1st of each year, commencing January 1, 2005, the Borrower shall furnish to the Administrative Agent and the
Lenders a Reserve Report. The Reserve Report as of January 1 of each year shall be prepared by one or more Approved Petroleum Engineers, and the July 1 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 1 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 1 Reserve Report. For any Interim Redetermination requested by the Administrative Agent or the Borrower pursuant to Section 2.07(a), 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 


46







 



respects: (i) the
information contained in the Reserve Report and any other information delivered in connection therewith is true and correct, and no statements or conclusions exist in
such Reserve Report which are based upon or include misleading information or which fail to take into account material information regarding the matters reported therein to the extent such
misstatement, misleading information or failure could reasonably be expected to have a Material Adverse Effect, (ii) the Borrower or its Restricted 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 7.19 with respect to its Oil and Gas
Properties evaluated in such Reserve Report which would require the Borrower or any Restricted Subsidiary 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 Total PV 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 7.20 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 certifying that each Oil and Gas Property that constitutes collateral for the Senior Revolving Credit Agreement also constitutes
collateral for the Indebtedness outstanding under this Agreement. 


        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 be reasonably satisfied with the status of title 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 be reasonably satisfied with the status of title to 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 to 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 Majority 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 Majority Lenders are not
satisfied with title to any Mortgaged Property after the 90-day period has elapsed, the Administrative Agent may send a notice to the Borrower and the Lenders that the then outstanding
Total PV shall be reduced by an amount as determined by the Majority Lenders to cause the Borrower to be in compliance with the requirement 


47







 



to
provide acceptable title information to the Oil and Gas Properties. This new Total PV shall become effective immediately after receipt of such notice. 


        Section 8.14    Additional Collateral; Additional Guarantors.    


        (a)   In
connection with each redetermination of the Total PV, 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 80% 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, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such total
value, then the Borrower shall, and shall cause its Restricted Subsidiaries to, grant, within thirty (30) days of delivery of the certificate required under Section 8.12(b), to the
Administrative Agent as security for the Indebtedness a first-priority Lien interest (subject only to Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof, 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 80% 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. In order to comply with the foregoing, if any Restricted Subsidiary places a Lien on its Oil and Gas Properties and such Restricted
Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b). 


        (b)   In
the event that (i) the Borrower determines that any Restricted Subsidiary is a Material Domestic Subsidiary or (ii) any Domestic Subsidiary incurs or
guarantees any Debt, the Borrower shall promptly cause such Restricted Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrower
shall, or shall cause such Restricted Subsidiary to, (A) execute and deliver a supplement to the Guaranty Agreement executed by such Subsidiary, (B) pledge all of the Equity Interests of
such new Subsidiary (including, without limitation, delivery of original stock 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 (C) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably
be requested by the Administrative Agent. 


        (c)   In
the event that the Borrower or any Domestic Subsidiary becomes the owner of a Foreign Subsidiary which has total assets in excess of $500,000, then the Borrower shall
promptly, or shall cause such Domestic Subsidiary to promptly, guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrower shall, or shall cause
such Domestic Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement, (ii) pledge 65% of all the Equity Interests of such Foreign Subsidiary (including, without
limitation, delivery of original stock certificates evidencing such Equity Interests of such Foreign Subsidiary, together with appropriate 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. 


        Section 8.15    ERISA Compliance.    The Borrower will promptly furnish and will cause the 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, the Internal Revenue Service or the PBGC, copies
of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or 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 


48







 



the
principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrower, the Subsidiary 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, the Department of Labor or the PBGC with respect thereto, and
(iii) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a
Multiemployer Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any Lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e),
(f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a
timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. 



        Section 8.16    Swap Agreements.    The Borrower shall or shall cause one or more of its Restricted
Subsidiaries (which is a Guarantor) to maintain the hedged position established by the Swap Agreements required under Section 6.01(q) 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 required hereby. 



        Section 8.17    Unrestricted Subsidiaries.    The Borrower: 



        (a)   will
cause the management, business and affairs of each of the Borrower and its Restricted Subsidiaries to be conducted in such a manner (including, without limitation,
by keeping separate books of account, furnishing separate financial statements of Unrestricted Subsidiaries to creditors and potential creditors thereof and by not permitting Properties of the
Borrower and its respective Restricted Subsidiaries to be commingled) so that each Unrestricted Subsidiary that is a corporation will be treated as a corporate entity separate and distinct from
Borrower and the Restricted Subsidiaries. 


        (b)   will
not, and will not permit any of the Restricted Subsidiaries to, incur, assume, guarantee or be or become liable for any Debt of any of the Unrestricted
Subsidiaries. 


        (c)   will
not permit any Unrestricted Subsidiary to hold any Equity Interest in, or any Debt of, the Borrower or any Restricted Subsidiary. 




        Section 8.18    Marketing Activities.    The Borrower will not, and will not permit any of its Restricted
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 its Restricted Subsidiaries that the
Borrower or one of its Restricted 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. 


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ARTICLE IX

Negative Covenants  


        Until 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, the
Borrower covenants and agrees with the Lenders that: 


        Section 9.01    Financial Covenants.    


        (a)    Total PV to Total Debt Ratio.    The Borrower will not at any time after March 31, 2005 permit its ratio
of Total PV to Total Debt to be less than 1.5 to 1.0. 


        (b)    Ratio of Total Debt to EBITDA.    The Borrower will not, at any time, permit its ratio of Total Debt as of such
time to EBITDA for the period of 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 4.0 to 1.0. 


        Section 9.02    Debt.    The Borrower will not, and will not permit any Restricted Subsidiary 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 Borrower and its Restricted Subsidiaries existing on the date hereof that is reflected in the Financial Statements. 


        (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 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. 


        (d)   Debt
under Capital Leases not to exceed $1,000,000. 


        (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 Borrower and any Restricted Subsidiary or between Restricted Subsidiaries 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 Borrower or one of its Wholly-Owned Subsidiaries, 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
under the Senior Subordinated Convertible Note or the Restructured Subordinated Note, the principal amount of which does not exceed $35,000,000 in the aggregate. 


        (i)    Debt
now or hereafter outstanding under the Senior Revolving Credit Agreement (and any guaranties thereof by the Guarantors), provided that (A) the aggregate
principal amount of the Senior Revolving Credit Agreement shall not exceed $400,000,000, (B) no part of the Debt for principal owing under the Senior Revolving Credit Agreement is subordinated
in right or payment to any other Debt for principal owing under the Senior Revolving Credit Agreement, and (C) at the time each such item of Debt is incurred (1) the aggregate amount
thereof does not exceed the Borrowing Base then in effect under the Senior Revolving Credit Agreement (or, if such "Borrowing Base" ever ceases to exist or diverges materially from a conventional
commercial bank borrowing base, does not exceed a conventional commercial bank borrowing base), and (2) after 



50







 




giving
effect to the incurrence of such Debt, no Default or Event of Default then exists under Section 9.01. 


        (j)    other
Debt not to exceed $1,000,000 in the aggregate at any one time outstanding. 




        Section 9.03    Liens.    The Borrower will not, and will not permit any Restricted Subsidiary 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. 


        (d)   Liens
on Property not constituting collateral for the Indebtedness and not otherwise permitted by the foregoing clauses of this Section 9.03; provided that the
aggregate principal or face amount of all Debt secured under this Section 9.03(d) shall not exceed $1,000,000 at any time. 


        (e)   Liens
on Property securing the Senior Revolving Credit Agreement permitted by Section 9.02(i) provided; however, that no Lien shall be granted on any
Property to secure the Senior Revolving Credit Agreement unless the Lien is also being granted to secure the Indebtedness, this Agreement and the other Loan Documents. 




        Section 9.04    Dividends, Distributions and Redemptions, Repayment of Senior Subordinated Convertible
Note.    


        (a)    Restricted Payments.    The Borrower 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 stockholders or make any distribution of its Property to its Equity Interest holders, except
(i) the Borrower 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 may declare and pay dividends ratably with respect to their Equity Interests, (iii) the Borrower may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries and (iv) the Borrower may redeem fractional shares of its common stock for cash in
connection with the conversion of the Senior Subordinated Convertible Note, provided that the aggregate amount so redeemed does not exceed $50,000, (v) the Borrower may declare and pay
scheduled cash dividends from and after April 1, 2005 with respect to its Designated Preferred Stock at a coupon not to exceed 8% per annum, provided that at the time such dividend is declared
and paid (1) no Borrowing Base deficiency exists under the Senior Revolving Credit Agreement and (2) no Event of Default exists or would result from the payment of such dividend and
(vi) the Borrower may terminate its directors' or employees' option agreements or restricted stock agreements under any of Borrower's incentive stock plans provided; however, that the aggregate
amounts paid in respect thereof do not exceed $500,000. 


        (b)    Redemption of Senior Subordinated Convertible Note; Amendment of Senior Subordinated Convertible Note.    The
Borrower will not, and will not permit any Restricted Subsidiary to: (i) prior to the date that is ninety-one (91) days after the Maturity Date, 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 Subordinated Convertible Note in respect thereof, provided that the
Borrower may (A) Redeem the Senior Subordinated Convertible Note with the cash proceeds of one or more sales of Equity Interests (other than Disqualified Capital Stock) either after the
Effective Date or on the Effective Date with the gross proceeds of the sale of Equity Interests contemplated by Section 6.01(h) to the extent the gross proceeds exceed $175,000,000, provided
that if the gross proceeds from the sale of such Equity Interests contemplated by Section 6.01(h) is $200,000,000 or more, the Borrower may 


51







 



Redeem
the entire outstanding balance of the Senior Subordinated Convertible Note, provided in any case under this clause (A) (1) no Default or Event of Default has occurred or is
continuing or would occur after giving effect thereto and (2) the Borrower would have at least $15,000,000 of unused availability under the Senior Revolving Credit Agreement,
(B) exchange the Senior Subordinated Convertible Note with the Restructured Subordinated Note and (C) prepay the Senior Subordinated Convertible Note, in whole, but not in part, with the
net cash proceeds of any increases in the principal amount of the Loans subject to the terms of Section 12.02(b)(ix), (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 Subordinated Convertible Note, 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). 


        Section 9.05    Investments, Loans and Advances.    The Borrower will not, and will not permit any Restricted
Subsidiary 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)   Investments
(i) made by the Borrower in or to the Guarantors, (ii) made by any Restricted Subsidiary in or to the Borrower or any Guarantor,
(iii) made by the Borrower or any Restricted Subsidiary in or to all other Domestic Subsidiaries which are not Guarantors in an aggregate amount at any one time outstanding not to exceed
$200,000, and (iv) made by the Borrower or any Restricted Subsidiary in or to any Foreign Subsidiary in an aggregate amount at any one time outstanding not to exceed $100,000. 



        (h)   subject
to the limits in Section 9.07, Investments (including, without limitation, capital contributions) in general or limited partnerships or other types of
entities (each a "venture") entered into by the Borrower or a Restricted 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 



52







 




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 $500,000. 


        (i)    subject
to the limits in Section 9.07, 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. 



        (j)    loans
or advances to employees, officers or directors in the ordinary course of business of the Borrower or any of its Restricted 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 $50,000 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 Restricted Subsidiary 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
its Restricted 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 $500,000. 


        (l)    Investments
in Unrestricted Subsidiaries, provided that the aggregate amount of all such Investments at any one time shall not exceed $5,000,000 (or its equivalent in
other currencies as of the date of Investment). 




        Section 9.06    Designation and Conversion of Restricted and Unrestricted Subsidiaries; Debt of Unrestricted
Subsidiaries.    


        (a)   Unless
designated as an Unrestricted Subsidiary on Schedule 7.15 as of the date hereof or thereafter, assuming compliance with Section 9.06(b), any Person
that becomes a Subsidiary of the Borrower or any of its Restricted Subsidiaries shall be classified as a Restricted Subsidiary. 


        (b)   The
Borrower may designate by written notification thereof to the Administrative Agent, any Restricted Subsidiary, including a newly formed or newly acquired Subsidiary,
as an Unrestricted Subsidiary if (i) prior, and after giving effect, to such designation, no Default would exist and (ii) such designation is deemed to be an Investment in an
Unrestricted Subsidiary in an amount equal to the fair market value as of the date of such designation of the Borrower's direct and indirect ownership interest in such Subsidiary and such Investment
would be permitted to be made at the time of such designation under Section 9.05(l). Except as provided in this Section 9.06(b), no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary. 


        (c)   The
Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if after giving effect to such designation, (i) the representations and
warranties of the Borrower and its Restricted Subsidiaries contained in each of the Loan Documents are true and correct on and as of such date as if made on and as of the date of such redesignation
(or, if stated to have been made expressly as of an earlier date, were true and correct as of such date), (ii) no Default would exist and (iii) the Borrower complies with the
requirements of Section 8.13(c), Section 8.17 and Section 9.16. Any such designation shall be treated as a cash dividend in an amount equal to the lesser of the fair market value
of the Borrower's direct and indirect ownership interest in such Subsidiary or the amount of the Borrower's cash investment previously made for purposes of the limitation on Investments under
Section 9.05(l). 


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        (d)   The
Borrower shall not permit the aggregate principal amount of all Non-Recourse Debt outstanding at any one time to exceed $10,000,000. 


        Section 9.07    Nature of Business; International Operations.    Neither the Borrower nor any Restricted
Subsidiary will allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. From and after the date hereof, the Borrower and
its Domestic Subsidiaries will not acquire or make any other 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 9.08    Limitation on Leases.    Neither the Borrower nor any Restricted Subsidiary will 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 Borrower and the Restricted Subsidiaries pursuant to all such leases or lease agreements, including,
without limitation, any residual payments at the end of any lease, to exceed $3,000,000 in any period of twelve consecutive calendar months during the life of such leases. 


        Section 9.09    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 7.22. 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 9.10    ERISA Compliance.    The Borrower and the Subsidiaries will not at any time: 



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


        (b)   terminate,
or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability of
the Borrower, a Subsidiary or any ERISA Affiliate to the PBGC. 


        (c)   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, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto. 


        (d)   permit
to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan. 


        (e)   permit,
or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, a Subsidiary or any
ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 


        (f)    contribute
to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan. 



54







 




        (g)   acquire,
or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower or a
Subsidiary or with respect to any ERISA Affiliate of the Borrower or a Subsidiary if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value
of the benefit liabilities under such Plan exceeds
the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. 



        (h)   incur,
or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA. 


        (i)    contribute
to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, 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. 



        (j)    amend,
or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, a Subsidiary or any ERISA Affiliate is
required to provide security to such Plan under section 401(a)(29) of the Code. 




        Section 9.11    Sale or Discount of Receivables.    Except for receivables obtained by the Borrower or any
Restricted Subsidiary 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, neither the Borrower nor any Restricted Subsidiary will discount or sell (with or without recourse) any of its notes receivable or accounts receivable. 


        Section 9.12    Mergers, Etc.    With the exception of the Mergers, the Borrower will not, and will not permit
any Restricted Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(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) (any such transaction, a
"consolidation"), or liquidate or dissolve; provided that the Borrower or any Restricted Subsidiary may participate in a consolidation with any other Person; provided that: 



        (a)   any
Restricted Subsidiary (including a Foreign Subsidiary) may participate in a consolidation with the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or any other Restricted Subsidiary that is a Domestic Subsidiary (provided that if one of such parties to the consolidation is a Foreign Subsidiary, such Domestic Subsidiary
shall be the continuing or surviving Person) and if one of such Restricted Subsidiaries is a Wholly-Owned Subsidiary, then the surviving Person shall be a Wholly-Owned Subsidiary; and 


        (b)   any
Foreign Subsidiary of the Borrower may participate in a consolidation with any one or more Foreign Subsidiaries; provided that if one of such Foreign Subsidiaries is
a Wholly-Owned Subsidiary, the survivor shall be a Wholly-Owned Subsidiary. 




        Section 9.13    Sale of Properties.    The Borrower will not, and will not permit any Restricted Subsidiary 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) farmouts of undeveloped
acreage and assignments in connection with such farmouts; (c) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Restricted Subsidiary or is
replaced by equipment of at least comparable value and use; (d) the sale, transfer or other disposition of Equity Interests in Unrestricted 


55







 

Subsidiaries;
(e) the sale or other disposition (including Casualty Events) of any Oil and Gas Property or any interest therein or any Restricted Subsidiary owning Oil and Gas Properties;
provided that (i) the consideration received in respect of such sale or other disposition shall 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 Restricted Subsidiary subject of such sale, lease or other disposition (as reasonably
determined by the board of directors of the Borrower and, if requested by the Administrative Agent, the Borrower shall deliver a certificate of a Responsible Officer of the Borrower certifying to that
effect); provided that if a "Borrowing Base" deficiency under the Senior Revolving Credit Agreement shall exist, then either (1) the Majority Lenders must have consented, such consent not to be
unreasonably withheld or delayed, to such sale, lease or other disposition, (2) the sale, lease or other disposition must occur pursuant to an auction held in accordance with procedures that
are ordinary and customary in the oil and gas industry or (3) the sale, lease or other disposition must occur pursuant to a non-binding bid process conducted by the Borrower or a
regionally or nationally recognized oil and gas asset disposition advisory company in accordance with procedures that are customary in the oil and gas industry, (iii) at such time and after
giving effect to such sale, lease or other disposition, no Borrowing Base deficiency under the Senior Revolving Credit Agreement shall exist, provided, that the condition that no Borrowing Base
deficiency under the Senior Revolving Credit Agreement shall exist at the time of any such sale, lease or other disposition shall not apply if the Borrower notifies the Administrative Agent that
proceeds of such sale, lease or other disposition shall be used to remedy a Borrowing Base deficiency under the Senior Revolving Credit Agreement and the Borrower in fact uses such proceeds to remedy
such Borrowing Base deficiency, to the extent thereof, with any surplus proceeds being used for one or more of the purposes permitted by clause (v) of this Section 9.13, (iv) if
such sale or other disposition of Oil and Gas Property or Restricted Subsidiary owning Oil and Gas Properties included in the most recently delivered Engineering Report during any period between two
successive Scheduled Redeterminations is sold for a price in excess of $7,500,000, individually or in the aggregate, then the Total PV shall be reduced, effective immediately upon such sale or
disposition, by an amount equal to the value, if any, assigned such Property in the most recently delivered Engineering Report and (v) an amount equal to 100% of the net proceeds received from
such sale, lease or other disposition shall be used within 90 days of such disposition: (1) to acquire Property, plant and equipment or any business entity used or useful in carrying on
the business of the Borrower and its Restricted Subsidiaries and having a fair market value at least equal to the fair market value of the Properties sold, leased or otherwise disposed of or to
improve or replace any existing Property of the Borrower and its Subsidiaries used or useful in carrying on the business of the Borrower and its Subsidiaries, (2) to repay or retire Debt under
the Senior Revolving Credit Agreement (with a permanent reduction in the commitments thereunder) or (3) to Redeem the Notes; and (f) sales and other dispositions of Properties not
regulated by Section 9.13(a) to (e) having a fair market value not to exceed $2,000,000 during any 12-month period. 


        Section 9.14    Environmental Matters.    The Borrower will not, and will not permit any Restricted Subsidiary
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 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 or remedial obligations
could reasonably be expected to have a Material Adverse Effect. 


        Section 9.15    Transactions with Affiliates.    The Borrower will not, and will not permit any Restricted
Subsidiary 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 the
Guarantors and Wholly-Owned Subsidiaries of 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. 


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        Section 9.16    Subsidiaries.    The Borrower will not, and will not permit any Restricted Subsidiary to,
create or acquire any additional Restricted Subsidiary or redesignate an Unrestricted Subsidiary as a Restricted Subsidiary unless the Borrower gives written notice to the Administrative Agent of such
creation or acquisition and complies with Section 8.14(b) and Section 8.14(c). The Borrower shall not, and shall not permit any Restricted Subsidiary to, sell, assign or otherwise
dispose of any Equity Interests in any Restricted Subsidiary except in compliance with Section 9.13(e). 


        Section 9.17    Negative Pledge Agreements; Dividend Restrictions.    The Borrower will not, and will not
permit any Restricted Subsidiary 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 Administrative
Agent and the Lenders or restricts any Restricted 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 9.18    Gas Imbalances, Take-or-Pay or Other Prepayments.    The Borrower will
not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Restricted Subsidiary that would require the
Borrower or such Restricted Subsidiary to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor to exceed 0.8 bcf of gas (on an mcf equivalent basis) in
the aggregate. 


        Section 9.19    Swap Agreements.    The Borrower will not, and will not permit any Restricted Subsidiary 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, 85% of the reasonably anticipated projected production (as shown in the Borrower's most recent Engineering Report) from proved, developed, producing Oil and Gas Properties for
each month during the period during which such Swap Agreement is in effect for each of crude oil and natural gas, calculated separately, (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 Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed 50% of the then outstanding principal amount of
the Borrower's 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 Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 75% of the
then outstanding principal amount of the Borrower's Debt for borrowed money which bears interest at a floating rate, and (c) Swap Agreements required under Section 6.01(q). In no event
shall any Swap Agreement contain any requirement, agreement or covenant for the Borrower or any Restricted Subsidiary to post collateral or margin to secure their obligations under such Swap Agreement
or to cover market exposures. 


        Section 9.20    Merger Documents.    The Borrower will not, and will not permit any of its Subsidiaries to,
amend, modify or supplement any of the Merger Documents if the effect thereof could reasonably be expected to have a Material Adverse Effect (and provided that the Borrower promptly furnishes to the
Administrative Agent a copy of such amendment, modification or supplement). 


        Section 9.21    Anti-Layering.    Notwithstanding the foregoing, the Borrower will not, and will
not permit any Subsidiary to, incur, create, assume or suffer to exist any Debt if such Debt is subordinate or junior in ranking in right of payment to the Senior Revolving Credit Agreement, unless
such Debt is expressly subordinated in right of payment to the obligations under this Agreement. 


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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 when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or 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 Business Days. 


        (c)   any
representation or warranty made or deemed made by or on behalf of the Borrower or any Restricted 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 incorrect when made or deemed made. 



        (d)   the
Borrower or any Restricted Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.01(i),
Section 8.01(m), Section 8.01(q), Section 8.02, Section 8.03, Section 8.15 or in ARTICLE IX. 


        (e)   the
Borrower or any Restricted 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) 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 Borrower or such Restricted Subsidiary otherwise becoming aware of such default. 


        (f)    the
Borrower or any Restricted Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material
Indebtedness prior to the longer of (i) three (3) Business Days after the same shall become due and payable or (ii) the expiration of any applicable grace period. 


        (g)   any
event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity, 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 Borrower or any Restricted 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
Borrower or any Restricted Subsidiary or its 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 Borrower or any Restricted Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue undismissed for 30 days or an order or decree approving or ordering any of the foregoing shall be entered. 


        (i)    the
Borrower or any Restricted 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 



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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 Borrower or any Restricted Subsidiary or for a substantial part of its assets, (iv) file an answer admitting
the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing. 


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



        (k)   one
or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 (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) shall be rendered against the Borrower, any Restricted
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 Borrower or any Restricted 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 Borrower or any Restricted Subsidiary or any
of their Affiliates shall so state in writing. 


        (m)  the
Subordination Agreement, 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, PHAWK, LLC, any party thereto or holder of the Senior Subordinated Convertible Note or shall be repudiated by any of
them, or cause the payment of the obligations of the Senior Subordinated Convertible Note to be senior or pari passu in right to the payment of
obligations of this Agreement or any payment by the Borrower or any Guarantor in violation of the terms of the Intercreditor Agreement. 


        (n)   an
ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $250,000 in any year or (ii) $500,000 for all periods. 


        (o)   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(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent, at the direction of the Majority Lenders, shall, by notice to the Borrower, declare the Notes and 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, 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 



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an
Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), 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 Guarantors accrued hereunder and under the Notes and the other Loan Documents, 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. 



        (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: first, to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments;  second, to accrued
interest on the Notes; third, to fees;  fourth, pro rata to principal outstanding on the Notes; fifth, to any
other Indebtedness; and any excess
shall be paid to the Borrower or as otherwise required by any Governmental Requirement. 



 
 

ARTICLE XI
  The Administrative Agent    
    


        Section 11.01    Appointment; Powers.    



        (a)   Each
of the Lenders 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. 


        (b)   The
Administrative Agent is hereby designated as the CUSIP agent for all parties and is authorized to take all necessary or desirable steps to obtain CUSIP Numbers from
the CSB Service Bureau and to include those numbers on all Loan Documents. The Administrative Agent is further authorized to take all actions necessary or desirable to maintain accurate and updated
information with the CSB, including in connection with any amendment, modification, or restatement of this Agreement. After the Effective Date, the Administrative Agent is authorized to allow the CSB
to publish the CUSIP Data to CUSIP Subscribers. 




        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, (b) the Administrative Agent shall not have any 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 disclose, any information relating to the Borrower or any of its 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
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 


60







 

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 Borrower and its Subsidiaries or any other obligor or guarantor, or (vii) any failure by 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. 


        Section 11.03    Action by Administrative Agent.    The Administrative Agent shall not have any duty to take
any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as
directed by the Majority 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 Majority 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 applicable law. 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 Majority 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 Borrower, and the Lenders 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 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 


61







 



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 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, and the Borrower, and the Administrative Agent
may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right, with the consent of the Borrower, which
consent shall not be unreasonably withheld or delayed, to appoint a successor. If no successor shall have been so appointed and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation or removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative 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 Administrative Agent. 


        Section 11.07    Administrative Agent as a Lender.    Each bank serving as an Administrative 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 Administrative Agent, and such bank and its Affiliates may
accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Administrative Agent hereunder. 



        Section 11.08    No Reliance.    Each Lender acknowledges that it has, independently and without reliance upon
the Administrative 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 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 Administrative Agent shall not be required to keep themselves informed as to the performance or observance by the Borrower or
any of its 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 Borrower or its Subsidiaries. Except
for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent nor the 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 Borrower (or any of its Affiliates)
which may come into the possession of such Administrative Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as
special counsel to the Arranger only in respect of the Senior Revolving Credit Agreement. 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. 


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        Section 11.09    Authority of Administrative Agent to Release Collateral and Liens.    Each Lender 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 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 9.13 or is otherwise authorized by the
terms of the Loan Documents. 


        Section 11.10    The Arranger.    The Arranger shall have no duties, responsibilities or liabilities under this
Agreement and the other Loan Documents other than its duties, responsibilities and liabilities in its capacity as Lender 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: 



          (i)  if
to the Borrower, to it at 1100 Louisiana, Suite 4400, Houston, Texas 77002, Attention: Shane M. Bayless (Telecopy No.
(832) 204-2827), with a copy to Hinkle, Elkouri Law Firm L.L.C., 301 North Main, Suite 2000, Wichita, Kansas 67202, Attention: David S. Elkouri (Telecopy No.
(316) 660-6011); 


         (ii)  if
to the Administrative Agent, to it at 919 Third Avenue, New York, New York 10022, Attention: Millie Carillo, Loan Assistant (Telecopy No.
(212) 841-2683), with a copy to 1200 Smith Street, Suite 3100, Houston, Texas 77002, Attention: Brian Malone (Telecopy No. (713) 659-6915); and 


        (iii)  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 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 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 



63







 

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 and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any
provision of this Agreement or any other Loan Document or consent to any departure by the Borrower 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 shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. 


        (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 Borrower and the Majority Lenders or by the Borrower and the Administrative Agent with the consent of the Majority Lenders; provided that no such agreement
shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) increase the amount determined to be Total PV without the written consent of the Required
Lenders, or modify Section 2.07 without the consent of each Lender, (iii) reduce the principal amount of the Loan 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 the Loan, 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 Maturity 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 6.01,
Section 8.14, or Section 10.02(c), or change the definition of the terms "Domestic Subsidiary", "Foreign Subsidiary", "Material Domestic Subsidiary" or "Subsidiary", without the written
consent of each Lender, (vii) release any Guarantor (except as set forth in the Guaranty Agreement), release a substantial portion of the collateral (other than as provided in
Section 11.09), or reduce the percentage set forth in Section 8.14(a) to less than 80%, without the written consent of each Lender, (viii) change any of the provisions of this
Section 12.02(b) or the definitions of "Required Lenders" or "Majority 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; provided
further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, or (ix) increase the principal amount of the Loans outstanding under this Agreement to an amount in excess of $50,000,000 without the consent of each Lender.
Notwithstanding the foregoing, any supplement to Schedule 7.15 (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, including all 



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 Intralinks expenses, and the cost of environmental audits and surveys and 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) including, without limitation, fees and expenses incurred in the process of obtaining and
maintaining the CUSIP Numbers and the information relative thereto with the CSB, (ii) all costs, expenses, Taxes, assessments and other charges incurred by the Administrative 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 out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent 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 hereunder, including, without limitation, all such out-of-pocket expenses incurred during any workout, restructuring
or negotiations in respect of such Loans. 


        (b)   THE
BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ARRANGER, AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING
CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES,
INCLUDING THE 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 BORROWER OR
ANY RESTRICTED 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 THE USE OF THE PROCEEDS THEREFROM, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS
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
BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL
OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH
ANY 



65







 




ENVIRONMENTAL
LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY 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 OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY 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 BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL
LIABILITY RELATED IN ANY WAY TO 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; 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 WILFUL MISCONDUCT OF SUCH INDEMNITEE. 


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


        (d)   To
the extent permitted by applicable law, 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, or any Loan 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,
except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without 



66







 

the
prior written consent of each Lender (and any attempted assignment or transfer by 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, 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 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 for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of
Default has occurred and is continuing, any other assignee; and 


        (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 




67







 


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 Commitments and principal amount of the Loans, 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, 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 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 and each Lender. 



         (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(b) and any written consent to such assignment required by
Section 12.04(b), 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 or the Administrative Agent, 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, 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(b). 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 




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agrees,
for the benefit of the Borrower, to comply with Section 5.03(e) 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. 


        (e)   Notwithstanding
any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Lender or any grant of participations
therein shall be permitted if such transfer, assignment or grant would require the Borrower and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state. 




        Section 12.05    Survival; Revival; Reinstatement.    



        (a)   All
covenants, agreements, representations and warranties made by 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, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, 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. 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 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 Borrower shall 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  



69







 




 ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



        (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 Restricted Subsidiary against any of and all the obligations of the Borrower or any Restricted 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 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 



70







 




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 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 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 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 Borrower or any Restricted Subsidiary relating to the Borrower or any Restricted Subsidiary and their businesses, other than any such information that 


71







 



is
available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or a Restricted Subsidiary; provided that, in the case of information received
from the Borrower or any Restricted 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. 


        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 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 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 


72







 



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 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    No Third Party Beneficiaries.    This Agreement, the other Loan Documents, and the agreement
of the Lenders to make Loans 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 or any Lender for any reason
whatsoever. There are no third party beneficiaries. 


        Section 12.15    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] 


73









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



	BORROWER:	 	PETROHAWK ENERGY CORPORATION
	

 	
 	
By:	

    
 Floyd C. Wilson

President and Chief Executive Officer
	

ADMINISTRATIVE AGENT:	
 	

BNP PARIBAS,

as Administrative Agent
	

 	
 	

By:	

/s/  BRIAN M. MALONE      

	 	 	Name: Brian M. Malone
	 	 	Title: Authorized Signatory
	

 	
 	

By:	

/s/  GABE ELLISOR      

	 	 	Name: Gabe Ellisor
	 	 	Title: Authorized Signatory
	

LENDERS:	
 	

BNP PARIBAS
	

 	
 	

By:	

/s/  BRIAN M. MALONE      

	 	 	Name: Brian M. Malone
	 	 	Title: Authorized Signatory
	

 	
 	

By:	

/s/  GABE ELLISOR      

	 	 	Name: Gabe Ellisor
	 	 	Title: Authorized Signatory
	

LENDERS:	
 	
KEYBANK, NATIONAL ASSOCIATION
	

 	
 	

By:	

/s/  THOMAS RAJAN      

	 	 	Name: Thomas Rajan
	 	 	Title: Authorized Signatory
	

LENDERS:	
 	

GAIA OFFSHORE MASTER FUND, LTD.
	 	 	By:	Promethean Asset Management L.L.C.
	 	 	Its:	Investment Manager
	

 	
 	

By:	

/s/  ROBERT J. BRANTMAN      

	 	 	Name:	Robert J. Brantman
	 	 	Title:	Partner, Authorized Signatory
	 	 	 	 




74







 

	

LENDERS:	
 	

HFTP INVESTMENT L.L.C.
	 	 	By:	Promethean Asset Management L.L.C.
	 	 	Its:	Investment Manager
	

 	
 	

By:	

/s/  ROBERT J. BRANTMAN      

	 	 	Name:	Robert J. Brantman
	 	 	Title:	Partner, Authorized Signatory
	

LENDERS:	
 	

U.S. BANK NATIONAL ASSOCIATION
	

 	
 	

By:	

/s/  MONTE E. DECKERD      

	 	 	Name: Monte E. Deckerd
	 	 	Title: Authorized Signatory




[Signature
Page—Term Loan Agreement] 


75








  



 
 

ANNEX I COMMITMENTS    
    



	Name of Lender
 
	 	Percentage
	 	Commitment Amount

	BNP Paribas	 	50.00	%	$	25,000,000.00
	KeyBank National Association	 	20.00	%	$	10,000,000.00
	GAIA Offshore Master Fund, Ltd.	 	12.00	%	$	6,000,000.00
	HFTP Investment L.L.C.	 	8.00	%	$	4,000,000.00
	U.S. Bank National Association	 	10.00	%	$	5,000,000.00
	TOTAL	 	100.00	%	$	50,000,000.00




Annex I-1








  



 
 

ANNEX II
  TERMS OF SUBORDINATION    
    



        Section 1.1    Subordination of Obligations.    The Borrower and each Restricted Subsidiary covenant and agree,
and each Term Lender by its acceptance of a Term Note covenants and agrees, that the payment of the Subordinated Obligations shall, to the extent set forth in this Annex II, be subordinate and junior
and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness, whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed. 


        Section 1.2    Payment Default or Acceleration.    Except under circumstances when the terms of
Section 1.5 of this Annex II are applicable, if (a) a Payment Default or Senior Indebtedness Acceleration shall have occurred and be continuing and (b) the Term Lenders or the
Term Administrative Agent or other representative shall have received a Payment Default Notice, then neither the Borrower nor any Restricted Subsidiary may make, and no Term Lender shall accept,
receive or collect, any direct or indirect payment or distribution of any kind or character (in cash, securities, other Property, by setoff, or otherwise other than Reorganization Securities) of any
properties or assets of the Borrower or any Restricted Subsidiary on account of the Subordinated Obligations during the Payment Blockage Period; provided, however, that in the case of any payment on
or in respect of any Subordinated Obligation that would (in the absence of any such Payment Default Notice) have been due and payable on any date (a "Scheduled Payment
Date") during such Payment Blockage Period pursuant to the terms of the Term Notes as in effect on the date hereof or as amended consistent with the provisions of
Section 1.12 of this Annex II, the provisions of this Section 1.2 shall not prevent the making and acceptance of such payment (a "Scheduled
Payment"), together with any additional default interest as is due on the Term Notes, on or after the date immediately following the termination of such Payment Blockage
Period. In the event that, notwithstanding the foregoing, neither the Borrower nor any Restricted Subsidiary shall make any payment or distribution to any Term Lender prohibited by the foregoing
provisions of this Section 1.2, then and in such event such payment or distribution shall be held in trust for the benefit of and immediately shall be paid over to the holders of the Senior
Indebtedness or the Senior Indebtedness Representative for application against the Senior Indebtedness remaining unpaid until such Senior Indebtedness are paid in full in cash. Any Payment Default
Notice shall be deemed received by the Term Lenders upon the date of actual receipt by the Term Lenders or the Term Administrative Agent or other representative of such Payment Default Notice in
writing. 


        Section 1.3    Non-Payment Default.    Except under circumstances when the terms of
Section 1.2 of this Annex II or Section 1.5 of this Annex II are applicable, if (a) a Non-Payment Default shall have occurred and be continuing, (b) the Term
Lenders or
the Term Administrative Agent or other representative shall have received a Non-Payment Default Notice, and (c) no Non-Payment Default Notice shall have been given
within the 360 day period immediately preceding the giving of such Non-Payment Default Notice, then neither the Borrower nor any Restricted Subsidiary may make, and no Term Lender
shall accept, receive or collect, any direct or indirect payment or distribution of any kind or character (in cash, securities, other Property, by 


Annex II-1







 

setoff,
or otherwise other than Reorganization Securities) of any properties or assets of the Borrower or any Restricted Subsidiary on account of the Subordinated Obligations during the
Non-Payment Blockage Period; provided, however, that in the case of any Scheduled Payment on or in respect of any Subordinated Obligation that would (in the absence of any such
Non-Payment Default Notice) have been due and payable on any Scheduled Payment Date during such Non-Payment Blockage Period pursuant to the terms of the Term Notes as in effect
on the date hereof or as amended consistent with the requirements of Section 1.12 of this Annex II, the provisions of this Section 1.3 shall not prevent the making and acceptance of such
Scheduled Payment, together with any additional default interest as is due on the Term Notes, on or after the date immediately following the termination of such Non-Payment Blockage
Period. In the event that, notwithstanding the foregoing, the Borrower or any Restricted Subsidiary shall make any payment or distribution to any Term Lender prohibited by the foregoing provisions of
this Section 1.3, then and in such event such payment or distribution shall be held in trust for the benefit of and immediately shall be paid over to the holders of the Senior Indebtedness or
the Senior Indebtedness Representative for application against the Senior Indebtedness remaining unpaid until such Senior Indebtedness are paid in full in cash. Any Non-Payment Default
Notice shall be deemed received by the Term Lenders upon the date of actual receipt by the Term Lenders or the Term Administrative Agent or other representative of such Non-Payment Default
Notice in writing. 


        Section 1.4    Standstill.    At any time that the Term Lenders are not permitted to receive payments on the
Subordinated Obligations pursuant to either Section 1.2 or 1.3 of this Annex II, the Term Lenders and the Term Administrative Agent or other representative of the Term Lenders will not commence
any Enforcement Action relative to the Borrower or any Restricted Subsidiary during the Standstill Period. Upon the termination of the Standstill Period, the Term Lenders may exercise all rights or
remedies they may have in law or equity; provided, however, that if a Standstill Period terminates pursuant to clause (e) thereof, no Term Lender and no agent or representative thereof shall
exercise any remedies against, or attempt to foreclose upon, garnish, sequester or execute upon, any Property known to it as constituting collateral for the Senior Indebtedness (other than to file or
record any judgment Liens it may have obtained against such collateral) during the period that such Standstill Period would have been in effect but for termination pursuant to clause (e) of the
definition of "Standstill Period;" provided further, that the Payment Blockage Period or the Non-Payment Blockage Period, as the case may be, if not also terminated, shall continue for its
full period notwithstanding the termination of the Standstill Period. Notwithstanding the foregoing, no Standstill Period may be commenced while any other Standstill Period exists or within
180 days following the termination of any prior Standstill Period (provided that this sentence shall not relieve any Term Lender of its obligation to provide notice under Section 1.9 of
this Annex II). 


        Section 1.5    Insolvency; Bankruptcy; Etc.    In the event of the institution of any Insolvency Proceeding
relative to the Borrower or any Restricted Subsidiary, then: 



        (a)   The
holders of the Senior Indebtedness shall be entitled to receive payment in full in cash of the Senior Indebtedness before the Term Lenders are entitled to receive
any direct or indirect payment or distribution of any kind or character, whether in cash, 



Annex II-2







 

Property
or securities (other than Reorganization Securities) on account of the Subordinated Obligations. 


        (b)   Any
direct or indirect payment or distribution of any kind or character, whether in cash, Property or securities, by setoff or otherwise, which may be payable or
deliverable in such proceedings in respect of the Subordinated Obligations but for the provisions of this Annex II shall be paid or delivered by the Person making such payment or distribution, whether
the Borrower, a Subsidiary of the Borrower, a trustee in bankruptcy, a receiver, a liquidating trustee, or otherwise, directly to the holders of the Senior Indebtedness or the Senior Indebtedness
Representative, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid; provided, however, that no such delivery of any Reorganization Securities shall be
made to any holders of the Senior Indebtedness. In the event that, notwithstanding the foregoing provisions of this Section 1.5, any Term Lender shall have received any such payment or
distribution of any kind or character, whether in cash, Property or securities, by setoff or otherwise, before all Senior Indebtedness is paid in full in cash, which is to be paid to the holders of
the Senior Indebtedness under the foregoing provisions of this Section 1.5, then and in such event such payment or distribution shall be held in trust for the benefit of and immediately shall
be paid over to the holders of the Senior Indebtedness or the Senior Indebtedness Representative for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full in cash. 


        (c)   If
no proof of claim is filed in any Insolvency Proceeding with respect to any Subordinated Obligations by the tenth day prior to the bar date for any such proof of
claim, the Senior Indebtedness Representative may, after notice to the Term Lenders or the Term Administrative Agent or other representative, file such a proof of claim on behalf of the Term Lenders,
and each Term Lender hereby irrevocably appoints the Senior Indebtedness Representative as its agent and attorney-in-fact for such limited purpose; provided, that the foregoing
shall not confer to the holder of any Senior Indebtedness the right to vote on behalf of the Term Lenders in any Insolvency Proceedings. 




        Section 1.6    No Impairment.    No right of any present or future holder of Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrower or any Restricted Subsidiary or by any
non-compliance by the Borrower or any Restricted Subsidiary with the terms, provisions, and covenants of this Annex II, the Term Loan Agreement or the Term Notes, regardless of any
knowledge thereof any such Term Lender may have or be otherwise charged with. The provisions of this Annex II shall be enforceable directly by any present or future holder of the Senior Indebtedness
and/or the Senior Indebtedness Representative. 


        Section 1.7    Rights of Creditors; Subrogation.    The provisions of this Annex II are for the purpose of
defining the relative rights of the holders of the Senior Indebtedness on the one hand, and the Term Lenders on the other hand, and nothing herein shall impair, as between the Borrower and the
Guarantors and the Term Lenders, the obligation of the Borrower and the Guarantors, which are unconditional and absolute, to pay to the Term Lenders the principal thereof and interest thereon in
accordance with their terms and the provisions thereof, nor shall anything herein, except as otherwise provided in Section 1.4 of this Annex II, prevent the Term 


Annex II-3







 

Lenders
from exercising all remedies otherwise permitted by applicable law or hereunder upon default under the Term Loan Agreement or under the Term Notes (including the right to demand payment and
sue for performance thereof and of the Term Notes and to accelerate the maturity thereof as provided by the terms of the Term Notes), subject to the rights of holders of the Senior Indebtedness under
this Annex II. Upon payment in full of the Senior Indebtedness in cash and termination of the commitments of any holder of the Senior Indebtedness to make loans or extensions of credit, and expiration
or termination of all letters of credit issued by any holder of the Senior Indebtedness, the Term Lenders shall, to the extent of any payments or distributions paid or delivered to the holders of the
Senior Indebtedness or otherwise applied to the Senior Indebtedness pursuant to the provisions of this Annex II, be subrogated to the rights of the holders of the Senior Indebtedness to receive
payments or distributions of assets of the Borrower or any Guarantor made on Senior Indebtedness (and any security therefor) until the Subordinated Obligations shall be paid in full (and, for this
purpose, no such payments or distributions paid or delivered to the holders of the Senior Indebtedness or otherwise applied to the Senior Indebtedness shall be deemed to have discharged the
Subordinated Obligations), and, for the purposes of such subrogation, no payments to the holders of the Senior Indebtedness of any cash, assets, stock, or obligations to which the Term Lenders would
be entitled except for the provisions of this Annex II shall, as between the Borrower and the Guarantors, any of their respective creditors (other than the holders of the Senior Indebtedness), and the
Term Lenders, be deemed to be a payment by the Borrower or any Guarantor to or on account of Senior Indebtedness. The fact that failure to make any payment on account of the Subordinated Obligations
is caused by reason of the operation of any provision of this Annex II shall not be construed as preventing the occurrence of an Event of Default. 



        Section 1.8    Payments on Senior Indebtedness.    In the event that any Term Lender determines in good faith
that evidence is required with respect to the right of any holder of the Senior Indebtedness to
participate in any payment or distribution pursuant to this Annex II or the amount of such participation, such Term Lender may request such Person to furnish evidence to the reasonable satisfaction of
such Term Lender as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent
to the rights of such Person under this Annex II, and if such evidence is not furnished, such Term Lender may defer any payment to such Person pending judicial determination as to the right of such
Person to receive such payment; provided that, upon the written request of such Person to such Term Lender, such payment shall be made to the court having jurisdiction over such judicial determination
or to another Person mutually satisfactory to such Person and such Term Lender, as escrowee, to be held and invested pending such judicial determination in accordance with such instructions as shall
be mutually satisfactory to such Person and such Term Lender and upon such judicial determination becoming final and non-appealable to be distributed in accordance therewith to the Person
entitled thereto. 


        Section 1.9    Notice of Acceleration, Enforcement Action.    



        (a)   Each
Term Lender agrees that in the event any Event of Default shall occur, and as a result thereof, any Term Lender or the Term Administrative Agent or other
representative of such Term Lender accelerates maturity of the Term Notes, then such Term Lender or the Term Administrative Agent or other representative shall give prompt (and in any 


Annex II-4







 

event
within three (3) Business Days) notice thereof in writing to the holders of the Senior Indebtedness or the Senior Indebtedness Representative. Neither the Borrower nor any Restricted
Subsidiary may pay the Term Notes until ten (10) Business Days after the Senior Indebtedness Representative receives the notice described above and, after that ten (10) Business Day
period, may pay the Term Notes, and the Term Lenders may receive or collect such payment, only if the provisions of this Annex II do not prohibit such payment at that time. 


        (b)   Each
Term Lender agrees that in the event any Event of Default shall occur, and as a result thereof, any Term Lender or the Term Administrative Agent or other
representative of such Term Lender intends to commence any Enforcement Action, then such Term Lender or the Term Administrative Agent or other representative shall first deliver notice thereof in
writing to the Senior Indebtedness Representative both (i) not less than ten (10) days prior to taking any such Enforcement Action, and (ii) one (1) Business Day after such
Enforcement Action is taken. 


        Section 1.10    Reinstatement.    The provisions of this Annex II shall remain in force and effect until the
indefeasible payment in full of all Senior Indebtedness and the termination of all commitments of any holder of the Senior Indebtedness to make loans or extensions of credit, and expiration or
termination
of all letters of credit issued by any holder of the Senior Indebtedness. To the extent any payment of or distribution in respect of the Senior Indebtedness (whether by or on behalf of the Borrower or
any of its Subsidiaries, as proceeds of security or enforcement of any right of set off or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to the Borrower or
any Restricted Subsidiary or any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar
law, then if such payment or distribution is recovered by, or paid over to, the Borrower or any Restricted Subsidiary or such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment has not occurred and the provisions of
this Annex II shall continue to be applicable in respect of said reinstated Senior Indebtedness. 



        Section 1.11    Rights of holders of the Senior Indebtedness.    The holders of the Senior Indebtedness may, at
any time and from time to time subject to the terms of the Senior Indebtedness, without the consent of or notice to the Term Lenders or the Term Administrative Agent or other representative of the
Term Lenders, without incurring responsibility to the Term Lenders and without impairing or releasing the subordination or other benefits provided in this Annex II or the obligations hereunder of the
Term Lenders to the holders of the Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew,
increase (but not in excess of the cap provided for in the definition of "Senior Indebtedness"), alter or amend, Senior Indebtedness or any instrument evidencing the same or any covenant or agreement
under which Senior Indebtedness is outstanding or secured or any liability of any obligor thereon; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (c) settle or compromise any Senior Indebtedness or any liability of any obligor thereon or release any Person liable in any manner for the payment of
Senior Indebtedness; and (d) waive any default under Senior Indebtedness and exercise or refrain from exercising any 


Annex II-5







 

rights
against the Borrower, any Restricted Subsidiary or any other Person. The foregoing provisions are not intended to permit a change to the definition of "Senior Indebtedness". 


        Section 1.12    Amendments.    No amendment of this Annex II, or the definitions used in this Annex II, or
which would have the effect of modifying this Annex II, or the definitions used in this Annex II, shall be effective unless it is in writing and made with the prior written consent of each of the
Required Senior Revolving Lenders or by the Senior Indebtedness Representative acting at their written discretion on their behalf. 


        Section 1.13    Identity of Term Lenders for Notice Purposes.    For purposes of any notice required or
permitted to be given hereunder by the holders of the Senior Indebtedness or the Senior Indebtedness Representative to the Term Lenders, or any of them, the holders of the Senior Indebtedness and the
Senior Indebtedness Representative shall be entitled to rely, conclusively, on the identity and address of
each Term Lender as set forth in the Term Loan Agreement or as otherwise set forth in the most recent notice received by the Senior Indebtedness Representative from a Term Lender referring to the Term
Loan Agreement for purposes of providing the identity and address of each Term Lender. The Term Lenders agree that any notices required to be given to the Term Lenders shall be effective if such
notice is given to the Term Administrative Agent or other representative of the Term Lenders. For so long as the Subordinated Obligations are outstanding, the Term Lenders agree to designate and
maintain an agent or other representative for such purposes. 


        Section 1.14    Liens.    



        (a)   All
Liens granted by the Borrower, or, if applicable, any Guarantor, which at any time secure the Term Loan Agreement, any Term Note or any other Term Loan Document are
hereby made, and will at all times prior to the full payment or discharge of the Senior Indebtedness be, subject and subordinate to all Liens granted by the Borrower or any Guarantor which at any time
secure the Senior Indebtedness, which subordination shall be effective whether or not all such Liens securing Senior Indebtedness have been properly recorded, filed and otherwise perfected prior to
all such Liens securing any Term Note and regardless of the relative priority of such Liens as determined without regard to this Annex II. The mortgages included in the Senior Revolving Documents do
(and other mortgages, security agreements and similar Senior Revolving Documents may) describe the indebtedness secured thereby in a manner which might include indebtedness other than the Senior
Indebtedness. For so long as any Term Note is outstanding, as between the Term Lenders and the holders of the Senior Indebtedness, only the Senior Indebtedness shall be deemed to be secured by any
Liens granted under the Senior Revolving Documents. 


        (b)   Each
Term Lender agrees that it will not initiate, join in or prosecute any claim, action or other proceeding challenging the validity or enforceability of the Senior
Indebtedness or the Liens securing the Senior Indebtedness. 


Annex II-6







 

        Section 1.15    Legend.    


        (a)   Each
Term Note shall be conspicuously inscribed with a legend substantially in the form and substance as follows: 



PAYMENT
OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ANNEX II OF THE TERM LOAN AGREEMENT DATED NOVEMBER 23, 2004 BY AND AMONG PETROHAWK ENERGY CORPORATION, BNP PARIBAS, AS ADMINISTRATIVE AGENT
AND
THE TERM LENDERS PARTIES THERETO, BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, THE PROVISIONS OF WHICH ANNEX II OF SUCH LOAN AGREEMENT BEING
INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART HEREOF. 




        (b)   The
Borrower and each Term Lender or the Term Administrative Agent or other representative of the Term Lenders shall cause each mortgage, security agreement and other
instrument securing all or any part of the Subordinated Obligations to be conspicuously inscribed with a legend substantially in the form and substance as follows: 



ALL
LIENS GRANTED BY THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ANNEX II OF THE TERM LOAN AGREEMENT DATED NOVEMBER 23, 2004 BY AND AMONG PETROHAWK ENERGY CORPORATION, BNP PARIBAS, AS
ADMINISTRATIVE AGENT AND TERM LENDERS PARTIES THERETO, BE SUBORDINATE AND JUNIOR TO ALL LIENS GRANTED BY GRANTOR TO SECURE THE SENIOR INDEBTEDNESS REGARDLESS OF THE RELATIVE PRIORITY OF SUCH LIENS AS
DETERMINED WITHOUT REGARD TO SUCH ANNEX II OF SUCH TERM LOAN AGREEMENT, THE PROVISIONS OF WHICH ANNEX II OF SUCH TERM LOAN AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART
HEREOF. 




        Section 1.16    Successors and Assigns.    Each Term Lender acknowledges and agrees that the provisions of this
Annex II are, and are intended to be, an inducement and a consideration to each holder of the Senior Indebtedness to make, extend and continue the Senior Indebtedness; and each holder of the Senior
Indebtedness shall be deemed conclusively to have relied upon the provisions of this Annex II in permitting the Borrower to incur the Subordinated Obligations and in making, extending, continuing
and/or acquiring such Senior Indebtedness. This Annex II shall pass to and be fully binding upon the successors and assigns of each Term Lender and shall inure to the benefit of the present and future
holders of the Senior Indebtedness and the Senior Indebtedness Representative and their respective successors and assigns (including without limitation any Person refinancing any Senior Indebtedness). 


Annex II-7








 

        Section 1.17    Defined Terms.    


        (a)   Each
capitalized term used in this Annex II, but not defined herein, shall have the meaning ascribed such term in the Term Loan Agreement. 


        (b)   The
following terms have the following meanings when used in this Annex II: 


        "Blockage Period" means a Non-Payment Blockage Period or a Payment Blockage Period. 


        "Eligible Swap Agreement" means any present or future Swap Agreement between the Borrower or any Restricted Subsidiary and any Senior
Revolving Lender or any Affiliate of any Senior Revolving Lender. For the avoidance of doubt, a Swap Agreement ceases to be an Eligible Swap Agreement if the Person that is the counterparty to the
Borrower under a Swap Agreement ceases to be a Senior Revolving Lender under the Senior Revolving Credit Agreement (or, in the case of an affiliate of a Senior Revolving Lender, the Person affiliated
therewith ceases to be a Senior Revolving Lender under the Senior Revolving Credit Agreement). 


        "Enforcement Action" means, with respect to any Subordinated Obligations: any enforcement of any right or remedy including any enforcement
or foreclosure of Liens granted by the Borrower or any Restricted Subsidiary to secure any or all of such Subordinated Obligations, any enforcement or foreclosure of Liens on any capital stock or
other equity interests in the Borrower or any Restricted Subsidiary which may be granted by the Borrower or its Subsidiaries or any holder of equity in the Borrower to secure any or all of such
Subordinated Obligations, or any other efforts to collect proceeds from the Borrower's or any of its Subsidiary's assets or properties (including proceeds of production) to satisfy the Subordinated
Obligations, including, without limitation, the commencement, or the joining with any other creditor of the Borrower or any Restricted Subsidiary in the commencement of any Insolvency Proceeding
against the Borrower or any Restricted Subsidiary; provided, that none of the following shall constitute an Enforcement Action: (a) acceleration of any of the Subordinated Obligations following
acceleration of any of the Senior Indebtedness (provided that such acceleration of Senior Indebtedness has not previously been rescinded), (b) acceleration of any of the Senior Indebtedness
following acceleration of any of the Subordinated Obligations (provided that such acceleration of the Subordinated Obligations has not previously been rescinded), (c) actions by any Term Lender
to obtain possession of or receive Reorganization Securities, or (d) taking any action described above during the existence of any Insolvency Proceeding subject to the jurisdiction of a court
of competent authority. 


        "Insolvency Proceeding" shall mean (a) any voluntary or involuntary case, action, or proceeding before any Governmental Authority
having jurisdiction over the applicable Person or its assets relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up, or relief of debtors,
or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each case whether undertaken under U.S. Federal, state, or foreign law. 


Annex II-8







 

        "Non-Payment Blockage Period" means, with respect to any Non-Payment Default, the period from and including the
date of receipt by the Term Lenders or the Term Administrative Agent or other representative of a Non-Payment Default Notice relating thereto until the first to occur of (a) the
date upon which the Senior Indebtedness have been paid in full in cash, all commitments of any holder of Senior Indebtedness to make loans or extensions of credit have terminated, and all letters of
credit issued by any holder of Senior Indebtedness have expired, terminated or fully collateralized in cash, (b) the 179th day after receipt of such Non-Payment Default Notice,
(c) the date on which the Non-Payment Default which is the subject of such Non-Payment Default Notice has been waived in writing by the applicable holder or holders of
the Senior Indebtedness or an agent or representative on their behalf, cured, or ceased to exist, or (d) the date upon which the Person(s) giving such Non-Payment Default Notice
notify the Term Lenders or the Term Administrative Agent or other representative in writing of the termination of such Non-Payment Blockage Period. 



        "Non-Payment Default" means the occurrence of any event under any Senior Revolving Document evidencing Senior Indebtedness,
not constituting a Payment Default, which gives the holder(s) of such Senior Indebtedness, or an agent or representative acting on behalf of such holder(s), the right to cause the maturity of such
Senior Indebtedness to be accelerated immediately without any further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace period. 


        "Non-Payment Default Notice" means a written notice from or on behalf of the Senior Indebtedness Representative that a
Non-Payment Default has occurred and is continuing which identifies such Non-Payment Default and specifically designates such notice as a "Non-Payment Default
Notice". 


        "Payment Blockage Period" means, with respect to any Payment Default or Senior Indebtedness Acceleration, the period from and including
the date of receipt by the Term Lenders or the Term Administrative Agent or other representative of a Payment Default Notice relating thereto until the first to occur of (a) the date upon which
the Senior Indebtedness have been paid in full in cash, all commitments of any holder of Senior Indebtedness to make loans or extensions of credit have terminated, and all letters of credit issued by
any holder of Senior Indebtedness have expired, terminated or fully collateralized in cash, (b) if such Payment Default Notice relates to a Payment Default, the date on which the Payment
Default which is the subject of such Payment Default Notice has been waived in writing by the applicable holder or holders of the Senior Indebtedness or an agent or representative on their behalf,
cured or ceased to exist, or if such Payment Default Notice relates to a Senior Indebtedness Acceleration, the date on which such acceleration is rescinded, annulled or ceased to exist, or
(c) the day upon which the Person(s) giving such Payment Default Notice notify the Term Lenders or the Term Administrative Agent or other representative in writing of the termination of such
Payment Blockage Period. 


        "Payment Default" means a default by the Borrower or any Guarantor in the payment of any amount owing with respect to the Senior
Indebtedness, whether with respect to principal, interest, premium, letter of credit reimbursement obligations, commitment fees or letter of credit 


Annex II-9







 

fees
or otherwise when the same becomes due and payable, whether at maturity or at a date fixed for payment of an installment or prepayment or by declaration or acceleration or otherwise. 



        "Payment Default Notice" means a written notice from or on behalf of the Senior Indebtedness Representative that either (i) a
Payment Default with respect to such Senior Indebtedness has occurred and is continuing, or (ii) a Senior Indebtedness Acceleration with respect to such Senior Indebtedness has occurred and is
continuing. 


        "Reorganization Securities" means (a) debt securities that are issued pursuant to an Insolvency Proceeding the payment of which is
subordinate and junior at least to the extent provided in this Annex II to the payment of the Senior Indebtedness outstanding at the time of the issuance thereof (including any refinancing of Senior
Indebtedness pursuant to an Insolvency Proceeding) and to the payment of all debt securities issued in exchange for such Senior Indebtedness in such Insolvency Proceeding (whether such subordination
is effected by the terms of such securities, an order or decree issued in such Insolvency Proceeding, by agreement of the Term Lenders or otherwise), or (b) equity securities that are issued
pursuant to an Insolvency Proceeding; provided, in either case, that such securities are authorized by an order or decree made by a court of competent jurisdiction in such Insolvency Proceeding. 


        "Required Senior Revolving Lenders" means Senior Revolving Lenders holding at least sixty-six and two-thirds
percent (662/3%) of the outstanding Senior Indebtedness, or if no principal amount of Loans or letters of credit is then outstanding, Senior Revolving Lenders holding at least
sixty-six and two-thirds percent (662/3%) of the total commitments. 


        "Senior Indebtedness" means and includes (a) all principal indebtedness for loans now outstanding or hereafter incurred, and all
letter of credit reimbursement obligations now existing or hereafter arising, under the Senior Revolving Credit Agreement, provided that the aggregate outstanding principal amount of Senior
Indebtedness under this clause (a) shall not exceed $400,000,000 at any time, and provided further, that if the aggregate principal amount of Senior Indebtedness (constituting principal and
letter of credit reimbursement obligations) shall exceed $400,000,000, then the subordination of the Term Notes as contemplated by Annex II to the Senior Indebtedness of $400,000,000 or less shall not
be impaired, (b) all amounts now or hereafter owing to any of the Senior Revolving Lenders or any of their Affiliates under any Eligible Swap Agreement, (c) all interest accruing on the
Senior Indebtedness described in the preceding clauses (a) and (b), and (d) all other monetary obligations (whether now outstanding or hereafter incurred) for which the Borrower or any
Guarantor is responsible or liable as obligor, guarantor or otherwise under or pursuant to any of the Senior Revolving Documents including, without limitation, all fees, penalties, yield protections,
breakage costs, damages, indemnification
obligations, reimbursement obligations, and expenses (including, without limitation, fees and expenses of counsel to the Senior Indebtedness Representative and the Senior Revolving Lenders) together
with interest on the foregoing to the extent provided for in the Senior Revolving Documents. The interest described in the preceding clause (c) and the premiums and penalties described in the
preceding clause (d) include, without limitation, all interest accruing after the commencement of any Insolvency Proceeding under the terms of the Senior Revolving Documents whether or not such
interest constitutes an allowed claim in any such Insolvency Proceeding. 


Annex II-10







 

        "Senior Indebtedness Acceleration" means with respect to the Senior Indebtedness that the holder or holders of such Senior Indebtedness,
or an agent or representative on behalf of such holder or holders, have caused the maturity of such Senior Indebtedness to be accelerated. 


        "Senior Indebtedness Default" means a Payment Default or a Non-Payment Default. 



        "Senior Indebtedness Representative" means (a) initially, BNP Paribas, as administrative agent for the Senior Revolving Lenders
under the Senior Revolving Credit Agreement or (b) such other Person selected by the Majority Lenders (as such term is defined in the Senior Revolving Credit Agreement) to replace BNP Paribas
or the then Senior Indebtedness Representative. 


        "Senior Revolving Credit Agreement" means that certain $400,000,000 Senior Revolving Credit Agreement dated as of the November 23,
2004 among the Borrower, BNP Paribas, as administrative agent and the financial institutions listed therein from time to time as Senior Revolving Lenders, as from time to time renewed, extended,
amended, supplemented, or restated, and any agreements representing the refinancing, replacement, or substitution in whole or in part of the revolving credit loans and letter of credit liabilities
made or incurred under such Senior Revolving Credit Agreement. 


        "Senior Revolving Documents" means, collectively, (a) the Senior Revolving Credit Agreement and the Eligible Swap Agreements,
(b) any note, bond or other instrument evidencing Senior Indebtedness, (c) all mortgages, security agreements, pledge agreements or financing statements evidencing, creating or
perfecting any Lien to secure the Senior Indebtedness in any way, (d) all guarantees of the Senior Indebtedness, (d) all other documents, instruments or agreements relating to the Senior
Indebtedness now or hereafter executed or delivered by and among the Borrower, any Restricted Subsidiary, the Senior Indebtedness Representative or any Senior Revolving Lender, including without
limitation each of the other the "Loan Documents" as such term is defined in the Senior Revolving Credit Agreement, and (e) all renewals, extensions, amendments, modifications or restatements
of the foregoing. 


        "Senior Revolving Lenders" means all Persons which now or hereafter constitute a "Lender" under the Senior Revolving Credit Agreement and
their respective successors and assigns, and all Person refinancing any Senior Indebtedness and their respective successors and assigns. 



        "Standstill Period" means the period beginning with the commencement of a Blockage Period and ending on the earliest of (a) the
date when the Senior Indebtedness Default giving rise to such Blockage Period has been cured or waived in writing, (b) the date of the repayment in full in cash of the Senior Indebtedness,
(c) the date that is 90 days after the commencement of a Blockage Period, (d) the end of the Non-Payment Blockage Period applicable to such Senior Indebtedness
Default, (e) the date on which the Senior Indebtedness shall have been declared due and payable prior to its stated maturity or any holder of Senior Indebtedness commences proceedings to
collect any Senior Indebtedness or realize upon any material part of the collateral for any Senior Indebtedness and (f) the date upon which any Insolvency Proceeding is commenced. 


Annex II-11







 

        "Subordinated Obligations" means any and all indebtedness (whether for principal, interest, fees, indemnifications or otherwise, but not
expenses) now or hereafter owing by the Borrower or any Restricted Subsidiary under or in connection with the Term Loan Agreement, the Term Notes, any mortgage, guaranty or other security instrument
given in connection therewith, and any letter agreement or other agreement providing for payment of fees in connection therewith. 


        "Term Administrative Agent" means BNP Paribas, in its capacity as administrative agent for the Term Lenders under the Term Loan Agreement,
together with any successors in such capacity. 


        "Term Lenders" means all Persons which now or hereafter constitute a "Lender" under the Term Loan Agreement and their respective
successors and assigns, and all Person refinancing any Senior Indebtedness and their respective successors and assigns. 


        "Term Loan Agreement" means that certain $50,000,000 Second Lien Term Loan Agreement dated as of the November 23, 2004 among the
Borrower, BNP Paribas, as administrative agent and the financial institutions listed therein from time to time as Term Lenders, as from time to time renewed, extended, amended, supplemented, or
restated, and any agreements representing the refinancing, replacement, or substitution in whole or in part of the loans made or incurred under such Term Loan Agreement. 



        "Term Loan Documents" means, collectively, (a) the Term Loan Agreement, (b) the Term Notes and any other note, bond or other
instrument evidencing Senior Indebtedness, (c) all mortgages, security agreements, pledge agreements or financing statements evidencing, creating or perfecting any Lien to
secure the Term Loan Agreement and the Term Notes in any way, (d) all guarantees thereof, (d) all other documents, instruments or agreements relating to the Term Loan Agreement or the
Term Note now or hereafter executed or delivered by and among the Borrower, any Restricted Subsidiary, the Term Administrative Agent or any Term Lender, including without limitation each of the other
the "Loan Documents" as such term is defined in the Term Loan Agreement, and (e) all renewals, extensions, amendments, modifications or restatements of the foregoing. 


        "Term Notes" means each promissory note issued under the Term Loan Agreement evidencing the term loans made pursuant to the term thereof,
as from time to time renewed, extended, amended, supplemented, or restated, and any agreements representing the refinancing, replacement, or substitution in whole or in part thereof. 


Annex II-12








  



 
 

EXHIBIT A
  FORM OF
  NOTE    
    


PAYMENT
OF THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN ANNEX II OF THE SECOND LIEN TERM LOAN AGREEMENT DATED NOVEMBER 23, 2004 BY AND AMONG PETROHAWK ENERGY CORPORATION, BNP PARIBAS, AS
ADMINISTRATIVE AGENT AND THE TERM LENDERS PARTIES THERETO, BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL SENIOR INDEBTEDNESS, THE PROVISIONS OF WHICH ANNEX II OF
SUCH SECOND LIEN TERM LOAN AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART HEREOF. 



	

$[            ]	
 	

November 23, 2004





        FOR VALUE RECEIVED, PETROHAWK ENERGY CORPORATION, a corporation validly formed and existing under the laws of the State of Delaware (the
"Borrower") hereby promises to pay to the order of [            ] (the
"Lender"), at the principal office of BNP Paribas, as administrative agent (the "Administrative Agent"),
at [            ], the principal sum of [            ] Dollars ($
[            ]), in lawful money of the United States
of America and in immediately available funds, on the dates and in the principal amounts provided in the Second Lien Term Loan Agreement, and to pay interest on the unpaid principal amount of each
such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the
Second Lien Term Loan Agreement. 


        The
date, amount, Type, interest rate, Interest Period and maturity of the Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record
maintained by the 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 Loan or affect the validity
of such transfer by any Lender of this Note. 


        This
Note is one of the Notes referred to in the Second Lien Term Loan Agreement dated as of November 23, 2004 among the Borrower, the Administrative Agent and lenders signatory
thereto (including the Lender), and evidences the Loan made by the Lender thereunder (such Second Lien Term Loan Agreement as the same may be amended, supplemented or restated from time to time, the
"Second Lien Term Loan Agreement"). Capitalized terms used in this Note have the respective meanings assigned to them in the Second Lien Term Loan
Agreement. 


        This
Note is issued pursuant to the Second Lien Term Loan Agreement and is entitled to the benefits provided for in the Second Lien Term Loan Agreement and the other Loan Documents. The
Second Lien Term Loan Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified
therein and other provisions relevant to this Note. 


        THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 



	 	 	PETROHAWK ENERGY CORPORATION
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





Exhibit A - 1








  



 
 

EXHIBIT B
  FORM OF BORROWING REQUEST    
    


        November 23, 2004 



        Petrohawk
Energy Corporation, a corporation duly formed and existing under the laws of the State of Delaware (the "Borrower"), pursuant to
Section 2.03 of the Second Lien Term Loan Agreement dated as of November 23, 2004 (together with all amendments, restatements, supplements or other modifications thereto, the
"Agreement") among the Borrower, BNP Paribas, as Administrative Agent and lenders (the "Lenders") which
are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Second Lien Term Loan Agreement), hereby requests the Loans as follows: 



	(i)
	Aggregate
amount of the requested Loan is $50,000,000;



	(ii)
	Date
of such Loan is November 23, 2004



	(iii)
	Requested
Loan is to be [an ABR Tranche] [a Eurodollar Tranche];



	(iv)
	In
the case of a Eurodollar Tranche, the initial Interest Period applicable thereto is [                        ]; and



	(v)
	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 of the Second Lien Term
Loan Agreement, is as follows: 





	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 






        The undersigned certifies that he/she is the [            ] of the Borrower, and that as such he/she is authorized to execute
this
certificate on behalf of the Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested Loan under the terms
and conditions of the Second Lien Term Loan Agreement. 



	 	 	PETROHAWK ENERGY CORPORATION
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





Exhibit B - 1








  



 
 

EXHIBIT C
  FORM OF INTEREST ELECTION REQUEST    
    


November 23,
2004 


        PETROHAWK
ENERGY CORPORATION, a Delaware corporation (the "Borrower"), pursuant to Section 2.04 of the Second Lien Term Loan
Agreement dated as November 23, 2004 among the Borrower, BNP Paribas, as Administrative Agent and lenders (the "Lenders") which are or become
parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Second Lien Term Loan Agreement), hereby makes an Interest Election Request as follows: 


          (i)  The
Tranche to which this 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 specified pursuant to (iii) and (iv) below shall be specified for each resulting Borrowing) is
[                  ]; 


         (ii)  The
effective date of the election made pursuant to this Interest Election Request is [                        ],
200[  ];[and] 


        (iii)  The
resulting Tranche is to be [an ABR Tranche] [a Eurodollar Tranche][; and] 


       [(iv)  [If
the resulting Tranche is a Eurodollar Tranche] The Interest Period applicable to the resulting Tranche after giving effect to
such election is [                  ]]. 


        The
undersigned certifies that he/she is the [                  ] of the Borrower, and that as such he/she is authorized to execute this certificate on behalf of
the
Borrower. The undersigned further certifies, represents and warrants on behalf of the Borrower that the Borrower is entitled to receive the requested continuation or conversion under the terms and
conditions of the Second Lien Term Loan Agreement. 



	 	 	PETROHAWK ENERGY CORPORATION
	
 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





Exhibit C-1








  



 
 

EXHIBIT D
  FORM OF COMPLIANCE CERTIFICATE    
    



        The undersigned hereby certifies that he/she is the [            ] of PETROHAWK ENERGY CORPORATION, a Delaware corporation
(the
"Borrower"), and that as such he/she is authorized to execute this certificate on behalf of the Borrower. With reference to the Second Lien Term Loan
Agreement dated as of November 23, 2004 (together with all amendments, restatements, supplements or other modifications thereto being the
"Agreement") among the Borrower, BNP Paribas, as Administrative Agent, and lenders (the "Lenders") which
are or become a party thereto, and such Lenders, the undersigned represents and warrants as follows (each capitalized term used herein having the same meaning given to it in the Agreement unless
otherwise specified): 


        (a)   The
representations and warranties of the Borrower contained in Article VII of the Agreement and in the Loan Documents and otherwise made in writing by or on
behalf of the Borrower pursuant to the Agreement and the Loan Documents were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct in all
material respects at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders have expressly
consented in writing to the contrary. 


        (b)   The
Borrower has performed and complied with all agreements and conditions contained in the Agreement and in the Loan Documents required to be performed or complied with
by it prior to or at the time of delivery hereof [or specify default and describe]. 


        (c)   Since
December 31, 2003, no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of the Borrower or any
Restricted Subsidiary which could reasonably be expected to have a Material Adverse Effect [or specify event]. 


        (d)   There
exists no Default or Event of Default [or specify Default and describe]. 



        (e)   Attached
hereto are the detailed computations necessary to determine whether the Borrower is in compliance with Section 9.01 and Section 8.14 as of the end
of the [fiscal quarter][fiscal year] ending [        ]. 


        EXECUTED
AND DELIVERED this [        ] day of [                  ]. 



	 	 	PETROHAWK ENERGY CORPORATION
	
 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





Exhibit D-1








  



 
 

EXHIBIT E-1
  FORM OF LEGAL OPINION OF HINKLE ELKOURI LAW FIRM L.L.C.    
    


November 23,
2004 


BNP
PARIBAS, as Administrative Agent

and each of the Agents and Lenders party to the

herein described Loan Agreements 



	Re:
	Second
Lien Term Loan Agreement (the "Term Loan Agreement") dated as of November 23, 2004 among PETROHAWK ENERGY CORPORATION, as
borrower, each of the Agents and Lenders from time to time party thereto and BNP PARIBAS, as administrative agent for the Lenders and Senior Revolving Credit Agreement (the
"Revolving Credit Agreement")(the Term Loan Agreement and Revolving Credit Agreement shall be collectively referred to herein as the
"Loan Agreements") dated as of November 23, 2004 among PETROHAWK ENERGY CORPORATION, as borrower, each of the Agents and Lenders from time to
time party thereto and BNP Paribas, as administrative agent for the Lenders (in such capacity under the Loan Agreements, the "Administrative Agent." 




Ladies
and Gentlemen: 


        We
have acted as special counsel for Petrohawk Energy Corporation, a Delaware corporation (the "Borrower"), Wynn-Crosby
Energy, Inc., a Texas corporation ("WCE"), Wynn-Crosby 1994, Ltd., a Texas limited partnership ("WC94"),
Wynn-Crosby 1995, Ltd., a Texas limited partnership ("WC95"), Wynn-Crosby 1996, Ltd., a Texas limited partnership
("WC96"), Wynn-Crosby 1997, Ltd., a Texas limited partnership ("WC97"),
Wynn-Crosby 1998, Ltd., a Texas limited partnership ("WC98"), Wynn-Crosby 1999, Ltd., a Texas limited partnership
("WC99"), Wynn-Crosby 2000, Ltd., a Texas limited partnership ("WC2000"),
Wynn-Crosby 2002, Ltd., a Texas limited partnership ("WC2002"), P-H Energy, LLC, a Texas limited liability company
("P-H Energy"), Beta Operating Company, L.L.C., an Oklahoma limited liability company ("Beta
Operating"), TCM, L.L.C., an Oklahoma limited liability company ("TCM") and Red River Field Services, L.L.C., an Oklahoma
limited liability company ("Red River") (collectively being the "Guarantors" and together with the
Borrower collectively being the "Obligors"), in connection with the execution and delivery of the Loan Agreements and the other Loan Documents (as
defined below). This opinion is being furnished to you pursuant to Section 6.01(i)(i) of each of the Loan Agreements. All capitalized terms not defined herein shall have the same
meanings assigned to them in the Loan Agreements. 


        In
connection with the opinions set forth herein, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (items
(A) through (H) being referred to as the "Loan Documents"): 



	(A)
	the
Term Loan Agreement;



	(B)
	the
Revolving Credit Agreement;



	(C)
	the
Guarantee and Collateral Agreement dated of even date with the Revolving Credit Agreement executed by the Obligors in favor of the Administrative Agent for the benefit of the
Lenders;



	(D)
	the
Mortgage, Line of Credit Mortgage, Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement and Financing Statement for each of the Obligors (the
"Mortgages");



	(E)
	the
Stock Powers of the Borrower executed in connection with (C) above (the "Stock Powers"); 



Exhibit E-1 - 1







 



	[(F)
	the
Financing Statements (UCC-1) to be delivered in connection with (C) above (the "Guarantee Financing
Statements")];



	[(G)
	the
Financing Statements (UCC-1) to be delivered in connection with (D) above (the "Financing
Statements")]; and



	(H)
	the
Notes. 




        In
rendering the opinions set forth herein, we have relied upon certificates of officers and general partners of the Obligors, certificates or telegrams of public officials and such
other documents, records and information as we have deemed necessary or appropriate. We have assumed that all signatures are genuine; that all documents submitted to us as originals are authentic;
that all documents submitted to us as copies conform to the originals; and that the facts stated in all such documents are true and correct. In rendering this opinion, we have not made any independent
investigation as to accuracy or completeness of any facts or representations, warranties, data or other information, whether written or oral, that may have been made by or on behalf of the parties,
except as specifically set forth herein. 


        Based
upon the foregoing, and subject to the qualifications set forth herein, it is our opinion that: 



	1.
	(a).
The Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business and is in good standing as
a corporation in the States of Texas, Louisiana and Oklahoma. 





(b).    WCE
is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a corporation
in Alabama, Arkansas, Kansas, Louisiana, Mississippi, New Mexico, North Dakota, Oklahoma, Utah and Wyoming. 



(c).    WC94
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Alabama, Louisiana, Mississippi, New Mexico and Oklahoma. 


(d).    WC95
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Louisiana and Oklahoma. 


(e).    WC96
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Utah and Wyoming. 


(f).    WC97
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Louisiana. 


(g).    WC98
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Arkansas, Kansas, Louisiana, New Mexico, and Oklahoma. 


(h).    WC99
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Louisiana and Oklahoma. 


(i).    WC2000
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Arkansas, Louisiana, New Mexico, Oklahoma and Wyoming. 




Exhibit E-1 - 2







 





(j).    WC2002
is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Texas and is qualified to do business and is in good standing as a
limited partnership in Oklahoma. 


(k).    P-H
Energy is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Texas. 


[(l).    Beta
Operating is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Oklahoma and is qualified to do business
and is in good standing as a limited liability company in the states of Texas, Louisiana and Kansas.] 


[(m).    TCM
is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Oklahoma.] 


[(n).    Red
River is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Oklahoma.] 



The
foregoing opinions with respect to good standing are given solely on the basis of certificates of appropriate state agencies of the identified states, and such opinions is limited to the meaning
ascribed to such certificates by each applicable state agency. 





        2.     Each
of the Obligors has the corporate, limited liability company or partnership (as applicable) power and authority to execute, deliver and perform its obligations under
each of the Loan Documents to which it is a party. The Borrower has taken all corporate action and each Guarantor has taken all necessary corporate, limited liability company or partnership (as
applicable) action to authorize the execution and delivery of, and performance of its obligations under, each of the Loan Documents to which it is a party. Such execution, delivery and performance of
its obligations under the Loan Documents to which it is a party will not (i) result in a violation of the Borrower's Certificate of Incorporation or WCE's Articles of Incorporation or
By-laws or any Guarantor's (excluding WCE) limited partnership agreement or operating agreement (as applicable), or any applicable law, (ii) result in a violation of or constitute a
breach or default under any material agreement or instrument relating to the borrowing of money or judicial or regulatory order binding upon it or (iii) result in the creation or imposition of
any Lien on any of its properties pursuant to any such material agreement or instrument or judicial or regulatory order. Each of the Loan Documents to which an Obligor is a party has been duly
authorized, executed and delivered by such Obligor. 


        3.     Each
of the Loan Documents constitutes the legal, valid and binding obligation of each Obligor party thereto, enforceable against it in accordance with its terms, except
that enforcement may be subject to any applicable bankruptcy, insolvency, or similar debtor relief laws now or hereafter in effect and relating to or affecting the enforcement of creditors' rights
generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is
sought in a proceeding at law or in equity). The enforceability and binding nature of each of the Obligors' obligations under the Loan Documents are subject to the qualification that certain
provisions of the Loan Documents are or may be unenforceable in whole or in part (but the inclusion of such provisions does not affect the validity of the instruments, and each instrument contains
adequate provisions for the practical realization of the material benefits afforded thereby). Further, we express no opinion as to the enforceability of provisions in the Loan Documents
(i) purporting to waive any rights of any Obligor, (ii) purporting to grant powers of attorney or authority to execute documents or to act by power of attorney on behalf of any Obligor,
(iii) purporting to restrict access to legal or equitable remedies (including, without limitation, proper jurisdiction and venue), (iv) purporting to grant to the Agent or the Lenders a
right of set-off against any accounts belonging to a third party or otherwise held by any Obligor in a fiduciary or like capacity, (v) purporting to release, exculpate or exempt a
party from, or require the indemnification of a party for, liability for its own action or inaction, to the extent that the same are 


Exhibit E-1 - 3







 



inconsistent
with public policy, (vi) purporting to establish evidentiary standards for suits or proceedings to enforce the Loan Documents, (vii) that relate to subrogation rights, delay
or omission of enforcement of rights and remedies, or (viii) that decisions by a party are conclusive. In addition, we express no opinion with respect to the enforceability of any provision of
the Loan Documents prohibiting or purporting not to give effect to oral amendments or oral waivers to Loan Documents or limiting the effect of a course of dealing between the parties thereto. 


        4.     To
our knowledge, no authorization, consent, approval, license or exemption of, or filing or registration with, any Governmental Authority of the United States or any
Governmental Authority of the State of Delaware, Oklahoma or Texas in connection with any application of: the General Corporation Law of the State of Delaware; the Texas Business Corporation Act; the
Texas Limited Liability Company Act; the Oklahoma Limited Liability Company Act; or the Texas Revised Limited Partnership Act is necessary for either (i) the due execution and delivery by each
Obligor of the Loan Documents to which it is a party, (ii) the borrowing of Loans and obtaining of Letters of Credit by the Borrower or (iii) payment by the Obligors of the Loans or any
other amounts payable under the Loan Documents. 


        5.     There
are, to the best of our knowledge, no actions, suits or proceedings pending or threatened against any Obligor or its property which involves the possibility of any
judgment or liability against such Obligor which could reasonably be expected to have a Material Adverse Effect. 


        6.     None
of the Obligors is subject to regulation under the Investment Company Act of 1940, as amended, or the Public Utility Holding Company act of 1935, as amended. 



        Our
opinion as to any factual matter in connection with this opinion is limited to the current actual knowledge of the lawyers in our firm who have participated in the negotiation and
preparation of this opinion, and does not include constructive inquiry or imputed knowledge. We advise you that no special investigation of the relevant facts or circumstances has been made. In that
connection, we have made no review of the files of the Obligors whether in the possession of the Obligors or the possession of any other party. In addition, we have made no investigation or review of
any agreements, instruments, judgments, decrees, franchises, permits, rules or other regulations or decrees by which the Obligors may be bound and have made no independent search through the records
of any judicial authority or governmental agency or as to the existence of any actions, suits, investigations or proceedings, if any, pending or threatened against the Obligors. 


        The
opinions rendered herein are for the sole benefit of, and may only be relied upon by the Lenders and the Administrative Agent, together with any successors or permitted assigns, and
the opinions herein expressed are not to be used, disclosed, quoted, filed with a Governmental Authority or otherwise referred to in connection with any transaction other than those contemplated by
the Loan Documents without our prior written consent. This opinion is specifically limited to the presently effective laws of the United States of America, the State of Oklahoma, the State of Texas
and the General Corporation Law of the State of Delaware, and we express no opinion of the effect on the matters covered by this opinion of the laws of any other jurisdiction. In this regard, please
note that we are not licensed in the State of Delaware, but have reviewed Delaware law in connection with the opinions expressed herein. We assume no obligation to supplement this opinion if any
applicable laws change after the date of this opinion, or if we become aware of any facts that might change the opinions expressed above after the date of this opinion. We have not been asked to, and
we do not, render any opinion as to any matter except as specifically set forth herein. 



	 	 	Very truly yours,
	 	 	 
	 	 	 
	 	 	HINKLE ELKOURI LAW FIRM L.L.C.




Exhibit E-1 - 4








  



 
 

EXHIBIT E-2
  FORM OF LEGAL OPINION OF LOCAL COUNSEL    
    


November 23,
2004 


BNP
Paribas,

as Administrative Agent

919 Third Avenue

New York, New York 10022

Attention: Millie Carillo, Loan Assistant 



	Re:
	Second
Lien Term Loan Agreement dated as of November 23, 2004 among Petrohawk Energy Corporation, a Delaware corporation (the
"Borrower"), the banks now or hereafter signatory thereto (the "Lenders"), and BNP Paribas, as
administrative agent for the Lenders (in such capacity the "Administrative Agent") (the "Agreement"). 




Gentlemen:



        We
have acted as special [                        ] counsel to the Borrower and its Subsidiaries, including
[                        ], a
[            ] ("Mortgagor"), in connection with the execution and delivery of that certain Deed of Trust, Mortgage,
Assignment of As-Extracted Collateral, Security Agreement and Financing Statement dated November [    ], 2004 by the Mortgagor in favor of the
Administrative Agent, for its benefit and the benefit of the Lenders and others (the "Mortgage"). This opinion is being furnished to you pursuant to
Section 6.01(i)(ii) of the Agreement. All capitalized terms not defined herein shall have the same meanings assigned to them in the Agreement. In connection with the opinions set forth
herein, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (the "Loan Documents"): 



	[(A)
	] the
Mortgage[; and]



	[(B)
	the
UCC-1 Financing Statement covering as-extracted collateral and goods that are or are to become fixtures prepared in connection with the
Mortgage (the "Financing Statement")].(1) 





	(1)
	Under
Section 9.502 of UCC, a record of our form of mortgage is effective as a financing statement filed as a fixture filing or as a financing statement covering as-extracted
collateral or timber to be cut. Some counties, however, maintain separate indexes for UCC filings, and in such case, a UCC-1 financing statement covering such collateral should be prepared and filed
separately. 



        In
rendering the opinions set forth herein, we have relied upon certificates of officers of the Mortgagor, certificates or telegrams of public officials and such other documents, records
and information as we have deemed necessary or appropriate. We have assumed that all 


Exhibit E-2-1







 

signatures
are genuine; that all documents submitted to us as originals are authentic; that all documents submitted to us as copies conform to the originals; and that the facts stated in all such
documents are true and correct. In rendering this opinion, we have not made any independent investigation as to accuracy or completeness of any facts or representations, warranties, data or other
information, whether written or oral, that may have been made by or on behalf of the parties, except as specifically set forth herein. 


        Based
upon the foregoing, and subject to the qualifications set forth herein, it is our opinion that: 



        1.     The
form of the Mortgage, including the form of acknowledgments thereto, [and the Financing Statement,] comply with the laws of the State of
[            ], including all applicable recording, filing and registration laws and regulations, and are adequate and legally sufficient for the purposes intended to be
accomplished thereby. 


        2.     The
descriptions of those portions of the Mortgaged Property located within the State of [            ] which are shown on Exhibit "A" attached
to the Mortgage are legally sufficient descriptions for the purpose of creating and maintaining the Liens purported to be created by the Mortgage and for the purposes of all applicable recording,
filing and registration laws in the State of [            ]. 



        3.     The
Mortgagor is duly qualified as a foreign corporation to do business and to own its Property and is in good standing in the State of
[            ]. 


        4.     So
far as the law of the State of [            ] is concerned, the Mortgage constitutes legal, valid and binding obligations of the Mortgagor
enforceable against it in accordance with their terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to or affecting
creditors' rights generally and to general principles of equity. 



        5.     The
Mortgage is effective to create in favor of the Administrative Agent (or the Trustee named therein, as applicable) for the benefit of the Administrative Agent and the
Lenders, for the payment of the obligations described therein, a valid mortgage Lien on all of the Mortgagor's right, title and interest in and to the portion of the Mortgaged Property constituting
real property described in the Mortgage as being mortgaged thereby and a valid security interest in all of the Mortgagor's right, title and interest in and to as-extracted collateral
located in the county in which the Mortgaged Property is situated and all fixtures located on the real property described in the Mortgage. 



        6.     Fully
executed counterparts of the Mortgage and the Financing Statement should be filed for record in each county in the State of
[            ] where any portion of the Mortgaged Property is located [or if other, please specify]. Other than the foregoing, no authorization,
consent, approval, license or exemption of, or filing or registration with, any Governmental Authority of the State of [            ] is necessary for either the due
execution and delivery by the Mortgagor of the Mortgage, the perfection of the Liens intended to be created thereby or with the 



Exhibit E-2-2







 

holding
and enforcement by the Administrative Agent of the Mortgage or the obligations secured thereby. 



        7.     After
the recordings and filings specified in paragraph 6 have occurred, the Liens created by the Mortgage will be perfected. 



        8.     After
the recordings and filings specified in paragraph 6 have occurred, no instruments need be recorded, registered or filed or re-recorded,
re-registered or re-filed in any public office in the State of [            ] in connection with the execution and delivery of the Mortgage in order
to maintain the perfection and priority of the Liens created thereby after the date of recordation, other than [state rule if necessary] and continuation statements as required
by the Uniform Commercial Code as in effect in the State of [            ]. 



        9.     No
state or local recording tax, stamp tax or other similar fee, tax or governmental charge (other than statutory filing and recording fees to be paid upon the filing of
the Mortgage [or the Financing Statement]) is required to be paid in connection with the filing and recording of [either] the Mortgage [or
the Financing Statement][, except as follows: explain if necessary]. 


        10.   The
execution, delivery and performance by the Mortgagor of its obligations under the Mortgage will not result in a violation of any laws, rules and regulations of the
State of [            ] which, in our experience, exercising customary professional diligence, are normally applicable to transactions of the type provided for in the Loan
Documents. 


        11.   A
[            ] state court of competent jurisdiction or a federal court sitting in the State of [            ] of
competent jurisdiction and applying conflicts of laws principles of the State of [            ], if properly presented with a choice of law issue, will honor the choice of
Texas law to govern the Agreement, the Notes and the Mortgage that state such documents shall be governed by the laws of the State of Texas. 




        The
foregoing opinions are subject to the following additional assumptions and qualifications: 


[add
appropriate qualifications, if any]. 


        The
opinions rendered herein are for the sole benefit of, and may only be relied upon by, the addressee and the Persons from time to time Lenders under the Agreement, and the opinions
herein
expressed are not to be used, circulated or otherwise referred to in connection with any transaction other than those contemplated by the Loan Documents. This opinion is specifically limited to the
presently effective laws of the State of [            ]. We have not been asked to, and we do not, render any opinion as to any matter except as specifically set forth
herein. 



	

 	
 	

Very truly yours,
	

 	
 	

    





Exhibit E-2-3








  



 
 

EXHIBIT F-1
  SECURITY INSTRUMENTS    
    



        1)    Guaranty
and Collateral Agreement dated as of November 23, 2004 by the Borrower and the Restricted Subsidiaries party thereto, as Guarantors, in favor of the
Administrative Agent and the Lenders. 


        2)    Financing
Statements in respect of item 1, by: 



        a)    the
Borrower; 


        b)    Wynn-Crosby
Energy, Inc., a Texas corporation; 



        c)     P-H
Energy, LLC, a Texas limited liability company; 


        d)    Wynn-Crosby
1994, Ltd., a Texas limited partnership; 


        e)    Wynn-Crosby
1995, Ltd., a Texas limited partnership; 


        f)     Wynn-Crosby
1996, Ltd., a Texas limited partnership; 



        g)     Wynn-Crosby
1997, Ltd., a Texas limited partnership; 


        h)    Wynn-Crosby
1998, Ltd., a Texas limited partnership; 


        i)     Wynn-Crosby
1999, Ltd., a Texas limited partnership; 


        j)     Wynn-Crosby
2000, Ltd., a Texas limited partnership; 



        k)    Wynn-Crosby
2002, Ltd., a Texas limited partnership. 


        l)     Beta
Operating Company, L.L.C., Oklahoma limited liability company; 


        m)   TCM,
L.L.C., an Oklahoma limited liability company; and 


        n)    Red
River Field Services, L.L.C., an Oklahoma limited liability company. 




        3)    Stock
Powers delivered in respect of item 1 by: 



        a)    Wynn-Crosby
Energy, Inc., a Texas corporation; and 


        b)    Petrohawk
Energy, LLC, a Texas limited liability company. 




        4)    Deed
of Trust, Mortgage, Assignment of As-Extracted Collateral, Security Agreement and Financing Statement dated as of November
[    ], 2004 by the [Guarantor(s)], as mortgagor, in favor of Brian Malone, as Trustee, for the benefit of the Administrative Agent, the
Lenders and others. 


        5)    Financing
Statements in respect of item 4. 


        6)    The
Fee Letters between the Borrower and BNP Paribas. 


Exhibit F-1 - 1








  



 
 

EXHIBIT F-2
  FORM OF GUARANTY AND COLLATERAL AGREEMENT    
    


Exhibit F-2 - 1








  



 
 

EXHIBIT G
  FORM OF ASSIGNMENT AND ASSUMPTION    
    



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


        For
an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor's rights
and obligations in its capacity as a Lender under the Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified
below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any guarantees included in such facilities) and (ii) to the
extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to
any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned
pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the
"Assigned Interest"). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by the Assignor. 



	1.	 	Assignor:	 	 
	 	 	 	 	

	

2.	
 	

Assignee:	
 	

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

3.	
 	

Borrower:	
 	

PetroHawk Energy Corporation
	

4.	
 	

Administrative Agent:	
 	

BNP Paribas, as the administrative agent under the Agreement
	

5.	
 	

Agreement:	
 	

The Second Lien Term Loan Agreement dated as of November 23, 2004 among Petrohawk Energy Corporation, the Lenders parties thereto, and BNP Paribas, as Administrative Agent.
	

 	
 	

 	
 	

 





Exhibit G - 1







 

	

6.	
 	

Assigned Interest:	
 	

 





	Commitment Assigned
 
	 	Aggregate Amount of

Commitment/Loans

for all Lenders
	 	Amount of

Commitment/Loans

Assigned
	 	Percentage Assigned

of

Commitment/Loans(2)
	 
	 	 	$	 	 	$	 	 	 	%
	 	 	$	 	 	$	 	 	 	%
	 	 	$	 	 	$	 	 	 	%





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


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



	 	 	ASSIGNOR
	

 	
 	

[NAME OF ASSIGNOR]
	

 	
 	

By:	

 
	 	 	 	

	 	 	    Title:
	

 	
 	
ASSIGNEE
	

 	
 	

[NAME OF ASSIGNEE]
	

 	
 	

By:	

 
	 	 	 	

	 	 	    Title:




Exhibit G - 2







 


	Consented to and Accepted:	 
	
BNP PARIBAS, as

    Administrative Agent	

 
	

By	

 	

 
	 	
	 
	    Title:	 
	

By	

 	

 
	 	
	 
	    Title:	 
	

[Consented to:]	

 
	
PETROHAWK ENERGY CORPORATION	

 
	

By	

 	

 
	 	
	 
	    Title:	 




Exhibit G - 3








  



 
 

ANNEX 1    
    


 
 

PETROHAWK ENERGY CORPORATION SECOND LIEN TERM LOAN AGREEMENT    
    
    STANDARD TERMS AND CONDITIONS FOR
  ASSIGNMENT AND ASSUMPTION    
    


        1.    Representations and Warranties.    



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


        1.2.    Assignee.    The Assignee (a) represents and warrants that (i) it has full power and authority,
and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Agreement,
(ii) it satisfies the requirements, if any, specified in the Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from
and after the Effective Date, it shall be bound by the provisions of the Agreement as a Lender thereunder and, to the extent of the Assigned
Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Agreement, together with copies of the most recent financial statements delivered pursuant to
Section 8.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and
(v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Agreement, duly completed and executed
by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. 


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



Exhibit G-1







 

Effective
Date and to the Assignee for amounts which have accrued from and after the Effective Date. 


        3.    General Provisions.    This Assignment and Assumption shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an
executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This
Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Texas. 



Exhibit G-2








  



 
 

SCHEDULE 7.05
  LITIGATION    
    


None. 


Schedule 7.05-1








  



 
 

SCHEDULE 7.15
  SUBSIDIARIES AND PARTNERSHIPS; UNRESTRICTED SUBSIDIARIES    
    



	Restricted Subsidiaries
 
	 	Jurisdiction of

Organization
	 	Organizational

Identification

Number
	 	Principal Place of

Business

and Chief Executive

Office

	Wynn-Crosby Energy, Inc.	 	Texas	 	01262202-00	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	P-H Energy, LLC	 	Texas	 	800414887	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Beta Operating Company, L.L.C.	 	Oklahoma	 	3500593601	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Red River Field Services, L.L.C.	 	Oklahoma	 	3500620355	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	TCM, L.L.C.	 	Oklahoma	 	3500593600	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	
Partnerships	
 	

 	
 	

 	
 	

 
	

Wynn-Crosby 1994, Ltd.	
 	

Texas	
 	

00076385-10	
 	

1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 1995, Ltd.	 	Texas	 	00085893-10	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 1996, Ltd.	 	Texas	 	00095234-10	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 1997, Ltd.	 	Texas	 	00097592-10	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 1998, Ltd.	 	Texas	 	00111816-10	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 1999, Ltd.	 	Texas	 	0013341610	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 2000, Ltd.	 	Texas	 	0014728210	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	Wynn-Crosby 2002, Ltd.	 	Texas	 	800131427	 	1100 Louisiana

Suite 4400

Houston, TX 77002
	
Unrestricted Subsidiaries	
 	

 	
 	

 	
 	

 
	

BETAustralia, LLC	
 	

California	
 	

199805110004	
 	

1100 Louisiana

Suite 4400

Houston, TX 77002




Schedule 7.15 - 1








  



 
 

SCHEDULE 7.19
  GAS IMBALANCES    
    



	Well
 
	 	Working Interest
	 	Net Revenue

Interest
	 	Cumulative Over/(Under) Balance to Working Interest

(Mcf)
	 	As of Date
	 	Cumulative Over/(Under) Balance to Net Revenue Interest

(Mcf)
	 
	Wynn-Crosby 1994, Ltd.	 	 	 	 	 	 	 	 	 	 	 
	

None	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	
Wynn-Crosby 1995, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Adkerson #1	
 	

6.45800	
%	

5.60310	
%	

(2,636	
)	

12/03	
 	

(2,287	
)
	Alexander, C.S. #1-24	 	11.08140	%	8.61940	%	(50	)	5/04	 	(39	)
	Allison #1-35	 	10.05050	%	7.66890	%	241	 	5/04	 	184	 
	Bar "D" #1-36	 	17.13530	%	13.97250	%	(300	)	9/03	 	(245	)
	Barbee, Alma #1	 	4.08830	%	3.36240	%	11,632	 	6/04	 	9,567	 
	Barrow #1-36	 	8.00000	%	5.68000	%	12	 	3/04	 	9	 
	Barrow #2-36	 	8.00000	%	5.68000	%	(96	)	4/04	 	(68	)
	Barter Island #2-25	 	11.11700	%	8.54550	%	(79	)	5/04	 	(61	)
	Bean, J. #1-10	 	7.50000	%	5.55000	%	(9,311	)	5/04	 	(6,890	)
	Bean, J. #3-10	 	15.63940	%	11.59210	%	20,346	 	5/04	 	15,081	 
	Bean, J. #4-10	 	16.35610	%	12.18630	%	463	 	5/04	 	345	 
	Bear #1-19	 	1.06180	%	0.81940	%	236	 	6/04	 	182	 
	Brauchi #1-22	 	5.20540	%	2.17960	%	11,907	 	5/04	 	4,986	 
	Buckmaster #1-30	 	5.72540	%	4.41500	%	6,800	 	6/04	 	5,244	 
	Carpenter 6-21	 	3.00290	%	2.24800	%	(1,222	)	6/04	 	(915	)
	Clay #1-33	 	0.79890	%	0.64050	%	130	 	6/04	 	104	 
	Clear #1-33	 	0.84280	%	0.67500	%	(1,420	)	6/04	 	(1,137	)
	Clift Thorton 1-36 (C.G.)	 	4.99740	%	3.56680	%	(247	)	12/03	 	(176	)
	Coker #1-30	 	31.52540	%	25.78290	%	41	 	6/04	 	34	 
	Cook #1-24	 	14.24810	%	11.27450	%	(410	)	8/02	 	(324	)
	Copeland #1	 	7.50000	%	6.32740	%	14,404	 	6/04	 	12,152	 
	Copeland #2	 	8.96910	%	7.56680	%	3,952	 	5/04	 	3,334	 
	Cupp #1	 	9.36190	%	7.80770	%	(310	)	6/04	 	(259	)
	Cupp #2	 	13.69710	%	11.43600	%	231	 	6/04	 	193	 
	Cupp 3-27	 	11.00560	%	8.88860	%	(13,641	)	5/04	 	(11,017	)
	Cupp "A" #1	 	6.49930	%	5.52250	%	22,340	 	5/04	 	18,982	 
	Cupp "A" #2	 	6.61880	%	5.61170	%	791	 	11/98	 	671	 
	Cupp "B" #2	 	14.05470	%	11.74340	%	(3,098	)	11/98	 	(2,589	)
	Cupp "B" #5	 	1.59800	%	1.34400	%	(1,891	)	6/04	 	(1,590	)
	Cupp "C" #1	 	11.01670	%	9.54610	%	(15,332	)	2/00	 	(13,285	)
	Cupp "C" #2	 	9.70000	%	7.90420	%	2,146	 	12/03	 	1,749	 
	Cupp "D" #2	 	5.05200	%	4.24000	%	931	 	6/02	 	781	 
	Cupp "D" #3	 	9.70000	%	7.90420	%	138	 	5/04	 	112	 
	Dessie 1-11	 	3.37500	%	2.60300	%	93	 	4/04	 	72	 
	Ellis #1-33	 	3.33230	%	2.90750	%	4,793	 	4/97	 	4,182	 
	Ellis #2-33	 	3.32290	%	2.90750	%	964	 	5/04	 	843	 
	Ellis #3-33	 	3.32290	%	2.90750	%	(484	)	5/04	 	(424	)
	Ethel #1-29	 	10.05910	%	8.02510	%	449	 	6/04	 	358	 
	Evans 2-6	 	5.66880	%	4.25160	%	1,263	 	6/04	 	947	 
	 	 	 	 	 	 	 	 	 	 	 	 





Schedule 7.19 - 1







 

	Felton #1-24	 	17.47500	%	14.15790	%	(9,677	)	6/01	 	(7,840	)
	Freida #1-25	 	25.00000	%	18.40630	%	(327	)	6/02	 	(241	)
	Gates #1-33	 	4.34780	%	3.08690	%	(6,181	)	12/03	 	(4,388	)
	Gates 8-33	 	4.34780	%	3.08690	%	13	 	4/04	 	9	 
	Gill #1-13	 	12.77540	%	10.17760	%	703	 	6/04	 	560	 
	Goldston 46	 	25.00000	%	20.50780	%	(8,616	)	6/04	 	(7,068	)(1)
	Gray, Donald #1-28	 	1.17300	%	0.95350	%	22,544	 	3/04	 	18,325	 
	Green #2-1	 	28.26770	%	21.46300	%	(23	)	5/04	 	(17	)
	Green #4-1A	 	9.44640	%	6.99250	%	447	 	5/04	 	331	 
	Green Estate #2	 	1.40600	%	1.23050	%	(1,796	)	6/04	 	(1,572	)
	Green Estate #3	 	0.00030	%	0.00030	%	(127	)	3/04	 	(127	)
	Gunter #2-35	 	10.05050	%	7.66890	%	637	 	6/04	 	486	 
	Hatcher Farms #1A-19	 	16.66670	%	13.49200	%	14	 	5/04	 	11	 
	Hay 5-33	 	4.34780	%	3.15150	%	(1,639	)	6/04	 	(1,188	)
	Hay 7-33	 	4.34780	%	3.15150	%	26	 	4/04	 	19	 
	Heriford #1-18	 	6.65920	%	5.03170	%	95	 	5/04	 	72	 
	Heriford #2-18	 	6.04450	%	0.04749	%	(7,314	)	6/03	 	(57	)
	Heriford #4-18	 	6.43110	%	4.95050	%	(609	)	5/04	 	(469	)
	Heriford #5A-18	 	6.04450	%	4.74840	%	(495	)	5/04	 	(389	)
	Heriford #6-18	 	6.04450	%	4.74840	%	(320	)	5/04	 	(251	)
	Heriford #7-18	 	6.04450	%	4.74840	%	(805	)	5/04	 	(632	)
	Hinz #1-22	 	11.19000	%	8.17580	%	(2,199	)	6/03	 	(1,607	)
	Ima Woods 1-2	 	6.25000	%	4.74220	%	(7,010	)	9/03	 	(5,319	)
	Isch #1-11	 	3.53660	%	3.01550	%	28,035	 	5/04	 	23,904	 
	Jahnel #1	 	10.00000	%	6.90000	%	1,064	 	12/03	 	734	 
	Jennings #1-29	 	5.94060	%	4.97910	%	24	 	6/04	 	20	 
	Keck "A" 1-A	 	11.31400	%	4.67360	%	18,349	 	6/04	 	7,580	 
	Keck #2-30	 	7.60250	%	5.84970	%	(457	)	6/04	 	(352	)
	Kendall Family	 	3.37500	%	2.48110	%	(27	)	4/04	 	(20	)
	Larson #1-32	 	25.54570	%	21.40110	%	40	 	6/04	 	34	 
	Larson 1-31	 	4.58950	%	3.69890	%	(8,050	)	6/04	 	(6,488	)
	Larson 1-32	 	25.54570	%	21.40110	%	40	 	6/04	 	34	 
	Lasley #2-11	 	0.83300	%	0.67640	%	340	 	5/04	 	276	 
	Littauer #1	 	6.67900	%	5.16540	%	(69	)	6/04	 	(53	)
	Lorene #1-33	 	1.31990	%	1.05270	%	(106	)	2/03	 	(85	)
	Lovett 1-11	 	3.37500	%	2.60300	%	246	 	6/04	 	190	 
	Lubinus #1-15	 	9.37500	%	7.08410	%	3,989	 	5/04	 	3,014	 
	 	 	 	 	 	 	 	 	 	 	 	 



Schedule 7.19 - 2







 

	Marshall Lake 1-31	 	12.53650	%	8.44200	%	(403	)	1/02	 	(271	)
	McClellan #1-11	 	3.74970	%	2.89700	%	(1,513	)	4/04	 	(1,169	)
	McColgin State #1-21	 	25.78130	%	19.07810	%	248	 	3/04	 	184	 
	Meacham #2-19	 	2.84700	%	2.18400	%	425	 	11/00	 	326	 
	Meacham #3-19	 	3.70130	%	2.83050	%	130	 	3/00	 	99	 
	Medders #4-1	 	9.44640	%	6.99250	%	(5,942	)	5/04	 	(4,398	)
	Medders #6-1	 	3.13800	%	2.28520	%	3	 	5/04	 	2	 
	Mikles 1-10	 	9.34300	%	7.23260	%	22,689	 	12/03	 	17,564	 
	Mikles #1-12	 	4.68750	%	3.32230	%	(1,197	)	6/04	 	(848	)
	Mogg-Hawkins #1-27	 	0.88000	%	0.76150	%	6,739	 	3/04	 	5,832	 
	Moore #1-30	 	6.30510	%	5.15660	%	68	 	12/03	 	56	 
	Morse #1-13	 	1.13810	%	0.91180	%	7,798	 	5/04	 	6,247	 
	Murray #1-19	 	9.44800	%	6.87650	%	115	 	6/00	 	84	 
	Nichols #1-22	 	7.10820	%	5.40090	%	(28	)	5/04	 	(21	)
	Oklahoma St. #1-13	 	4.38300	%	3.53610	%	(40,951	)	12/03	 	(33,038	)
	Page #1-13	 	4.34020	%	3.33660	%	(1,822	)	6/03	 	(1,401	)
	Page #5-13	 	3.97160	%	3.21310	%	92	 	5/04	 	74	 
	Page #6-13	 	3.97160	%	3.21310	%	1,240	 	5/04	 	1,003	 
	Page #7-13	 	3.97160	%	3.21310	%	(1,255	)	6/03	 	(1,015	)
	Patricia #1-24	 	3.97160	%	3.21310	%	917	 	5/04	 	742	 
	Pauline #1-19	 	25.00000	%	17.43750	%	7,549	 	5/04	 	5,265	 
	Peggy #1-30	 	25.38130	%	20.75800	%	(1,661	)	12/03	 	(1,358	)
	Donnie Johnson #1-1(Atoka B)	 	4.05830	%	2.87630	%	11,025	 	5/03	 	7,814	(2)
	Phillips 27-1	 	0.88010	%	0.76130	%	(66	)	4/04	 	(57	)
	Pond #1-34 (Redfork)	 	18.34200	%	14.38540	%	4,245	 	5/04	 	3,329	 
	Reeves 1-31	 	12.53650	%	8.44200	%	2,407	 	11/03	 	1,621	 
	Rennels #1-35	 	10.05050	%	7.68380	%	450	 	5/04	 	344	 
	Reynolds 1-30	 	17.31350	%	13.48980	%	(1,340	)	6/04	 	(1,044	)
	Roger #1-2	 	7.50000	%	5.23220	%	208	 	12/03	 	145	 
	S.-McMurrey #7 Lobo 1,3	 	15.00000	%	10.65000	%	1,604	 	6/00	 	1,139	 
	Sanborn #1-32	 	16.55150	%	6.83220	%	10	 	6/04	 	4	 
	Sanborn #2-32	 	13.81610	%	11.50150	%	(3,270	)	6/04	 	(2,722	)
	Sanborn #3-32	 	6.22250	%	5.05920	%	481	 	6/04	 	391	 
	Sanborn #4-32	 	8.57420	%	6.82090	%	48	 	6/04	 	38	 
	Sanborn #5-32	 	4.43940	%	3.71600	%	(477	)	6/04	 	(399	)
	Sara #2-13	 	4.56230	%	3.78400	%	4,836	 	6/04	 	4,011	 
	Saunders #1-33	 	2.22340	%	1.76560	%	43	 	12/03	 	34	 
	Sears #1-29	 	12.28750	%	5.33260	%	1,009	 	5/04	 	438	 
	Sooner #1 Unit	 	4.38820	%	3.72970	%	2,090	 	5/04	 	1,776	 
	Sooner #2-35	 	10.67040	%	9.48110	%	1,345	 	5/04	 	1,195	 
	State #1-36 (Harper State)	 	75.00000	%	60.02330	%	8	 	5/04	 	6	 
	Stevens #1-17	 	1.07820	%	0.86530	%	377	 	3/04	 	303	 
	Stevens #1-18	 	1.17830	%	0.95780	%	5	 	6/04	 	4	 
	Stratton Farms #1-26	 	5.10420	%	3.70560	%	278	 	6/97	 	202	 
	Sutton #1-17	 	1.43560	%	1.10090	%	(155	)	3/04	 	(119	)
	Sutton #2-17	 	5.74220	%	4.40370	%	90	 	6/04	 	69	 
	 	 	 	 	 	 	 	 	 	 	 	 





Schedule 7.19 - 3







 

	Taylor Estate #1-27	 	9.37510	%	6.67970	%	51,407	 	5/04	 	36,627	 
	Ten Bears #1-5	 	3.12500	%	2.31250	%	(41	)	12/03	 	(30	)
	Thetford #1-34	 	0.08560	%	0.05920	%	(247	)	3/04	 	(171	)
	Thomas 6-33	 	4.34780	%	3.15150	%	20	 	6/04	 	14	 
	Tolle #1-1	 	9.44640	%	6.88040	%	(35,594	)	5/04	 	(25,925	)
	Viers #1-32	 	23.97520	%	13.24750	%	8,958	 	5/04	 	4,950	 
	Viers #2-32	 	6.72200	%	4.43580	%	(53	)	5/04	 	(35	)
	Wagner #1-A	 	0.15020	%	0.11680	%	7,555	 	3/96	 	5,875	 
	Wagner #4-19	 	2.84700	%	2.18400	%	266	 	6/04	 	204	 
	Wagner #5-19	 	5.78380	%	4.43770	%	(121	)	6/04	 	(93	)
	Walter #2-17 (Atoka C)	 	5.09640	%	3.61770	%	2,681	 	1/04	 	1,903	 
	Warren King 1-27	 	0.88030	%	0.76130	%	(367	)	5/04	 	(317	)
	Whitfield 1-34	 	12.50000	%	10.15630	%	(807	)	6/04	 	(656	)
	Wright #22-1	 	0.46670	%	0.38890	%	(104	)	7/03	 	(87	)
	Young #1-33	 	0.10980	%	0.09490	%	676	 	12/03	 	584	 
	Young, E L 1-28	 	1.17300	%	0.95300	%	4,400	 	3/04	 	3,575	 
	Zac #1-9	 	21.03620	%	16.57160	%	(51	)	12/03	 	(40	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	95,098	 
	 	 	 	 	 	 	 	 	 	 	
	 
	
Wynn-Crosby, 1996, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Bartlett & Bailey #1	
 	

47.04340	
%	

39.04600	
%	

9,516	
 	

6/04	
 	

7,898	
 
	Bartlett & Bailey #2	 	47.04340	%	39.04600	%	8,435	 	6/04	 	7,001	 
	Bartlett & Bailey #3	 	47.04340	%	39.04600	%	28,384	 	6/04	 	23,559	 
	Bartlett & Bailey #4	 	47.04340	%	39.04600	%	52,872	 	6/04	 	43,884	 
	E. Texas Gas System PL Imbalance	 	95.56000	%	73.67198	%	5,694	 	6/04	 	4,390	 
	Golden Gas Unit 2	 	3.71340	%	3.10420	%	(407	)	6/04	 	(340	)
	Golden Gas Unit 1	 	3.71340	%	3.10420	%	(295	)	6/04	 	(246	)
	James Gas Unit 4, 706357	 	10.25610	%	8.94030	%	(4,181	)	6/04	 	(3,645	)
	James Gas Unit 1, 805069	 	4.91010	%	4.29630	%	2,447	 	6/04	 	2,141	 
	Jones, RD 2-23	 	9.38430	%	7.24560	%	2,013	 	4/04	 	1,554	 
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	86,196	 
	 	 	 	 	 	 	 	 	 	 	
	 
	 	 	 	 	 	 	 	 	 	 	 	 



Schedule 7.19 - 4







 

	
Wynn-Crosby, 1997, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Hi A-446A	
 	

0.79037	
%	

0.65864	
%	

221,539	
 	

6/04	
 	

184,616	
 
	Hi A-447 A-1, 2&5	 	4.16520	%	3.47100	%	(14,147	)	6/04	 	(11,789	)
	Hi A-447 B-14	 	4.16520	%	3.47100	%	22,927	 	3/03	 	19,106	 
	Hi A-447 "B' wells	 	4.16520	%	3.47100	%	11,677	 	3/03	 	9,731	 
	Hi A-448A	 	1.87207	%	1.56006	%	(2,410	)	6/04	 	(2,008	)
	Hi A-448 9	 	3.96271	%	3.30226	%	(1,741	)	6/04	 	(1,451	)
	OCS 00828 SS0214	 	6.23239	%	5.19366	%	165,884	 	6/04	 	138,237	 
	OCSG01528 SS0233	 	11.85570	%	9.87975	%	(78,197	)	6/04	 	(65,164	)
	OCSG03169 SS0238	 	12.11916	%	10.09930	%	(12,545	)	6/04	 	(10,454	)
	OCSG01025 SS0239	 	5.26920	%	4.39100	%	8,713	 	6/04	 	7,261	 
	South Marsh Island 265	 	3.99580	%	3.32980	%	(2,569	)	4/02	 	(2,141	)
	South Marsh Island 256	 	3.99580	%	3.33300	%	(171	)	4/02	 	(143	)
	State Lease 6618 1	 	6.93750	%	5.40580	%	1,731	 	7/99	 	1,349	 
	State Lease 6618 3	 	18.07780	%	14.36500	%	(4,247	)	7/99	 	(3,375	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	263,774	 
	 	 	 	 	 	 	 	 	 	 	
	 
	
Wynn-Crosby, 1998, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Avery #4	
 	

17.01560	
%	

14.84890	
%	

9,955	
 	

5/04	
 	

8,687	
 
	Avery 1-26	 	50.81720	%	39.99400	%	25,517	 	6/04	 	20,082	 
	Avery 2-26	 	75.12970	%	61.38400	%	(4	)	6/04	 	(3	)
	Avery 3-26	 	51.65210	%	43.59560	%	297	 	6/04	 	251	 
	Ballard 1-6	 	2.34970	%	1.90420	%	593	 	5/04	 	481	 
	Biggers 1-6	 	7.41460	%	5.56090	%	156	 	3/02	 	117	 
	Boucher 1-5	 	20.69580	%	16.29790	%	8,703	 	6/04	 	6,854	 
	Brinks 1	 	35.23300	%	29.46980	%	(5,232	)	12/99	 	(4,376	)
	Brinks 2-28	 	41.67250	%	34.05920	%	1,802	 	4/04	 	1,473	 
	Davis, ET #1	 	2.43750	%	1.95000	%	9,715	 	6/04	 	7,772	(3)
	Floyd 1-27	 	76.07860	%	58.14460	%	(58	)	6/04	 	(44	)
	Gunter #1	 	57.36050	%	48.36660	%	3,741	 	6/04	 	3,154	 
	Holt, Delia #1	 	43.01128	%	32.66172	%	3,718	 	6/04	 	2,823	 
	Hunter Tucker #1-31	 	17.02600	%	14.89780	%	1,240	 	4/04	 	1,085	 
	Jarrad 1-35	 	29.06380	%	21.88270	%	(184	)	6/04	 	(139	)
	Jarrad 2-35	 	60.50000	%	47.55490	%	92	 	6/04	 	72	 
	Jones, RD 2-23	 	12.50030	%	9.88000	%	2,013	 	4/04	 	1,591	 
	Kluckner 1-26	 	1.83340	%	1.46670	%	(112	)	8/01	 	(90	)
	Kluckner 2-26	 	0.91670	%	0.87500	%	203	 	12/03	 	194	 
	Lackey 1-32	 	55.53120	%	46.10920	%	(33	)	6/04	 	(27	)
	Lackey Twin	 	55.53120	%	45.86270	%	(1,504	)	6/04	 	(1,242	)
	LeFlore, Lillie 1	 	97.60240	%	77.32320	%	910	 	4/04	 	721	 
	Legrand 2-32	 	2.71283	%	2.03451	%	2,152	 	6/04	 	1,614	 
	Lizzabell 1	 	22.61030	%	17.06400	%	714	 	6/04	 	539	 
	Loudermilk 1-28	 	30.27350	%	24.81520	%	299	 	6/04	 	245	 
	Mackey 1-20	 	47.59100	%	35.51060	%	22,189	 	6/04	 	16,557	 
	Martin Est 1-35	 	0.32550	%	0.26450	%	6	 	6/04	 	5	 
	Mason 3A	 	41.06980	%	33.11740	%	(491	)	6/04	 	(396	)
	 	 	 	 	 	 	 	 	 	 	 	 





Schedule 7.19 - 5







 

	Parkway 16	 	56.52000	%	40.17510	%	1,958	 	7/04	 	1,392	 
	Parkway West 10	 	1.17190	%	0.95210	%	(172	)	8/03	 	(140	)
	Parkway West 2	 	9.50520	%	8.24390	%	621	 	8/03	 	539	 
	Parkway West 3	 	9.50520	%	8.24390	%	(3,043	)	8/03	 	(2,639	)
	Parkway West 5	 	11.25380	%	9.43860	%	(856	)	8/03	 	(718	)
	Parkway West 6	 	9.61390	%	8.33130	%	3,775	 	8/03	 	3,271	 
	Parkway West 7	 	9.50520	%	8.24390	%	11,168	 	8/03	 	9,686	 
	Parkway West 8	 	8.33330	%	7.29170	%	14	 	8/03	 	12	 
	Parkway West 9	 	9.50520	%	8.24380	%	(20	)	8/03	 	(17	)
	Pearl 1-32	 	15.66720	%	11.95280	%	(35	)	12/02	 	(27	)
	Powell 1-24	 	43.33990	%	33.71200	%	(12,515	)	3/04	 	(9,735	)
	Rees #1	 	25.45460	%	20.24370	%	177	 	6/04	 	141	 
	Ritter 2-35	 	48.69850	%	33.37730	%	(91	)	6/04	 	(62	)
	Smith 1	 	60.93750	%	53.32030	%	64,870	 	11/03	 	56,761	(4)
	Smith 2	 	53.12500	%	46.48440	%	51,730	 	10/03	 	45,264	(4)
	Spring Mountain 1	 	64.93130	%	53.40935	%	(387	)	6/04	 	(318	)
	Thronton #2-17	 	4.87500	%	3.79780	%	19,010	 	6/04	 	14,809	 
	Tipton 5-29	 	2.44050	%	1.81320	%	8,781	 	6/04	 	6,524	 
	Tipton 6-29	 	2.44050	%	1.83030	%	1,948	 	6/04	 	1,461	 
	Todd 26G Federal 1	 	3.00320	%	2.37770	%	4,118	 	6/04	 	3,260	 
	University 18-29 GU#1	 	3.04670	%	2.66590	%	13,348	 	6/04	 	11,680	 
	University 18-29 GU#10	 	3.04670	%	2.66590	%	1,322	 	6/04	 	1,157	 
	University 18-29 GU#2	 	3.04670	%	2.66590	%	(29	)	6/04	 	(25	)
	University 18-29 GU#3	 	3.04670	%	2.66590	%	(565	)	6/04	 	(494	)
	University 18-29 GU#4	 	3.04670	%	2.66590	%	5,482	 	6/04	 	4,797	 
	University 18-29 GU#5	 	3.04670	%	2.66590	%	(894	)	6/04	 	(782	)
	University 18-29 GU#6	 	3.04670	%	2.66590	%	3,127	 	6/04	 	2,736	 
	University 18-29 GU#7	 	3.04670	%	2.66590	%	(556	)	6/04	 	(487	)
	University 18-29 GU#8	 	3.04670	%	2.66590	%	(2,178	)	6/04	 	(1,906	)
	University 18-30 GU#2	 	3.04670	%	2.66590	%	5,336	 	6/04	 	4,669	 
	University 18-30 GU#3	 	3.04670	%	2.66590	%	(446	)	6/04	 	(390	)
	University 18-31 GU#3	 	3.62380	%	2.66590	%	3,527	 	6/04	 	2,595	 
	University 18-31 GU#4	 	3.62380	%	2.66590	%	5,389	 	6/04	 	3,964	 
	University 18-31 GU#6	 	3.62380	%	2.66590	%	2,629	 	6/04	 	1,934	 
	Young 1-3	 	41.42280	%	31.98770	%	(7,776	)	6/04	 	(6,005	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	220,906	 
	 	 	 	 	 	 	 	 	 	 	
	 
	 	 	 	 	 	 	 	 	 	 	 	 



Schedule 7.19 - 6







 

	
Wynn-Crosby 1999, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Arco Fee #3	
 	

0.20240	
%	

0.15220	
%	

(43	
)	

6/04	
 	

(32	
)
	Arco Fee #4	 	0.20240	%	0.15220	%	1	 	6/04	 	1	 
	Arco Fee GU #1	 	0.20240	%	0.15220	%	(2	)	6/04	 	(2	)
	Arco Fee GU #2	 	0.20240	%	0.15220	%	48	 	6/04	 	36	 
	DS&B #1 (Dibert Stark & Brown)	 	9.28063	%	6.98208	%	(6,350	)	6/04	 	(4,777	)
	Gingrich #1-26	 	21.37500	%	15.74490	%	1,376	 	2/01	 	1,014	 
	Kincaid JW A-1	 	4.87060	%	4.31690	%	(823	)	12/03	 	(729	)
	La Main Cam a Ra Unit	 	0.15806	%	0.11855	%	(622	)	6/04	 	(467	)
	Lillie Mae #1-18	 	1.35100	%	1.16360	%	(7	)	4/04	 	(6	)
	Long Arroyo Federal 1	 	0.46470	%	0.40660	%	(2	)	6/04	 	(2	)
	Rawls 1	 	5.60070	%	4.90060	%	872	 	6/04	 	763	 
	Rawls 2	 	5.60070	%	4.90060	%	985	 	6/04	 	862	 
	Regan #1	 	8.90630	%	6.67970	%	270	 	6/04	 	202	 
	Walker, WE A#4	 	2.57410	%	2.57410	%	176	 	4/01	 	176	 
	Waskow, H. A#1	 	1.90270	%	1.54460	%	(2,299	)	3/04	 	(1,866	)
	Williams, Lorende D 1	 	5.26090	%	6.24030	%	433	 	6/04	 	514	 
	Williams, LD GU 1 #2	 	5.68500	%	6.24030	%	57	 	6/04	 	63	 
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	(4,251	)
	 	 	 	 	 	 	 	 	 	 	
	 
	
Wynn-Crosby 2000, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Abbott 1-8	
 	

23.43750	
%	

19.88280	
%	

23274	
 	

5/04	
 	

19,744	
 
	Baker #1-28	 	3.10420	%	2.71620	%	(32	)	3/04	 	(28	)
	Bakke Unit	 	5.33170	%	5.04550	%	13	 	6/04	 	12	 
	Bannister 1-8	 	23.43750	%	19.62890	%	958	 	5/04	 	802	 
	Barton #1	 	3.12500	%	2.34380	%	41,796	 	6/04	 	31,348	 
	Bartlett, Arnold #1	 	6.07740	%	5.31780	%	9,191	 	3/04	 	8,042	 
	Bartlett, Arnold #2	 	6.07740	%	5.31780	%	6	 	3/04	 	5	 
	Belva 1-33	 	62.61400	%	47.24740	%	2,758	 	5/04	 	2,081	 
	Caprito 82 1L/1U	 	23.46590	%	19.26480	%	(1,027	)	3/04	 	(843	)
	Caprito 100 Unit 1	 	0.87710	%	0.76760	%	11,686	 	5/04	 	10,227	 
	Carlson 1-27	 	1.56250	%	1.56250	%	309	 	6/04	 	309	 
	Champlin Cities Service #6	 	37.94000	%	29.01460	%	14,660	 	6/04	 	11,211	 
	Champlin Cities Service #7	 	37.93999	%	29.01457	%	79,776	 	6/04	 	61,009	 
	Champlin Cities Service #8	 	8.95320	%	7.27450	%	(633	)	6/04	 	(514	)
	Clarke-State 2-26	 	18.75000	%	16.40630	%	(362	)	12/03	 	(317	)
	Clift #1-4	 	1.03930	%	0.90930	%	(18	)	12/03	 	(16	)
	Clift #2-4	 	1.03930	%	0.90930	%	(262	)	12/03	 	(229	)
	Clift #3-4	 	1.03930	%	0.90930	%	(59	)	12/03	 	(52	)
	Cooper Gas Com 1 DK	 	15.75000	%	13.58440	%	734	 	5/04	 	633	 
	Cooper Gas Com 1E DK	 	15.75000	%	13.58440	%	(487	)	5/04	 	(420	)
	Cooper Gas Com 1E CH	 	15.75000	%	13.58440	%	(6,893	)	5/04	 	(5,945	)
	Daniels #2	 	19.16420	%	16.76870	%	(3,662	)	6/04	 	(3,204	)
	Deal #2	 	37.50000	%	29.25540	%	(3,535	)	6/04	 	(2,758	)
	 	 	 	 	 	 	 	 	 	 	 	 





Schedule 7.19 - 7







 

	Elbow Canyon	 	65.62500	%	46.94810	%	(4,589	)	3/03	 	(3,283	)
	Fort #1-23	 	5.38000	%	4.54663	%	98	 	3/04	 	83	 
	Frost #4-PC	 	50.00000	%	43.75000	%	(6,267	)	6/04	 	(5,483	)
	Frost #501-FC	 	50.00000	%	43.75000	%	(32,114	)	6/04	 	(28,100	)
	Garland 1-29	 	53.52000	%	39.73500	%	(13	)	6/04	 	(10	)
	Gum 28 #1	 	30.53170	%	23.79840	%	1,852	 	5/04	 	1,443	 
	Glenn #2	 	0.07010	%	0.04910	%	20	 	7/04	 	14	 
	Glenn #3	 	0.07010	%	0.06540	%	(250	)	7/04	 	(233	)
	Glenn #5	 	1.55110	%	1.09210	%	1,055	 	7/04	 	743	 
	Harney 1-5	 	37.73310	%	30.65820	%	695	 	6/04	 	565	 
	Harrison Estate #1-23	 	7.45900	%	6.48100	%	(11,560	)	06/04	 	(10,044	)
	Heavin #1-31	 	2.99190	%	2.23620	%	201	 	6/04	 	150	 
	Irene #3-6	 	4.72890	%	4.13780	%	628	 	6/04	 	550	 
	Johnston, D.L.	 	3.65140	%	3.19500	%	3,907	 	6/03	 	3,419	 
	JV-S ROC #1	 	2.77910	%	2.43170	%	(5,140	)	10/03	 	(4,497	)
	Lamar #1-31	 	8.92920	%	7.81310	%	(1,114	)	6/04	 	(975	)
	LeJeune #1	 	5.72190	%	3.60010	%	1,319	 	6/04	 	830	 
	Lisa 3-30	 	1.67570	%	1.46630	%	61	 	6/04	 	53	 
	Lockhart #1	 	38.74150	%	33.89880	%	3,961	 	6/04	 	3,466	 
	Mae West 2-26	 	5.55774	%	4.88020	%	(1,768	)	6/04	 	(1,552	)
	Marriott 1-36	 	9.37500	%	7.19670	%	(507	)	12/03	 	(389	)
	Martindale 1-33	 	9.25310	%	7.51820	%	(248	)	5/04	 	(202	)
	Martin 8-2	 	18.84260	%	13.83290	%	78	 	8/03	 	57	 
	Marvin 1-6	 	65.71800	%	49.83200	%	(17	)	5/04	 	(13	)
	McDonald 6-1	 	50.00000	%	37.50000	%	22,943	 	6/04	 	17,207	 
	McDonald 6-2	 	50.00000	%	37.50000	%	14,435	 	6/04	 	10,826	 
	Monroe 2	 	23.75000	%	20.78130	%	6,160	 	3/04	 	5,390	 
	Monroe 3	 	23.75000	%	20.78130	%	(44,962	)	9/02	 	(39,342	)
	Quattlebaum 4	 	1.51580	%	1.13690	%	611	 	6/04	 	458	 
	Quattlebaum 1	 	1.51580	%	1.13690	%	11,001	 	6/04	 	8,251	 
	Quattlebaum 2	 	1.51580	%	1.13690	%	(831	)	6/04	 	(624	)
	Rowley COM 500 PC	 	12.98540	%	10.97270	%	2,006	 	6/04	 	1,695	 
	Rowley COM 500 FC	 	19.46110	%	16.44470	%	667	 	6/04	 	563	 
	Russell 1-20	 	9.64060	%	7.62740	%	(1,334	)	12/03	 	(1,055	)
	 	 	 	 	 	 	 	 	 	 	 	 



Schedule 7.19 - 8







 

	Sandra Kay 1-26	 	5.57740	%	4.88020	%	(1	)	6/04	 	(1	)
	Schenk #1-22	 	14.04750	%	12.03630	%	(31,161	)	6/04	 	(26,700	)
	Shelton 1-10	 	1.04170	%	0.91150	%	11,090	 	6/04	 	9,704	 
	Shelton 2-10	 	1.04170	%	0.91150	%	(968	)	3/03	 	(847	)
	Shwen 1-14	 	6.2500	%	4.91410	%	(100,782	)	6/04	 	(79,240	)
	SL 5419 #1	 	0.29790	%	0.17910	%	(193	)	6/04	 	(116	)
	Sprowls #1-5	 	4.66700	%	3.74140	%	1,799	 	6/04	 	1,442	 
	Sprowls #2-5	 	4.66700	%	3.74140	%	(28,711	)	6/04	 	(23,017	)
	Sprowls #4-5	 	4.66700	%	3.74140	%	(5,731	)	6/04	 	(4,594	)
	Spurlin #25-1	 	74.18980	%	58.90200	%	108,568	 	6/04	 	86,196	(5)
	State 1-16	 	39.37290	%	32.84490	%	151	 	6/00	 	126	 
	State M #1 DK	 	15.75000	%	13.78130	%	1,407	 	6/04	 	1,231	 
	State M #1 DK	 	15.75000	%	13.78130	%	(1,660	)	6/04	 	(1,452	)(6)
	State M #1E DK	 	15.75000	%	13.78130	%	1,198	 	6/04	 	1,048	 
	State M #1E DK	 	15.75000	%	13.78130	%	(477	)	6/04	 	(417	)(6)
	State Com AM #37 DK	 	31.89850	%	27.90970	%	92	 	6/04	 	80	 
	State Com Am #37 DK	 	31.89850	%	27.90970	%	(46	)	6/04	 	(40	)(6)
	Stewart A Com LS 2 Ron	 	28.66500	%	24.43610	%	282	 	2/04	 	240	 
	Stewart A Com LS #2B MV	 	28.66500	%	24.43690	%	(10,315	)	6/04	 	(8,794	)
	Stewart A Com LS 2M MV	 	28.66500	%	24.43610	%	3,359	 	6/04	 	2,863	 
	Stewart A Com LS 2M MV	 	28.66500	%	24.43610	%	(13,003	)	6/04	 	(11,085	)(6)
	Stewart A Com LS #2 MV	 	28.66500	%	24.43610	%	272	 	6/04	 	232	 
	Stewart A Com LS #2 MV	 	28.66500	%	24.43610	%	(860	)	6/04	 	(733	)(6)
	Stewart A Com LS #2M DK	 	28.66500	%	24.43610	%	1,560	 	6/04	 	1,330	 
	Stewart A Com LS #2M DK	 	28.66500	%	24.43610	%	(1,315	)	6/04	 	(1,121	)(6)
	Switzer, Larry 3	 	1.56250	%	1.36720	%	265	 	6/04	 	231	 
	Switzer, Larry 2	 	1.56250	%	1.36720	%	7	 	6/04	 	7	 
	Switzer, Larry 1	 	1.56250	%	1.36720	%	73,874	 	6/04	 	64,640	 
	Three States Com #1A MV	 	15.75000	%	13.78130	%	(1,167	)	6/04	 	(1,021	)
	Three States Com #1A MV	 	15.75000	%	13.78130	%	482	 	6/04	 	422	(6)
	Three States Com #1 MV	 	15.75000	%	13.78130	%	(223	)	6/04	 	(195	)
	Three States Com #1 MV	 	15.75000	%	13.78130	%	537	 	6/04	 	470	(6)
	Three States Com #1 PC	 	15.75000	%	13.78130	%	(482	)	6/04	 	(422	)
	Thurmond Ranch #1-2	 	1.59340	%	1.39420	%	2,811	 	3/04	 	2,460	 
	Todd #14-1	 	1.136000	%	1.56250	%	(4	)	6/04	 	(6	)
	Todd #19-1	 	1.136000	%	1.56250	%	(12	)	6/04	 	(17	)
	Todd #15-1	 	1.136000	%	1.56250	%	(5	)	6/04	 	(7	)
	Touchstone 1-14	 	1.56250	%	1.36720	%	(39	)	12/03	 	(34	)
	 	 	 	 	 	 	 	 	 	 	 	 





Schedule 7.19 - 9







 

	Waid #1	 	11.25000	%	9.53130	%	32,122	 	6/03	 	27,215	 
	Walker #1-3	 	1.04100	%	0.91090	%	(2,418	)	6/04	 	(2,116	)
	Whitfield 1-34	 	12.50000	%	10.15630	%	(807	)	6/04	 	(656	)
	Young 1-3	 	41.42280	%	31.98770	%	3458	 	6/04	 	2,670	 
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	131,038	 
	 	 	 	 	 	 	 	 	 	 	
	 
	
Wynn-Crosby 2002, Ltd.	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

LeJenue #1	
 	

5.09870	
%	

3.39960	
%	

1,290	
 	

6/04	
 	

860	
 
	Blackburn #3T	 	14.04264	%	12.00100	%	315	 	6/04	 	269	 
	Blackburn #3C	 	14.04264	%	12.00100	%	(117	)	6/04	 	(100	)
	Blackburn #4	 	21.06395	%	18.00150	%	(10,469	)	6/04	 	(8,947	)
	Blackburn #5	 	14.92030	%	12.75110	%	(576	)	6/04	 	(492	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	(8,410	)
	 	 	 	 	 	 	 	 	 	 	
	 
	
Wildcard Oil & Gas Company	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	

Bartlett & Bailey #1	
 	

2.18580	
%	

1.81420	
%	

442	
 	

6/04	
 	

367	
 
	Bartlett & Bailey #2	 	2.18580	%	1.81420	%	392	 	6/04	 	325	 
	Bartlett & Bailey #3	 	2.18580	%	1.81420	%	1,319	 	6/04	 	1,095	 
	Bartlett & Bailey #4	 	2.18580	%	1.81420	%	2,457	 	6/04	 	2,039	 
	E. Texas Gas System PL Imbalance	 	4.440000	%	4.440000	%	265	 	6/04	 	265	 
	Golden Gas Unit #2, 805545	 	0.17250	%	0.14420	%	(407	)	6/04	 	(340	)
	Golden Gas Unit #1, 957595	 	0.17250	%	0.14420	%	(295	)	6/04	 	(247	)
	James Gas Unit 1, 805069	 	0.22810	%	0.19960	%	386	 	6/04	 	338	 
	James Gas Unit 4, 706357	 	0.47640	%	0.41530	%	(284	)	6/04	 	(248	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	3,595	 
	 	 	 	 	 	 	 	 	 	 	
	 
	Combined Total	 	 	 	 	 	 	 	 	 	787,946	 
	 	 	 	 	 	 	 	 	 	 	
	 






	(1)
	Field
imbalance due from Shell.



	(2)
	Imbalance
is disputed, well ceased production in 1992, well acquired in 1996 w/(1028) gas imbalance. Received revised imbalance in May 2004.



	(3)
	Dispute
balance Statement has obvious errors



	(4)
	Per
Jack Roach, Wynn-Crosby 1998, Ltd did not assume this imbalance. No GBA.



	(5)
	Oneok
measurement problem. Wynn-Crosby 200, Ltd. estimates this volume by comparing field estimates to Oneok statements. Oneok has not sent Wynn-Crosby any statement claiming they are
owed this gas.



	(6)
	Wynn-Crosby
2002, Ltd. acquired 70% of this property from Neward along with Neward's imbalance Conoco has not made adjustments to allocate 70% of Neward's imbalance. 


Schedule 7.19 - 10








  



 
 

SCHEDULE 7.20
  MARKETING CONTRACTS    
    


        None. 


Schedule 7.20 - 1









 
 

SCHEDULE 7.21
  SWAP AGREEMENTS    
    


        Commodity Hedges as of November 18, 2004 



	Trade Type
 
	 	Quantity
	 	Trade Date
	 	Basis
	 	Period
	 	Floor Price
	 	Ceiling Price
	 	Swap Price
	 	Counterparty

	WC oil swaps	 	5,000 bbl/month	 	11/18/2004	 	NYMEX WTI	 	Jan-Mar 05	 	 	 	 	 	 	 	$	32.31 avg.	 	Cinergy/Coral
	WC gas swaps	 	148,000 mmtu/mo avg	 	 	 	NYMEX gas	 	Jan-Jun 05	 	 	na	 	 	na	 	$	4.08 avg.	 	Cinergy/Coral
	WC gas collar	 	400,000 mmbtu/mo	 	10/21/2004	 	NYMEX gas	 	cal 05	 	$	6.35	 	$	10.05	 	 	 	 	Paribas
	WC oil collar	 	5,000 bbl/mo	 	11/18/2004	 	NYMEX WTI	 	cal 05	 	 	38.00	 	$	51.40	 	 	 	 	Paribas
	HAWK gas collar	 	90,000 mmbtu/mo	 	9/14/2004	 	NYMEX gas	 	cal 05	 	$	5.50	 	$	7.59	 	 	 	 	Paribas
	HAWK gas collar	 	45,000 mmbtu/mo	 	8/26/2004	 	NYMEX gas	 	cal 05	 	$	5.00	 	$	7.82	 	 	 	 	B of A
	HAWK gas collar	 	35,000 mmbtu/mo	 	10/29/2004	 	NYMEX gas	 	cal 05	 	$	7.00	 	$	8.75	 	 	 	 	B of A
	WC gas collar	 	170,000 mmbtu/mo	 	11/18/2004	 	NYMEX gas	 	Jul-Dec 05	 	$	6.00	 	$	7.68	 	 	 	 	Paribas
	WC oil collar	 	27,000 bbl/mo	 	10/21/2004	 	NYMEX WTI	 	cal 05	 	$	43.00	 	$	57.00	 	 	 	 	Paribas
	HAWK oil collar	 	9,000 bbl/mo	 	10/29/2004	 	NYMEX WTI	 	cal 05	 	$	43.00	 	$	52.30	 	 	 	 	B of A
	WC oil collar	 	27,000 bbl/mo	 	10/21/2004	 	NYMEX WTI	 	cal 06	 	$	40.00	 	$	49.30	 	 	 	 	Paribas
	HAWK gas collar	 	150,000 mmbtu/mo	 	10/29/2004	 	NYMEX gas	 	cal 06	 	$	6.00	 	$	8.26	 	 	 	 	B of A
	WC gas collar	 	400,000 mmbtu/mo	 	10/21/2004	 	NYMEX gas	 	cal 06	 	$	5.50	 	$	9.54	 	 	 	 	Paribas
	HAWK oil collar	 	7,000 bbl/mo	 	10/29/2004	 	NYMEX WTI	 	cal 06	 	$	40.00	 	$	47.30	 	 	 	 	B of A
	HAWK gas swap	 	100,000 mmbtu/mo	 	11/9/2004	 	NYMEX gas	 	cal 07	 	 	 	 	 	 	 	$	6.06	 	B of A
	HAWK oil collar	 	6,000 bbl/mo	 	11/5/2004	 	NYMEX WTI	 	cal 07	 	$	36.00	 	$	45.75	 	 	 	 	B of A
	WC gas collar	 	240,000 mmbtu/mo	 	11/18/2004	 	NYMEX gas	 	cal 07	 	$	5.30	 	$	7.12	 	 	 	 	Paribas
	WC oil collar	 	14,000 bbl/mo	 	11/18/2004	 	NYMEX WTI	 	cal 07	 	$	35.00	 	$	43.20	 	 	 	 	Paribas
	HAWK oil collar	 	5,000 bbl/month	 	11/5/2004	 	NYMEX WTI	 	cal 08	 	$	34.00	 	$	45.30	 	 	 	 	B of A
	WC gas collar	 	210,000 mmbtu/mo	 	11/18/2004	 	NYMEX gas	 	cal 08	 	$	5.00	 	$	6.45	 	 	 	 	Paribas
	WC oil swap	 	12,000 bbl/mo	 	11/18/2004	 	NYMEX WTI	 	cal 08	 	 	 	 	 	 	 	$	38.10	 	Paribas
	HAWK gas collar	 	90,000 mmbtu/mo	 	11/5/2004	 	NYMEX gas	 	cal 08	 	$	5.15	 	$	6.71	 	 	 	 	B of A










  



 
 

Petrohawk Energy Corporation
  Commodities Trade Summary    
    


Banc
of America 



	Trade Date
 
	 	Start Date
	 	End Date
	 	MMBTU
	 	Price
	 	MTM for

09.30.04
	 	Current Month

Change
	 	MTM for

10.29.04
	 
	Natural Gas	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	08.26.04	 	12.23.04	 	11.28.05	 	547,500	 	$	7.83	 	(252,765	)	(193,305	)	(446,070	)
	 	08.26.04	 	12.23.04	 	11.28.05	 	547,500	 	$	5.00	 	51,036	 	(32,851	)	18,185	 
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	 	(201,729	)	(226,156	)	(427,885	)
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	
	 
	BNP Paribas	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

Natural Gas	
 	

 	
 	

 	
 	

 	
 	
 	

 	
 	

 	
 	

 	
 	

 	
 
	 	09.14.01	 	01.04.05	 	12.05.05	 	1,095,000	 	$	7.59	 	(586,665	)	(429,106	)	(1,015,771	)
	 	09.14.01	 	01.04.05	 	12.05.05	 	1,095,000	 	$	5.50	 	195,898	 	(121,185	)	74,713	 
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	 	(390,767	)	(550,291	)	(941,058	)
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	
	 
	 	 	 	 	 	 	 	 	 	 	 	(592,496	)	(776,447	)	(1,368,943	)
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	
	 




Schedule 7.21 - 1








  



 
 

SCHEDULE 9.05
  INVESTMENTS    
    


None. 


Schedule 9.05-1











QuickLinks



Exhibit 10.2

EXECUTION COPY


SECOND LIEN TERM LOAN AGREEMENT

TABLE OF CONTENTS

ANNEXES, EXHIBITS AND SCHEDULES



ARTICLE VI Conditions Precedent


ARTICLE XI The Administrative Agent


ANNEX I COMMITMENTS


ANNEX II TERMS OF SUBORDINATION


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 HINKLE ELKOURI LAW FIRM L.L.C.


EXHIBIT E-2 FORM OF LEGAL OPINION OF LOCAL COUNSEL


EXHIBIT F-1 SECURITY INSTRUMENTS


EXHIBIT F-2 FORM OF GUARANTY AND COLLATERAL AGREEMENT



EXHIBIT G FORM OF ASSIGNMENT AND ASSUMPTION



ANNEX 1


PETROHAWK ENERGY CORPORATION SECOND LIEN TERM LOAN AGREEMENT STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ASSUMPTION



SCHEDULE 7.05 LITIGATION



SCHEDULE 7.15 SUBSIDIARIES AND PARTNERSHIPS; UNRESTRICTED SUBSIDIARIES



SCHEDULE 7.19 GAS IMBALANCES


SCHEDULE 7.20 MARKETING CONTRACTS


SCHEDULE 7.21 SWAP AGREEMENTS


Petrohawk Energy Corporation Commodities Trade Summary



SCHEDULE 9.05 INVESTMENTS