exv10w1



 





Exhibit 10.1




 





CREDIT AGREEMENT




by and among




FOOTHILLS RESOURCES, INC.




and




EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO




as Borrowers,




THE LENDERS THAT ARE SIGNATORIES HERETO




as the Lenders,




and




WELLS FARGO FOOTHILL, LLC




as Agent




Dated as of December 13, 2007




 






 









 








CREDIT AGREEMENT




          THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of December 13, 2007, by
and among the lenders identified on the signature pages hereof (such lenders, together with their
respective successors and permitted assigns, are referred to hereinafter each individually as a
“Lender” and collectively as the “Lenders”), WELLS FARGO FOOTHILL, LLC., a Delaware
limited liability company, as administrative agent for the Lenders (in such capacity, together with
its successors and assigns in such capacity, “Agent”), FOOTHILLS RESOURCES, INC., a Nevada
corporation (“Parent”) and each of Parent’s Subsidiaries identified on the signature pages hereof
(such Subsidiaries, together with Parent, are referred to hereinafter each individually as a
“Borrower”, and individually and collectively, jointly and severally, as the
“Borrowers”).



          The parties agree as follows:



1. DEFINITIONS AND CONSTRUCTION




     1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings
specified therefor on Schedule 1.1.



     1.2 Accounting Terms. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. When used herein, the term “financial statements” shall include
the notes and schedules thereto. Whenever the term “Borrowers” or the term “Parent” is used in
respect of a financial covenant or a related definition, it shall be understood to mean Parent and
its Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.



     1.3 Code. Any terms used in this Agreement that are defined in the Code shall be construed
and defined as set forth in the Code unless otherwise defined herein; provided,
however, that to the extent that the Code is used to define any term herein and such term
is defined differently in different Articles of the Code, the definition of such term contained in
Article 9 of the Code shall govern.



     1.4 Construction. Unless the context of this Agreement or any other Loan Document clearly
requires otherwise, references to the plural include the singular, references to the singular
include the plural, the terms “includes” and “including” are not limiting, and the term “or” has,
except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The
words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other
Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole
and not to any particular provision of this Agreement or such other Loan Document, as the case may
be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement
unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any
agreement, instrument, or document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set
forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment
in full of the Obligations shall mean the repayment in full in cash (or, in the case of Letters of
Credit or Bank Products, the cash collateralization or support by a standby letter of credit in
accordance with the terms hereof) of all Obligations other than unasserted contingent
indemnification Obligations and other than any Bank Product Obligations that, at such time, are
allowed by the applicable Bank Product Provider to remain outstanding and that are not required by
the provisions



 









 







of this Agreement to be repaid or cash collateralized. Any reference herein to any Person shall be
construed to include such Person’s successors and assigns. Any requirement of a writing contained
herein or in any other Loan Document shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the accuracy and
completeness of the information contained therein.



     1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement
shall be deemed incorporated herein by reference.



2. LOAN AND TERMS OF PAYMENT.




     2.1 Revolver Advances.



          (a) Subject to the terms and conditions of this Agreement, and during the term of this
Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and
severally) to make advances (“Advances”) to Borrowers in an amount at any one time
outstanding not to exceed such Lender’s Pro Rata Share of an amount equal to the lesser of (i) the
Maximum Revolver Amount less the Letter of Credit Usage at such time less the sum of (x) the Bank
Product Reserve and (y) the aggregate amount of reserves, if any, established by Agent under
Section 2.1 (b), and (ii) the Borrowing Base at such time less the Letter of Credit Usage
at such time.



          (b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the
right to establish reserves against the then-existing Borrowing Base or the Maximum Revolver Amount
in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem
necessary or appropriate, including reserves with respect to (i) sums that Parent or its
Subsidiaries are required to pay under any Section of this Agreement or any other Loan Document
(such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other
amounts payable under such leases) and have failed to pay, and (ii) amounts owing by Parent or its
Subsidiaries to any Person to the extent secured by a Lien on, or trust over, any of the Collateral
(including proceeds thereof or collections from the sale of Hydrocarbons which may from time to
time come into the possession of Lenders or their agent(s)) (other than a Permitted Lien), which
Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to
Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics,
materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other
taxes where given priority under applicable law) in and to such item of the Collateral. Consistent
with the foregoing, the Borrowers acknowledge that the Agent is to reserve $12,500,000 against the
Borrowing Base until such time as the conditions set forth in Section 5.24 are satisfied.



          (c) For the period from and including the Closing Date to but excluding the first
Redetermination Date, the amount of the Borrowing Base shall be $25,000,000, subject to adjustment
as provided in Section 2.1(b). Notwithstanding the foregoing, the Borrowing Base may be
subject to further adjustments from time to time pursuant to Section 5.21(d) or clause (g)
of the definition of “Permitted Dispositions.”



          (d) The Borrowing Base shall be redetermined semi-annually in accordance with this Section
2.1 (each, a “Scheduled Redetermination”), and subject to Section 2.1(d), such
redetermined Borrowing Base shall become effective and applicable to Borrowers, Agent, the Issuing
Lenders and the Lenders on the date of the New Borrowing Base Notice. In addition, Administrative
Borrower may, by notifying Agent thereof, and Agent may, at the direction of the Required Lenders,
by notifying Administrative Borrower thereof, one time during any 12-month period, each elect to
cause the



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Borrowing Base to be redetermined between Scheduled Redeterminations (an “Interim
Redetermination”) in accordance with this Section 2.1.



               (i) Each Scheduled Redetermination and each Interim Redetermination shall be effectuated as
follows: Upon receipt by Agent of (A) the Reserve Report and the certificate required to be
delivered by Administrative Borrower to Agent, in the case of a Scheduled Redetermination, pursuant
to Sections 5.20(a) and (c), and, in the case of an Interim Redetermination,
pursuant to Sections 5.20(b) and (c), and (B) such other reports, data and
supplemental information, including, without limitation, the information provided pursuant to
Section 5.20(c), as may, from time to time, be reasonably requested by Agent or any Lender
(the Reserve Report, such certificate and such other reports, data and supplemental information
being the “Engineering Reports”), Agent shall evaluate the information contained in the
Engineering Reports and shall, in good faith, propose a new Borrowing Base (the “Proposed
Borrowing Base”), based upon the Reserve Reports and such other information (including, without
limitation, the status of title information with respect to the Oil and Gas Properties as described
in the Engineering Reports and the existence of any other Indebtedness) as Agent deems appropriate
in its Permitted Discretion. In no event shall the Proposed Borrowing Base exceed the Maximum
Revolver Amount.



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



                    (A) in the case of a Scheduled Redetermination (a) if Agent shall have received the
Engineering Reports required to be delivered by Administrative Borrower pursuant to Sections
5.20(a) and (c) in a timely and complete manner, then on or before April 30th and
October 31st of such year following the date of delivery or (b) if Agent shall not have received
the Engineering Reports required to be delivered by Administrative Borrower pursuant to
Sections 5.20(a) and (c) in a timely and complete manner, then promptly after Agent
has received complete Engineering Reports from Administrative Borrower and has had a reasonable
opportunity to determine the Proposed Borrowing Base in accordance with Section 2.1(d)(i);
provided, that if such Engineering Reports are not delivered as required pursuant to Sections
5.20(a) and (c), until the next Scheduled Redetermination, Agent shall determine the
Borrowing Base in its sole discretion, subject to the provisions of Section 2.1(d)(iii);
and



                    (B) in the case of an Interim Redetermination, promptly, and in any event, within thirty (30)
days after Agent has received the required Engineering Reports from Administrative Borrower.



               (iii) Any Proposed Borrowing Base that would increase the Borrowing Base then in effect must
be approved or deemed to have been approved by all of the Lenders as provided in this
Section 2.1(d)(iii) and any Proposed Borrowing Base that would maintain or decrease the
Borrowing Base then in then in effect must be approved or deemed to have been approved by the
Required Lenders as provided in this Section 2.1(d)(iii). Upon receipt of the Proposed
Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed
Borrowing Base or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing
Base. If at the end of such fifteen (15) days, any Lender has not communicated its approval or
disapproval in writing to Agent, such silence shall be deemed to be an approval of the Proposed
Borrowing Base. If, at the end of such 15-day period, all of the Lenders, in the case of a
Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required
Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing
Base then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed
Borrowing Base shall become the new Borrowing Base and made available to Borrowers, effective on
the date the New Borrowing Base Notice is provided under Section 2.1(d)(iii)(A). 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 Agent shall poll the
Lenders to ascertain the



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highest Borrowing Base then acceptable to all of the Lenders or the Required Lenders and, so
long as such amount does not increase the Borrowing Base then in effect, such amount shall become
the new Borrowing Base, effective on the date the New Borrowing Base Notice is provided under in
Section 2.1(d)(iii)(A).



                    (A) After a redetermined Borrowing Base is approved or is deemed to have been approved by all
of the Lenders or the Required Lenders pursuant to Section 2.1(d)(iii), Agent shall notify
Administrative Borrower and the Lenders of the amount of the redetermined Borrowing Base (the
“New Borrowing Base Notice”), and such amount shall become the new Borrowing Base,
effective and applicable to Borrowers, Agent, the Issuing Lenders and the Lenders.



               (iv) Within three (3) Business Days after receipt from Agent of the New Borrowing Base Notice,
Borrowers shall have the right to request that the Required Lenders reduce the Borrowing Base until
the next Scheduled Redetermination Date or Interim Redetermination Date occurs by giving written
notification to Agent (which shall promptly notify the Lenders); and with the consent of the
Required Lenders the Borrowing Base will be the amount set forth in such notice until the next
Scheduled Redetermination Date or Interim Redetermination Date (subject to adjustment under
Section 5.21(d) or clause (g) of the definition of “Permitted Dispositions”).



          (e) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.
The outstanding principal amount of the Advances, together with interest accrued and unpaid
thereon, shall be due and payable on the Maturity Date or, if earlier, on the date on which they
are declared due and payable pursuant to the terms of this Agreement.




     2.2 Term Loan. Subject to the terms and conditions of this Agreement, on the Closing Date
each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to
make term loans (collectively, the “Term Loan”) to Borrowers in an amount equal to such
Lender’s Pro Rata Share of the Term Loan Amount. The principal of the Term Loan shall be repaid in
accordance with Section 2.4(c)(iii)(D), with the outstanding unpaid principal balance and
all accrued and unpaid interest on the Term Loan becoming due and payable on the earliest of (i)
the Maturity Date, (ii) the date of the acceleration of the Term Loan in accordance with the terms
hereof, and (iii) the date of termination of this Agreement pursuant to Section 8.1(d).
All principal of, interest on, and other amounts payable in respect of the Term Loan shall
constitute Obligations.



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     2.3 Borrowing Procedures and Settlements.



          (a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable written request
by an Authorized Person delivered to Agent. Unless Swing Lender is not obligated to make a Swing
Loan pursuant to Section 2.3(b) below, such notice must be received by Agent no later than
1:00 p.m. (Georgia time) on the Business Day that is the requested Funding Date specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day;
provided, however, that if Swing Lender is not obligated to make a Swing Loan as to
a requested Borrowing, such notice must be received by Agent no later than 1:00 p.m. (Georgia time)
on the Business Day prior to the date that is the requested Funding Date. At Agent’s election, in
lieu of delivering the above-described written request, any Authorized Person may give Agent
telephonic notice of such request by the required time. In such circumstances, Borrowers agree
that any such telephonic notice will be confirmed in writing within 24 hours of the giving of such
telephonic notice, but the failure to provide such written confirmation shall not affect the
validity of the request.




          (b) Making of Swing Loans. In the case of a request for an Advance and so long as either (i)
the aggregate amount of Swing Loans made since the last Settlement Date, minus the amount of
Collections or payments applied to Swing Loans since the last Settlement Date, plus the amount of
the requested Advance does not exceed $5,000,000, or (ii) Swing Lender, in its sole discretion,
shall agree to make a Swing Loan notwithstanding the foregoing limitation, Swing Lender shall make
an Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender pursuant
to this Section 2.3(b) being referred to as a “Swing Loan” and such Advances being
referred to collectively as “Swing Loans”) available to Borrowers on the Funding Date
applicable thereto by transferring immediately available funds to Borrowers’ Designated Account.
Each Swing Loan shall be deemed to be an Advance hereunder and shall be subject to all the terms
and conditions applicable to other Advances, except that all payments on any Swing Loan shall be
payable to Swing Lender solely for its own account. Subject to the provisions of Section
2.3(d)(ii), Swing Lender shall not make and shall not be obligated to make any Swing Loan if
Swing Lender has actual knowledge that (i) one or more of the applicable conditions precedent set
forth in Section 3 will not be satisfied on the requested Funding Date for the applicable
Borrowing, or (ii) the requested Borrowing would exceed the Availability on such Funding Date.
Swing Lender shall not otherwise be required to determine whether the applicable conditions
precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto
prior to making any Swing Loan. The Swing Loans shall be secured by Agent’s Liens, constitute
Obligations hereunder, and bear interest at the rate applicable from time to time to Advances that
are Base Rate Loans.




          (c) Making of Loans.




               (i) In the event that Swing Lender is not obligated to make a Swing Loan and does not elect to
make a Swing Loan it is not obligated to make, then promptly after receipt of a request for a
Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 1:00
p.m. (Georgia time) on the Business Day immediately preceding the Funding Date applicable thereto,
by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each
Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available
to Agent in immediately available funds, to Agent’s Account, not later than 1:00 p.m. (Georgia
time) on the Funding Date applicable thereto. After Agent’s receipt of the proceeds of such
Advances, Agent shall make the proceeds thereof available to Administrative Borrower on the
applicable Funding Date by transferring immediately available funds equal to such proceeds received
by Agent to Administrative Borrower’s Designated Account; provided, however, that,
subject to the provisions of Section 2.3(d)(ii), Agent shall not request any Lender to
make, and no Lender shall have the obligation to make, any Advance if Agent shall have actual
knowledge that (1) one or more of the applicable conditions precedent set forth in Section
3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such



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condition has been waived, or (2) the requested Borrowing would exceed the Availability on
such Funding Date.



               (ii) Unless Agent receives notice from a Lender prior to 9:00 a.m. (Georgia time) on the date
of a Borrowing, that such Lender will not make available as and when required hereunder to Agent
for the account of Borrowers the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may
assume that each Lender has made or will make such amount available to Agent in immediately
available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon
such assumption, make available to Borrowers on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to Agent in immediately available
funds and Agent in such circumstances has made available to Borrowers such amount, that Lender
shall on the Business Day following such Funding Date make such amount available to Agent, together
with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by
Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent
manifest error. If such amount is so made available, such payment to Agent shall constitute such
Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If such amount is
not made available to Agent on the Business Day following the Funding Date, Agent will notify
Administrative Borrower of such failure to fund and, upon demand by Agent, Borrowers shall pay such
amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to
the Advances composing such Borrowing. The failure of any Lender to make any Advance on any
Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on
such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on any Funding Date.



               (iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by
Borrowers to Agent for the Defaulting Lender’s benefit, and, in the absence of such transfer to the
Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender
member of the Lender Group ratably in accordance with their Commitments (but only to the extent
that such Defaulting Lender’s Advance was funded by the other members of the Lender Group) or, if
so directed by Administrative Borrower and if no Default or Event of Default had occurred and is
continuing (and to the extent such Defaulting Lender’s Advance was not funded by the Lender Group),
retain same to be re-advanced to Borrowers as if such Defaulting Lender had made Advances to
Borrowers. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to
Borrowers for the account of such Defaulting Lender the amount of all such payments received and
retained by Agent for the account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed
not to be a “Lender” and such Lender’s Commitment shall be deemed to be zero. This Section shall
remain effective with respect to such Lender until (x) the Obligations under this Agreement shall
have been declared or shall have become immediately due and payable, (y) the non-Defaulting
Lenders, Agent, and Administrative Borrower shall have waived such Defaulting Lender’s default in
writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays
to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section
shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or
excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations
hereunder, or to relieve or excuse the performance by Borrowers of their duties and obligations
hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund
by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this
Agreement and shall entitle Administrative Borrower at its option, upon written notice to Agent, to
arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute
Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender,
the Defaulting Lender shall have no right to refuse to be



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replaced hereunder, and agrees to execute and deliver a completed form of Assignment and
Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have executed
and delivered such document if it fails to do so) subject only to being repaid its share of the
outstanding Obligations (other than Bank Product Obligations, but including an assumption of its
Pro Rata Share of the Risk Participation Liability) but without any premium or penalty of any kind
whatsoever; provided, however, that any such assumption of the Commitment of such
Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups’ or
Borrowers’ rights or remedies against any such Defaulting Lender arising out of or in relation to
such failure to fund.



          (d) Protective Advances and Optional Overadvances.




               (i) Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent’s sole
discretion, (A) after the occurrence and during the continuance of a Default or an Event of
Default, or (B) at any time that any of the other applicable conditions precedent set forth in
Section 3 are not satisfied, to make Advances to Borrowers on behalf of the Lenders that
Agent, in its Permitted Discretion deems necessary or desirable (1) to preserve or protect the
Collateral, or any portion thereof, (2) to enhance the likelihood of repayment of the Obligations
(other than the Bank Product Obligations), or (3) to pay any other amount chargeable to Borrowers
pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and
expenses described in Section 9 (any of the Advances described in this
Section 2.3(d)(i) shall be referred to as “Protective Advances”).



               (ii) Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize
Agent or Swing Lender, as applicable, and either Agent or Swing Lender, as applicable, may, but is
not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to
Borrowers notwithstanding that an Overadvance exists or thereby would be created, so long as (A)
after giving effect to such Advances, the outstanding Revolver Usage does not exceed the Borrowing
Base by more than $3,000,000, and (B) after giving effect to such Advances, the outstanding
Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or
Lender Group Expenses) does not exceed the Maximum Revolver Amount. In the event Agent obtains
actual knowledge that the Revolver Usage exceeds the amounts permitted by the immediately foregoing
provisions, regardless of the amount of, or reason for, such excess, Agent shall notify the Lenders
as soon as practicable (and prior to making any (or any additional) intentional Overadvances
(except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group
Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral
or its value), and the Lenders with Revolver Commitments thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented with Borrowers intended to
reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrowers to
an amount permitted by the preceding sentence. In such circumstances, if any Lender with a
Revolver Commitment objects to the proposed terms of reduction or repayment of any Overadvance, the
terms of reduction or repayment thereof shall be implemented according to the determination of the
Required Lenders. Each Lender with a Revolver Commitment shall be obligated to settle with Agent
as provided in Section 2.3(e) for the amount of such Lender’s Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as
permitted under this Section 2.3(d)(ii), and any Overadvances resulting from the charging
to the Loan Account of interest, fees, or Lender Group Expenses.



               (iii) Each Protective Advance and each Overadvance shall be deemed to be an Advance hereunder,
except that no Protective Advance or Overadvance shall be eligible to be a LIBOR Rate Loan and,
prior to Settlement therefor, all payments on the Protective Advances shall be payable to Agent
solely for its own account. The Protective Advances and Overadvances shall be repayable on demand,
secured by Agent’s Liens, constitute Obligations hereunder, and bear interest at the rate
applicable from time to time to Advances that are Base Rate Loans. The provisions of this
Section 



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2.3(d) are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are
not intended to benefit Borrower in any way.




          (e) Settlement. It is agreed that each Lender’s funded portion of the Advances is intended by
the Lenders to equal, at all times, such Lender’s Pro Rata Share of the outstanding Advances. Such
agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall
not be for the benefit of any Borrower) that in order to facilitate the administration of this
Agreement and the other Loan Documents, settlement among the Lenders as to the Advances, the Swing
Loans, and the Protective Advances shall take place on a periodic basis in accordance with the
following provisions:




               (i) Agent shall request settlement (“Settlement”) with the Lenders on a weekly basis,
or on a more frequent basis if so determined by Agent (1) on behalf of Swing Lender, with respect
to the outstanding Swing Loans, (2) for itself, with respect to the outstanding Protective
Advances, and (3) with respect to Parent and its Subsidiaries’ Collections or payments received, as
to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of
such requested Settlement, no later than 2:00 p.m. (Georgia time) on the Business Day immediately
prior to the date of such requested Settlement (the date of such requested Settlement being the
“Settlement Date”). Such notice of a Settlement Date shall include a summary statement of
the amount of outstanding Advances, Swing Loans, and Protective Advances for the period since the
prior Settlement Date. Subject to the terms and conditions contained herein (including
Section 2.3(c)(iii)): (y) if a Lender’s balance of the Advances (including Swing Loans and
Protective Advances) exceeds such Lender’s Pro Rata Share of the Advances (including Swing Loans
and Protective Advances) as of a Settlement Date, then Agent shall, by no later than 3:00 p.m.
(Georgia time) on the Settlement Date, transfer in immediately available funds to a Deposit Account
of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon
receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances
(including Swing Loans and Protective Advances), and (z) if a Lender’s balance of the Advances
(including Swing Loans and Protective Advances) is less than such Lender’s Pro Rata Share of the
Advances (including Swing Loans and Protective Advances) as of a Settlement Date, such Lender shall
no later than 12:00 p.m. (Georgia time) on the Settlement Date transfer in immediately available
funds to the Agent’s Account, an amount such that each such Lender shall, upon transfer of such
amount, have as of the Settlement Date, its Pro Rata Share of the Advances (including Swing Loans
and Protective Advances). Such amounts made available to Agent under clause (z) of the immediately
preceding sentence shall be applied against the amounts of the applicable Swing Loans or Protective
Advances and, together with the portion of such Swing Loans or Protective Advances representing
Swing Lender’s Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such
amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to
the extent required by the terms hereof, Agent shall be entitled to recover for its account such
amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate.



               (ii) In determining whether a Lender’s balance of the Advances, Swing Loans, and Protective
Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Advances,
Swing Loans, and Protective Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually received in good funds by Agent
with respect to principal, interest, fees payable by Borrowers and allocable to the Lenders
hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender
after such application, such net amount shall be distributed by Agent to that Lender as part of
such next Settlement.



               (iii) Between Settlement Dates, Agent, to the extent Protective Advances or Swing Loans are
outstanding, may pay over to Agent or Swing Lender, as applicable, any Collections or



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payments received by Agent, that in accordance with the terms of this Agreement would be
applied to the reduction of the Advances, for application to the Protective Advances or Swing
Loans. Between Settlement Dates, Agent, to the extent no Protective Advances or Swing Loans are
outstanding, may pay over to Swing Lender any payments received by Agent, that in accordance with
the terms of this Agreement would be applied to the reduction of the Advances, for application to
Swing Lender’s Pro Rata Share of the Advances. If, as of any Settlement Date, Collections of
Parent or its Subsidiaries received since the then immediately preceding Settlement Date have been
applied to Swing Lender’s Pro Rata Share of the Advances other than to Swing Loans, as provided for
in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and
Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an
amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date,
its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with
respect to Swing Loans, Agent with respect to Protective Advances, and each Lender (subject to the
effect of agreements between Agent and individual Lenders) with respect to the Advances other than
Swing Loans and Protective Advances, shall be entitled to interest at the applicable rate or rates
payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the
Lenders, as applicable.



          (f) Notation. Agent shall record on its books the principal amount of the Advances (or
portion of the Term Loan, as applicable) owing to each Lender, including the Swing Loans owing to
Swing Lender, and Protective Advances owing to Agent, and the interests therein of each Lender,
from time to time and such records shall, absent manifest error, conclusively be presumed to be
correct and accurate.




          (g) Lenders’ Failure to Perform. All Advances (other than Swing Loans and Protective
Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata
Shares. It is understood that (i) no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor
shall any Commitment of any Lender be increased or decreased as a result of any failure by any
other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its
obligations hereunder shall excuse any other Lender from its obligations hereunder.




     2.4 Payments.



          (a) Payments by Borrower.




               (i) Except as otherwise expressly provided herein, all payments by Borrowers shall be made to
Agent’s Account for the account of the Lender Group and shall be made in immediately available
funds, no later than 2:00 p.m. (Georgia time) on the date specified herein. Any payment received by
Agent later than 2:00 p.m. (Georgia time) shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue until such following
Business Day.



               (ii) Unless Agent receives notice from Administrative Borrower prior to the date on which any
payment is due to the Lenders that Borrowers will not make such payment in full as and when
required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on
such date in immediately available funds and Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the
date when due, each Lender severally shall repay to Agent on demand such amount distributed to such
Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date
such amount is distributed to such Lender until the date repaid.



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          (b) Apportionment and Application.




               (i) So long as no Event of Default has occurred and is continuing and except as otherwise
provided with respect to Defaulting Lenders who would otherwise be entitled to receive such
payments as provided herein, all principal and interest payments shall be apportioned ratably among
the applicable Lenders (according to the unpaid principal balance of the Obligations to which such
payments relate held by each Lender) and all payments of fees and expenses (other than fees or
expenses that are for Agent’s separate account) shall be apportioned ratably among the Lenders
having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee or
expense relates. Except as otherwise specifically provided in Section 2.4(b)(iv) hereof or
in Section 2.4(d) hereof, all payments to be made hereunder by Borrowers shall be remitted
to Agent and, subject to Section 2.4(b)(iv), all such payments, and all proceeds of
Collateral received by Agent, shall be applied, so long as no Event of Default has occurred and is
continuing, to reduce the balance of the Advances outstanding or to make scheduled payments to
repay the Term Loan as provided herein and, thereafter, to Borrowers (to be wired to the Designated
Account) or such other Person entitled thereto under applicable law.



               (ii) At any time that an Event of Default has occurred and is continuing and except as
otherwise provided with respect to Defaulting Lenders, all payments remitted to Agent and all
proceeds of Collateral received by Agent shall be applied as follows:



                    (A) first, to pay any Lender Group Expenses (including cost or expense reimbursements)
or indemnities then due to Agent under the Loan Documents, until paid in full,



                    (B) second, to pay any fees or premiums then due to Agent under the Loan Documents
until paid in full,



                    (C) third, to pay interest due in respect of all Protective Advances until paid in
full,



                    (D) fourth, to pay the principal of all Protective Advances until paid in full,



                    (E) fifth, ratably to pay any Lender Group Expenses (including cost or expense
reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid
in full,



                    (F) sixth, ratably to pay any fees or premiums then due to any of the Lenders with a
Revolver Commitment or holding any Advance, until paid in full,



                    (G) seventh, ratably to pay interest due in respect of the Advances (other than
Protective Advances), and the Swing Loans, until paid in full,



                    (H) eighth, ratably (i) to pay the principal of all Swing Loans until paid in full,
(ii) to pay the principal of all Advances until paid in full, (iii) to Agent, to be held by Agent,
for the ratable benefit of Issuing Lender and those Lenders having a Revolver Commitment or holding
any Advance, as cash collateral in an amount up to 105% of the Letter of Credit Usage, (iv) to
Agent, to be held by Agent, for the benefit of the Bank Product Providers, as cash collateral in an
amount up to 105% of the amount of Bank Product Obligations in respect of Swap Agreements, and (v)
to Agent to be held by Agent for the benefit of the Bank Product Obligations as cash collateral in
an amount not to exceed the amount set forth in clause (II) of the definition of Bank Product
Reserve established prior to the occurrence of, and not in contemplation of, the subject Event of
Default,



- 10 -









 





                    (I) ninth, ratably to pay any fees or premiums then due to any of the Lenders with a
Term Loan Commitment or holding any Term Loan, until paid in full,



                    (J) tenth, ratably to pay interest due in respect of the Term Loan, until paid in
full,



                    (K) eleventh, to pay the outstanding principal balance of the Term Loan (in the
inverse order of the maturity of the installments due thereunder) until the Term Loan is paid in
full,



                    (L) twelfth, to pay any other Obligations (including the provision of amounts to
Agent, to be held by Agent, for the benefit of the Bank Product Providers, as cash collateral in an
amount up to the amount determined by Agent in its Permitted Discretion as the amount necessary to
secure Parent’s and its Subsidiaries’ obligations in respect of Bank Products), and



                    (M) thirteenth, to Borrowers (to be wired to the Designated Account) or such other
Person entitled thereto under applicable law.



               (iii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire
instructions received from each Lender in writing, such funds as it may be entitled to receive,
subject to a Settlement delay as provided in Section 2.3(e).



               (iv) In each instance, so long as no Event of Default has occurred and is continuing,
Section 2.4(b)(i) shall not apply to any payment made by Borrowers to Agent and specified
by Borrowers to be for the payment of specific Obligations then due and payable (or prepayable)
under any provision of this Agreement.



               (v) For purposes of Section 2.4(b)(ii) other than clause (L)), “paid in full” means
payment of all amounts owing under the Loan Documents according to the terms thereof, including
loan fees, service fees, professional fees, interest (and specifically including interest accrued
after the commencement of any Insolvency Proceeding), default interest, interest on interest, and
expense reimbursements, whether or not any of the foregoing (other than disallowed interest and
disallowed loan fees, if any) would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding; provided, however, that for the purposes of Section 2.4(b)(ii)(L),
“paid in full” means payment of all amounts owing under the Loan Documents according to the terms
hereof, including loan fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default interest, interest
on interest, and expense reimbursements, whether or not any of the foregoing would be or is allowed
or disallowed in whole or in party in any Insolvency Proceeding.



               (vi) In the event of a direct conflict between the priority provisions of this Section
2.4 and any other provision contained in any other Loan Document, it is the intention of the
parties hereto that such provisions be read together and construed, to the fullest extent possible,
to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot
be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and
govern.



          (c) Prepayments.




               (i) If at any time the sum of the aggregate principal amount of the outstanding Advances, the
outstanding Letter of Credit Usage, the Bank Product Reserve and the aggregate amount of reserves,
if any, established by Agent under Section 2.1 exceeds the lesser of (x) the



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Borrowing Base and (y) the Maximum Revolver Amount, Borrowers shall prepay the Obligations in
an amount equal to such excess which prepayments shall be applied in the manner set forth in
Section 2.4(d).



               (ii) Optional Prepayments of the Term Loan. The Term Loan may be voluntarily prepaid
in full or in part at any time; provided that (x) no Event of Default shall have occurred or be
continuing either immediately before or immediately after such prepayment and (y) there shall be at
least $10,000,000 of Availability both immediately before and immediately after such prepayment.
Any such principal prepayments shall be applied to the outstanding principal amount of the Term
Loans in inverse order of maturity. Each such prepayment shall be in an amount which is an integral
multiple of $5,000,000 or any greater amount which is a multiple of $500,000, shall be made by
Borrowers and shall be irrevocable.



               (iii) Mandatory Prepayments.



                    (A) Immediately upon the receipt by Parent or any of its Subsidiaries of the proceeds of any
voluntary or involuntary sale or disposition by Parent or any of its Subsidiaries of property or
assets (including casualty losses or condemnations but excluding sales or dispositions which
qualify as Permitted Dispositions under clauses (a), (b), (c), (d), (e) or (f) of the definition of
Permitted Dispositions), Borrowers shall prepay the outstanding principal amount of the Obligations
in accordance with Section 2.4(d) in an amount equal to 100% of the Net Cash Proceeds
(including condemnation awards and payments in lieu thereof) received by such Person in connection
with such sales or dispositions; provided that, so long as (A) no Default or Event of
Default shall have occurred and is continuing, (B) Administrative Borrower shall have given Agent
prior written notice of Borrowers’ intention to apply such monies to the costs of replacement of
the properties or assets that are the subject of such sale or disposition, (C) the monies are held
in a cash collateral account in which Agent has a perfected first-priority security interest, and
(D) Parent or its Subsidiaries, as applicable, complete such replacement within 180 days after the
initial receipt of such monies, Parent and its Subsidiaries shall have the option to apply such
monies to the costs of replacement of the property or assets that are the subject of such sale or
disposition unless and to the extent that such applicable period shall have expired without such
replacement, purchase or construction being made or completed, in which case, any amounts remaining
in the cash collateral account shall be paid to Agent and applied in accordance with Section
2.4(d). Nothing contained in this Section 2.4(c)(iii)(A) shall permit Parent or any of
its Subsidiaries to sell or otherwise dispose of any property or assets other than in accordance
with Section 6.4.



                    (B) Immediately upon the receipt by Parent or any of its Subsidiaries of any Extraordinary
Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations in accordance
with Section 2.4(d) in an amount equal to 100% of such Extraordinary Receipts, net of any
reasonable expenses incurred in collecting such Extraordinary Receipts.



                    (C) Immediately upon the issuance or incurrence by Parent or any of its Subsidiaries of any
Indebtedness (other than Indebtedness permitted under Section 6.1(a), (b),
(c), (d), (e), (f) or (g)) or the issuance by Parent or any
of its Subsidiaries of any shares of Parent’s Stock or its Subsidiaries’ Stock (other than (I) in
the event that Parent or any of its Subsidiaries forms a Subsidiary in accordance with the terms
hereof, the issuance by such Subsidiary of Stock to a Borrower or such Subsidiary, as applicable
and (II) the issuance by Parent of the Warrant or of shares of its Stock (including the Warrant
Shares) to holders of warrants or options existing on the Closing Date and set forth on
Schedule 4.5(b)), Borrowers shall prepay the outstanding principal amount of the
Obligations in accordance with Section 2.4(d) in an amount equal to (x) 100% of the Net
Cash Proceeds received by such Person in connection with such incurrence of Indebtedness or such
issuance of Stock if such Stock is issued in a transaction other than as described in clause (y)
below, or (y) 50% of the Net Cash Proceeds received by such Person in connection with an issuance
of Stock in an underwritten public offering



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pursuant to a registration statement filed with the SEC (other than a registration statement
on Form S-8) or an issuance to not less than 10 investors under Section 4(2) and/or Regulation D
under the Securities Act of 1933, as amended; provided the applicable Person intends in good faith
to register the securities represented by such issuance with the SEC as soon as possible. The
provisions of this Section 2.4(c)(iii) shall not be deemed to be implied consent to any
such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement.



                    (D) Within 10 days of delivery to Agent and the Lenders of either (1) audited annual financial
statements or (2) the unaudited quarterly balance sheet, income statement and statement of cash
flow, as applicable, pursuant to Section 5.3, commencing with the delivery to Agent and the
Lenders of the financial statements for Parent’s fiscal year ended December 31, 2009 (for the
period from the second anniversary of the Closing Date to and including December 31, 2009) or, if
such financial statements are not delivered to Agent and the Lenders on the date such statements
are required to be delivered pursuant to Section 5.3, within 10 days after the date such
statements are required to be delivered to Agent and the Lenders pursuant to Section 5.3,
Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with
Section 2.4(d) in an amount equal to 50% of (1) with respect to the first fiscal quarter of
2010, the Excess Cash Flow of Parent and its Subsidiaries for the last fiscal quarter of Parent’s
fiscal year ended December 31, 2009, and (2) with respect to each subsequent fiscal quarter, the
Excess Cash Flow of Parent and its Subsidiaries for the fiscal quarter immediately preceding such
fiscal quarter.



          (d) Application of Payments. Each prepayment pursuant to any clause of Section
2.4(c)(iii) above shall (A) so long as no Event of Default shall have occurred and be
continuing and subject to the last sentence of this subsection, be applied, first, to the
outstanding principal amount of the Advances, but solely to the extent necessary to increase the
Availability at such time to $10,000,000, second, to the outstanding principal amount of the Term
Loan until paid in full, third, to the outstanding principal amount of the Advances (with a
corresponding permanent reduction in the Maximum Revolver Amount and a permanent reserve against
the Borrowing Base) until paid in full, and fourth, to cash collateralize the Letters of Credit in
an amount equal to 105% of the then extant Letter of Credit Usage (with a corresponding permanent
reduction in the Maximum Revolver Amount and a permanent reserve against the Borrowing Base), and
(B) if an Event of Default shall have occurred and be continuing, be applied in the manner set
forth in Section 2.4(b)(ii). Each such prepayment of the Term Loan shall be applied
against the remaining installments of principal of the Term Loan in the inverse order of maturity.
Notwithstanding the foregoing, any prepayment resulting from the sale of any Collateral comprising
the Borrowing Base shall be applied first to the outstanding principal amount of the Advances, and
then to the Term Loans to be apportioned among the Term Loan Lenders pro rata.




     2.5 Overadvances


If, at any time or for any reason, the amount of Obligations owed by Borrowers to the Lender
Group pursuant to Section 2.1 or Section 2.12 is greater than any of the
limitations set forth in Section 2.1 or Section 2.12, as applicable (an
“Overadvance”), Borrowers immediately upon demand shall pay to Agent, in cash, the amount
of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with
the priorities set forth in Section 2.4(b). Borrowers promise to pay the Obligations
(including principal, interest, fees, costs, and expenses) in Dollars in full on the Maturity Date
or, if earlier, on the date on which the Obligations are declared due and payable pursuant to the
terms of this Agreement.




     2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.



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          (a) Interest Rates. Except as provided in Section 2.6(c), all Obligations (except for
undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the
Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as
follows:




               (i) if the relevant Obligation is an Advance that is (A) a LIBOR Rate Loan, at a per annum
rate equal to the LIBOR Rate plus the LIBOR Rate Margin applicable to an Advance (except to the
extent an Advance is converted from a LIBOR Rate Loan to a Base Rate Loan pursuant to Section
2.13(a))or (B) a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate
Margin applicable to an Advance; or



               (ii) if the relevant Obligation relates to the Term Loan that is (A) a LIBOR Rate Loan, at a
per annum rate equal to (a) the LIBOR Rate plus the LIBOR Rate Margin applicable to the Term Loan;
provided that if an event described in Section 2.13(d)(ii) shall occur, the interest on the Term
Loan shall accrue at a per annum rate equal to the Base Rate plus the Base Rate Margin applicable
to the Term Loan or (B) a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base
Rate Margin applicable to an Advance.



          (b) Letter of Credit Fee. Borrowers shall pay Agent (for the ratable benefit of the Lenders
with a Revolver Commitment, subject to any agreements between Agent and individual Lenders), a
Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in
Section 2.12(e)) which shall accrue at a rate equal to 2.0% per annum times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit.




          (c) Default Rate. Upon the occurrence and during the continuation of an Event of Default (and
at the election of Agent or the Required Lenders),




               (i) all Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear
interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the
per annum rate otherwise applicable hereunder, and



               (ii) the Letter of Credit fee provided for in Section 2.6(b) shall be increased to 2
percentage points above the per annum rate otherwise applicable hereunder.



          (d) Payment. Except as provided to the contrary in Section 2.11 or Section
2.13(a), interest, Letter of Credit fees, and all other fees payable hereunder shall be due and
payable, in arrears, on the first day of each calendar quarter at any time that Obligations or
Commitments are outstanding. Borrowers hereby authorize Agent, from time to time without prior
notice to Borrowers, to charge all interest and fees (when due and payable), all Lender Group
Expenses (as and when incurred), all charges, commissions, fees, and costs provided for in
Section 2.12(e) (as and when accrued or incurred), all fees and costs provided for in
Section 2.11 (as and when accrued or incurred), and all other payments as and when due and
payable under any Loan Document (including the amounts due and payable with respect to the Term
Loan and including any amounts due and payable to the Bank Product Providers in respect of Bank
Products up to the amount of the Bank Product Reserve) to Borrowers’ Loan Account, which amounts
thereafter shall constitute Advances hereunder and shall accrue interest at the rate then
applicable to Advances that are Base Rate Loans. Any interest not paid when due shall be
compounded by being charged to the Loan Account and shall thereafter constitute Advances hereunder
and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans;
provided, however, that if at the time that any amounts due in respect of interest on the Term Loan
are charged to Borrowers’ Loan Account, an Event of Default or Overadvance exists, or would result
therefrom, such amounts shall not constitute Advances but instead shall continue to remain
outstanding as amounts due in



- 14 -









 







respect of the Term Loan, and such amounts shall be compounded and added to the outstanding
principal balance of the Term Loan; provided further, however, that the failure to make any such
payment and the compounding of such interest shall nonetheless constitute an Event of Default under
Section 7.1.



          (e) Computation. All interest and fees chargeable under the Loan Documents shall be computed
on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate
is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.



          (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or
rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the
highest rate permissible under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrowers and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated
within it; provided, however, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum
allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are
and shall be liable only for the payment of such maximum as allowed by law, and payment received
from Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess. Without limiting the foregoing,
it is the intention of the parties hereto that the Agent and each Lender shall conform strictly to
usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be
usurious as to the Agent or 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 the Agent or 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 Loans, it is
agreed as follows: (a) the aggregate of all consideration with constitutes interest under law
applicable to the Agent or any Lender that is contracted for, taken, reserved, charged or received
by the Agent or such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Loans 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 the Agent or 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 the Agent or such Lender to the borrowers; and (b) in the event that the maturity of
the Loans 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 the Agent or 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 the Agent or
such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Agent or 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 the Agent or such Lender to the Borrowers). All sums paid or agreed to be paid to the
Agent or any Lender for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by law applicable to the Agent or such Lender, be amortized, prorated, allocated
and spread throughout the stated term of the Loans 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 the
Agent or any Lender on any date shall be computed at the maximum rate allowable under law
applicable to the Agent or such Lender pursuant to this Section 2.6(f) and (ii) in respect
of any subsequent interest computation period the amount of interest otherwise payable to the Agent
or such Lender would be less than the amount of interest payable to the Agent or



- 15 -









 







such Lender computed at the maximum rate allowable under law applicable to the Agent or such
Lender, then the amount of interest payable to the Agent or such Lender in respect of such
subsequent interest computation period shall continue to be computed at the maximum lawful rate
applicable to the Agent or such Lender until the total amount of interest payable to the Agent or
such Lender shall equal the total amount of interest which would have been payable to the Agent or
such Lender if the total amount of interest had been computed without giving effect to this
Section 2.6(f). To the extent that Chapter 303 of the Texas Finance Code is relevant for
the purpose of determining the maximum lawful rate applicable to the Agent or a Lender, the Agent
or 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 any
Borrower’s obligations hereunder.



     2.7 Cash Management.



          (a) Parent shall and shall cause each of its Subsidiaries to (i) establish and maintain cash
management services of a type and on terms satisfactory to Agent at one or more of the banks set
forth on Schedule 2.7(a) (each a “Cash Management Bank”), and shall request in
writing and otherwise take such reasonable steps to ensure that all of its and its Subsidiaries’
Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank,
and (ii) deposit or cause to be deposited promptly, and in any event no later than the first
Business Day after the date of receipt thereof, all of their Collections (including those sent
directly by their Account Debtors to Parent or its Subsidiaries) into a bank account in Agent’s
name (a “Cash Management Account”) at one of the Cash Management Banks. Agent reserves the
right, in its sole discretion, to require that any amounts received in any Cash Management Account
which may represent amounts that constitute trust funds (i.e., production taxes, severance taxes,
or payroll taxes) or amounts attributable to interests of third Persons such as overriding royalty
interest be segregated by such Cash Management Bank and held in a separate account or otherwise as
directed by Agent.



          (b) Each Cash Management Bank shall establish and maintain Control Agreements with Agent and
Borrowers. Each such Control Agreement shall provide, among other things, that (i) the Cash
Management Bank will comply with any instructions originated by Agent directing the disposition of
the funds in such Cash Management Account without further consent by Parent or its Subsidiaries, as
applicable, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim
against the applicable Cash Management Account other than for payment of its service fees and other
charges directly related to the administration of such Cash Management Account and for returned
checks or other items of payment, and (iii) upon the instruction of the Agent (an “Activation
Instruction”), it will forward by daily sweep all amounts in the applicable Cash Management
Account to the Agent’s Account. Agent agrees not to issue an Activation Instruction with respect
to the Cash Management Accounts or to give instructions to the Cash Management Bank directing the
disposition of funds in a Cash Management Account unless a Triggering Event has occurred and is
continuing at such time.



          (c) So long as no Default or Event of Default has occurred and is continuing, Administrative
Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash
Management Account; provided, however, that (i) such prospective Cash Management
Bank shall be reasonably satisfactory to Agent, and (ii) prior to the time of the opening of such
Cash Management Account, Parent (or its Subsidiary, as applicable) and such prospective Cash
Management Bank shall have executed and delivered to Agent a Control Agreement. Parent (or its
Subsidiaries, as applicable) shall close any of their Cash Management Accounts (and establish
replacement cash management accounts in accordance with the foregoing sentence) promptly and in any
event within 30 days of notice from Agent that the creditworthiness of any Cash Management Bank is
no longer acceptable in Agent’s reasonable judgment, or as promptly as practicable and in any event
within 60 days of notice from Agent



- 16 -









 







that the operating performance, funds transfer, or availability procedures or performance of
the Cash Management Bank with respect to Cash Management Accounts or Agent’s liability under any
Control Agreement with such Cash Management Bank is no longer acceptable in Agent’s reasonable
judgment.



          (d) Each Cash Management Account shall be a cash collateral account subject to a Control
Agreement.



     2.8 Crediting Payments. The receipt of any payment item by Agent (whether from
transfers to Agent by the Cash Management Banks pursuant to the Control Agreements or otherwise)
shall not be considered a payment on account unless such payment item is a wire transfer of
immediately available federal funds made to the Agent’s Account or unless and until such payment
item is honored when presented for payment. Should any payment item not be honored when presented
for payment, then Borrowers shall be deemed not to have made such payment and interest shall be
calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment
item shall be deemed received by Agent only if it is received into the Agent’s Account on a
Business Day on or before 2:00 p.m. (Georgia time). If any payment item is received into the
Agent’s Account on a non-Business Day or after 2:00 p.m. (Georgia time) on a Business Day, it shall
be deemed to have been received by Agent as of the opening of business on the immediately following
Business Day; provided, however, Agent reserves the right, in its sole discretion, to exclude from
such provisional reduction and payment the amount of any such payments that Agent determines may
constitute trust funds (e.g., production taxes, severance taxes, or payroll taxes) or amounts
attributable to interests of third Persons such as overriding royalty interests.



     2.9 Designated Account. Agent is authorized to make the Advances, and Issuing Lender is
authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person or, without instructions,
if pursuant to Section 2.6(d). Administrative Borrower agrees to establish and maintain
the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds
of the Advances requested by Borrowers and made by Agent or the Lenders hereunder. Unless
otherwise agreed by Agent and Administrative Borrower, any Advance, Protective Advance, or Swing
Loan requested by Borrowers and made by Agent or the Lenders hereunder shall be made to the
Designated Account.



     2.10 Maintenance of Loan Account; Statements of Obligations. Agent shall maintain an
account on its books in the name of Borrowers (the “Loan Account”) on which Borrowers will be
charged with the Term Loan, all Advances (including Protective Advances and Swing Loans) made by
Agent, Swing Lender, or the Lenders to Borrowers or for Borrowers’ account, the Letters of Credit
issued by Issuing Lender for Borrowers’ account, and with all other payment Obligations hereunder
or under the other Loan Documents (except for Bank Product Obligations), including, accrued
interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8,
the Loan Account will be credited with all payments received by Agent from Borrowers or for
Borrowers’ account, including all amounts received in the Agent’s Account from any Cash Management
Bank. Agent shall render statements regarding the Loan Account to Administrative Borrower,
including principal, interest, fees, and including an itemization of all charges and expenses
constituting Lender Group Expenses owing, and such statements, absent manifest error, shall be
conclusively presumed to be correct and accurate and constitute an account stated between Borrowers
and the Lender Group unless, within 30 days after receipt thereof by Administrative Borrower,
Administrative Borrower shall deliver to Agent written objection thereto describing the error or
errors contained in any such statements. Promptly after receipt of such written objection and
Agent’s evaluation thereof, the Agent shall credit the Loan Account for amounts (if any) contained
in such statements that Agent agrees were charged in error.



     2.11 Fees. Borrowers shall pay to Agent, as and when due and payable under the terms of
the Fee Letter, the fees set forth in the Fee Letter.



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     2.12 Letters of Credit.



          (a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue
letters of credit for the account of Borrowers (each, an “L/C”) or to purchase
participations or execute indemnities or reimbursement obligations (each such undertaking, an
“L/C Undertaking”) with respect to letters of credit issued by an Underlying Issuer (as of
the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of
Borrowers. Each request for the issuance of a Letter of Credit, or the amendment, renewal, or
extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and
delivered to the Issuing Lender and Agent via hand delivery, telefacsimile, or other electronic
method of transmission reasonably in advance of the requested date of issuance, amendment, renewal,
or extension. Each such request shall be in form and substance satisfactory to the Issuing Lender
in its Permitted Discretion and shall specify (i) the amount of such Letter of Credit, (ii) the
date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration
date of such Letter of Credit, (iv) the name and address of the beneficiary thereof (or the
beneficiary of the Underlying Letter of Credit, as applicable), and (v) such other information
(including, in the case of an amendment, renewal, or extension, identification of the outstanding
Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend,
renew, or extend such Letter of Credit. If requested by the Issuing Lender, Borrowers also shall
be an applicant under the application with respect to any Underlying Letter of Credit that is to be
the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter
of Credit if any of the following would result after giving effect to the issuance of such
requested Letter of Credit:




               (i) the Letter of Credit Usage would exceed the Borrowing Base less the outstanding amount of
Advances, less the Bank Product Reserve, and less the aggregate amount of reserves, if any,
established by Agent under Section 2.1(b), or



               (ii) the Letter of Credit Usage would exceed $5,000,000, or



               (iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding
amount of Advances less the Bank Product Reserve, and less the aggregate amount of reserves, if
any, established by Agent under Section 2.1(b).



          Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and
substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including
the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender
is obligated to advance funds under a Letter of Credit, Borrowers immediately shall reimburse such
L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not
later than 2:00 p.m., Georgia time, on the date that such L/C Disbursement is made, if
Administrative Borrower shall have received written or telephonic notice of such L/C Disbursement
prior to 1:00 p.m., Georgia time, on such date, or, if such notice has not been received by
Administrative Borrower prior to such time on such date, then not later than 2:00 p.m., Georgia
time, on the Business Day that Administrative Borrower receives such notice, if such notice is
received prior to 1:00 p.m., Georgia time, on the date of receipt, and, in the absence of such
reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance
hereunder and, initially, shall bear interest at the rate then applicable to Advances that are Base
Rate Loans. To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers’
obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting
Advance. Promptly following receipt by Agent of any payment from Borrowers pursuant to this
paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders
have made payments pursuant to Section 2.12(b) to reimburse the Issuing Lender, then to
such Lenders and the Issuing Lender as their interests may appear.




- 18 -









 








          (b) Promptly following receipt of a notice of L/C Disbursement pursuant to
Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro Rata Share
of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as
if Borrowers had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts
so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action on the part of the
Issuing Lender or the Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have
granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall
be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender
agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of any
payments made by the Issuing Lender under such Letter of Credit. In consideration and in
furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and
unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro
Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrowers on
the date due as provided in Section 2.12(a), or of any reimbursement payment required to be
refunded to Borrowers for any reason. Each Lender with a Revolver Commitment acknowledges and
agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount
equal to its respective Pro Rata Share of each L/C Disbursement made by the Issuing Lender pursuant
to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be
made notwithstanding the occurrence or continuation of an Event of Default or Default or the
failure to satisfy any condition set forth in Section 3. If any such Lender fails to make
available to Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made by the
Issuing Lender in respect of such Letter of Credit as provided in this Section, such Lender shall
be deemed to be a Defaulting Lender and Agent (for the account of the Issuing Lender) shall be
entitled to recover such amount on demand from such Lender together with interest thereon at the
Defaulting Lender Rate until paid in full.



          (c) Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless
from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender
Group arising out of or in connection with any Letter of Credit; provided, however,
that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or
liability to the extent that it is caused by the gross negligence or willful misconduct of the
Issuing Lender or any other member of the Lender Group. Each Borrower agrees to be bound by the
Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit or by
Issuing Lender’s interpretations of any L/C issued by Issuing Lender to or for such Borrower’s
account, even though this interpretation may be different from such Borrower’s own, and each
Borrower understands and agrees that the Lender Group shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following Borrowers’ instructions or
those contained in the Letter of Credit or any modifications, amendments, or supplements thereto.
Each Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the
Underlying Issuer for certain costs or liabilities arising out of claims by Borrowers against such
Underlying Issuer. Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender
Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or
liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group’s
indemnification of any Underlying Issuer; provided, however, that no Borrower shall
be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it
is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member
of the Lender Group. Each Borrower hereby acknowledges and agrees that neither the Lender Group
nor the Issuing Lender shall be responsible for delays, errors, or omissions resulting from the
malfunction of equipment in connection with any Letter of Credit.



          (d) Each Borrower hereby authorizes and directs any Underlying Issuer to deliver to the
Issuing Lender all instruments, documents, and other writings and property received by such



- 19 -









 







Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the
Issuing Lender’s instructions with respect to all matters arising in connection with such
Underlying Letter of Credit and the related application.



          (e) Any and all issuance charges, commissions, fees, and costs incurred by the Issuing Lender
relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to Agent for the account of the Issuing
Lender; it being acknowledged and agreed by Borrowers that, as of the Closing Date, the issuance
charge imposed by the prospective Underlying Issuer is 0.825% per annum times the undrawn amount of
each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and
that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings,
and renewals.



          (f) If by reason of (i) any change after the Closing Date in any applicable law, treaty, rule,
or regulation or any change in the interpretation or application thereof by any Governmental
Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction,
request, or requirement (irrespective of whether having the force of law) of any Governmental
Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time
to time in effect (and any successor thereto):



               (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect
of any Letter of Credit issued hereunder, or



               (ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition
regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto,


and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender
Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount
receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any
time within a reasonable period after the additional cost is incurred or the amount received is
reduced, notify Administrative Borrower, and Borrowers shall pay on demand such amounts as Agent
may specify to be necessary to compensate the Lender Group for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand until payment in full
thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Agent of
any amount due pursuant to this Section, as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error,
be final and conclusive and binding on all of the parties hereto.




     2.13 LIBOR Option.



          (a) Interest and Interest Payment Dates. Interest and Interest Payment Dates. In lieu of
having interest on any Advance charged at a rate based upon the Base Rate, Borrowers shall have the
option (the “LIBOR Option”) to have interest on all or a portion of the Advances or the
Term Loan be charged (whether at the time when made (unless otherwise provided herein), upon
conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a LIBOR Rate Loan as
a LIBOR Rate Loan) at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans
shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto,
(provided, however, that, subject to the following clauses (ii) and (iii), in the
case of any Interest Period greater than 3 months in duration, interest shall be payable at 3 month
intervals after the commencement of the applicable Interest Period and on the last day of such
Interest Period), (ii) the date on which all or any portion of the Obligations are accelerated
pursuant to the terms hereof, or (iii) the date on which this
Agreement is



- 20 -









 







terminated pursuant to the terms hereof. On the last day of each applicable
Interest Period, unless Administrative Borrower properly has exercised the LIBOR Option with
respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert
to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time
that an Event of Default has occurred and is continuing, Borrowers no longer shall have the option
to request that Advances bear interest at a rate based upon the LIBOR Rate and Agent shall have the
right to convert the interest rate on all outstanding LIBOR Rate Loans (other than Term Loan) to
the rate then applicable to Base Rate Loans hereunder.



          (b) LIBOR Election.



               (i) Administrative Borrower may, at any time and from time to time, so long as no Event of
Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior
to 2:00 p.m. (Georgia time) at least 3 Business Days prior to the commencement of the proposed
Interest Period (the “LIBOR Deadline”). Notice of Administrative Borrower’s election of
the LIBOR Option for a permitted portion of the Advances or the Term Loan and an Interest Period
pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent
before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to
be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (Georgia
time) on the same day). Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a
copy thereof to each of the affected Lenders.



               (ii) Each LIBOR Notice shall be irrevocable and binding on Borrowers. In connection with each
LIBOR Rate Loan, each Borrower shall indemnify, defend, and hold Agent and the Lenders harmless
against any loss, cost, or expense incurred by Agent or any Lender as a result of (A) the payment
of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (B) the conversion of any LIBOR Rate Loan
other than on the last day of the Interest Period applicable thereto, or (C) the failure to borrow,
convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered
pursuant hereto (such losses, costs, or expenses, “Funding Losses”). Funding Losses shall,
with respect to Agent or any Lender, be deemed to equal the amount determined by Agent or such
Lender to be the excess, if any, of (1) the amount of interest that would have accrued on the
principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would
have been applicable thereto, 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 therefor), minus (2) the amount
of interest that would accrue on such principal amount for such period at the interest rate which
Agent or such Lender would be offered were it to be offered, at the commencement of such period,
Dollar deposits of a comparable amount and period in the London interbank market. A certificate of
Agent or a Lender delivered to Administrative Borrower setting forth any amount or amounts that
Agent or such Lender is entitled to receive pursuant to this Section 2.13 shall be
conclusive absent manifest error.



               (iii) Borrowers shall have not more than 7 LIBOR Rate Loans in effect at any given time, of
which no more than one LIBOR Rate Loan may be the Term Loan. Borrowers only may exercise the LIBOR
Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000 in
excess thereof.



          (c) Conversion. Borrowers may convert LIBOR Rate Loans (other than Term Loan) to Base Rate
Loans at any time; provided, however, that in the event that LIBOR Rate Loans are
converted or prepaid on any date that is not the last day of the Interest Period applicable
thereto, including as a result of any automatic prepayment through the required application by
Agent of proceeds of Parent’s
and its Subsidiaries’ Collections in accordance with Section 2.4(b) or for any other
reason, including early



- 21 -









 







termination of the term of this Agreement or acceleration of all or any
portion of the Obligations pursuant to the terms hereof, each Borrower shall indemnify, defend, and
hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in
accordance with Section 2.13 (b)(ii) above.



          (d) Special Provisions Applicable to LIBOR Rate.



               (i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis
to take into account any additional or increased costs to such Lender of maintaining or obtaining
any eurodollar deposits or increased costs, in each case, due to changes in applicable law
occurring subsequent to the commencement of the then applicable Interest Period, including changes
in tax laws (except changes of general applicability in corporate income tax laws) and changes in
the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any
successor), excluding the Reserve Percentage, which additional or increased costs would increase
the cost of funding or maintaining loans bearing interest at the LIBOR Rate. In any such event,
the affected Lender shall give Administrative Borrower and Agent notice of such a determination and
adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt
of the notice from the affected Lender, Administrative Borrower may, by notice to such affected
Lender (x) require such Lender to furnish to Administrative Borrower a statement setting forth the
basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment,
or (y) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any
amounts due under this Section 2.13(d)(i). Failure or delay on the part of any Lender to
demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right
to demand such compensation; provided that Borrowers shall not be required to compensate a
Lender pursuant to this Section for any additional or increased costs incurred more than 360 days
prior to the date that such Lender notifies the Administrative Borrower of such law giving rise to
such additional or increased costs and of such Lender’s intention to claim compensation therefor;
provided further that if such claim arises by reason of the adoption of or change
in any law that is retroactive, then the 360-day period referred to above shall be extended to
include the period of retroactive effect thereof.



               (ii) In the event that any change in market conditions or any law, regulation, treaty, or
directive, or any change therein or in the interpretation of application thereof, shall at any time
after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for
such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to
determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed
circumstances to Agent and Administrative Borrower and Agent promptly shall transmit the notice to
each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding,
the date specified in such Lender’s notice shall be deemed to be the last day of the Interest
Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter
shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrowers shall not
be entitled to elect the LIBOR Option until such Lender determines that it would no longer be
unlawful or impractical to do so.



          (e) No Requirement of Matched Funding. Anything to the contrary contained herein
notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually
to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest
accrues at the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its
Participants had match funded any Obligation as to which interest is accruing at the LIBOR Rate by
acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans.




     2.14 Capital Requirements. If, after the date hereof, any Lender determines that (i)
the adoption of or change in any law, rule, regulation or guideline regarding capital requirements
for banks or
bank holding companies, or any change in the interpretation or application thereof by any
Governmental



- 22 -









 







Authority charged with the administration thereof, or (ii) compliance by such Lender
or its parent bank holding company with any guideline, request, or directive of any such entity
regarding capital adequacy (whether or not having the force of law), has the effect of reducing the
return on such Lender’s or such holding company’s capital as a consequence of such Lender’s
Commitments hereunder to a level below that which such Lender or such holding company could have
achieved but for such adoption, change, or compliance (taking into consideration such Lender’s or
such holding company’s then existing policies with respect to capital adequacy and assuming the
full utilization of such entity’s capital) by any amount deemed by such Lender to be material, then
such Lender may notify Administrative Borrower and Agent thereof. Following receipt of such
notice, Borrowers agree to pay such Lender on demand the amount of such reduction of return of
capital as and when such reduction is determined, payable within 90 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such Lender’s
calculation thereof and the assumptions upon which such calculation was based (which statement
shall be deemed true and correct absent manifest error). In determining such amount, such Lender
may use any reasonable averaging and attribution methods. Failure or delay on the part of any
Lender to demand compensation pursuant to this Section shall not constitute a waiver of such
Lender’s right to demand such compensation; provided that Borrowers shall not be required to
compensate a Lender pursuant to this Section for any reduction in return incurred more than 360
days prior to the date that such Lender notifies the Administrative Borrower of such law, rule,
regulation or guideline giving rise to such reductions and of such Lender’s intention to claim
compensation therefor; provided further that if such claim arises by reason of the adoption of or
change in any law, rule, regulation or guideline that is retroactive, then the 360-day period
referred to above shall be extended to include the period of retroactive effect thereof.



     2.15 Tax Reporting. (a) Borrowers and the Lenders agree (i) to treat the Term Loans
as debt for all United States tax purposes, (ii) to treat the issue price of the Term Loans (within
the meaning of Section 1273 of the IRC) as being equal to the aggregate original principal amount
of the Term Loans, (iii) to treat the Term Loans as issued with original issue discount (“OID”),
(iv) that any calculation by Borrowers regarding the amount of OID for any accrual period on the
Term Loans shall be subject to review and approval of the Required Lenders (such approval not to be
unreasonably withheld, delayed or conditioned), and (v) to adhere to this Agreement for tax
purposes and not to take any action (including in communication with any taxing authority) or file
any tax return, report or declaration inconsistent with any of the agreed provisions of this
Section 2.15 (including with respect to the issue price of the Term Loans set forth in the
preceding clause (ii) and the amount of OID on the Term Loans as determined in accordance with the
preceding clause (iv)). The inclusion of this Section 2.15 is not an admission by any
Lender that it is subject to United States taxation.



          (b) Borrowers and the Lenders, having adverse interests and as a result of arms-length
bargaining, agree that (i) neither Lenders nor any of their officers, directors, representatives,
partners, members or employees have rendered or have agreed to render any services to Borrowers in
connection with this Agreement or the making of the Term Loans; (ii) the Warrant is not being
issued as compensation; and (iii) for the purposes and within the meaning of Section 1273(c)(2) of
the IRC the issue price of the Warrant is $2,280,602, which is its fair market value. Borrowers
and the Lenders acknowledge that this allocation is based on the relative fair market value of the
Warrant. For federal, state and local tax purposes, Borrowers and the Lender agree to take
reporting and other positions with respect to the Warrant which are consistent with the purchase
price of the Warrant set forth herein.




     2.16 Joint and Several Liability of Borrowers.



          (a) Each Borrower is accepting joint and several liability hereunder and under the other Loan
Documents in consideration of the financial accommodations to be provided by the Lender
Group under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower
and in



- 23 -









 







consideration of the undertakings of the other Borrowers to accept joint and several
liability for the Obligations.



          (b) Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not
merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers,
with respect to the payment and performance of all of the Obligations (including any Obligations
arising under this Section 2.16), it being the intention of the parties hereto that all the
Obligations shall be the joint and several obligations of each Borrower without preferences or
distinction among them.



          (c) If and to the extent that any Borrower shall fail to make any payment with respect to any
of the Obligations as and when due or to perform any of the Obligations in accordance with the
terms thereof, then in each such event the other Borrowers will make such payment with respect to,
or perform, such Obligation.



          (d) The Obligations of each Borrower under the provisions of this Section 2.16
constitute the absolute and unconditional, full recourse Obligations of each Borrower enforceable
against each Borrower to the full extent of its properties and assets, irrespective of the
validity, regularity or enforceability of this Agreement or any other circumstances whatsoever,
subject to applicable law.



          (e) Except as otherwise expressly provided in this Agreement, each Borrower hereby waives
notice of acceptance of its joint and several liability, notice of any Advances or Letters of
Credit issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event
of Default, or of any demand for any payment under this Agreement, notice of any action at any time
taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement
of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all
demands, notices and other formalities of every kind in connection with this Agreement (except as
otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any
extension or postponement of the time for the payment of any of the Obligations, the acceptance of
any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver,
consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any
default by any Borrower in the performance or satisfaction of any term, covenant, condition or
provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in
respect of any of the Obligations, and the taking, addition, substitution or release, in whole or
in part, at any time or times, of any security for any of the Obligations or the addition,
substitution or release, in whole or in part, of any Borrower. Without limiting the generality of
the foregoing, each Borrower assents to any other action or delay in acting or failure to act on
the part of any Agent or Lender with respect to the failure by any Borrower to comply with any of
its respective Obligations, including, without limitation, any failure strictly or diligently to
assert any right or to pursue any remedy or to comply fully with applicable laws or regulations
thereunder, which might, but for the provisions of this Section 2.16 afford grounds for
terminating, discharging or relieving any Borrower, in whole or in part, from any of its
Obligations under this Section 2.16, it being the intention of each Borrower that, so long
as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower under this
Section 2.16 shall not be discharged except by performance and then only to the extent of
such performance. The Obligations of each Borrower under this Section 2.16 shall not be
diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation,
reconstruction or similar proceeding with respect to any Borrower or any Agent or Lender.



          (f) Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently
informed of the financial condition of Borrowers and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower
further represents and warrants to Agent and Lenders that such Borrower has read and
understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants
that such



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Borrower will continue to keep informed of Borrowers’ financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Obligations.



          (g) Each Borrower waives all rights and defenses arising out of an election of remedies by
Agent or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with
respect to security for a guaranteed obligation, has destroyed Agent’s or such Lender’s rights of
subrogation and reimbursement against such Borrower by the operation of Section 580(d) of the
California Code of Civil Procedure or otherwise.



          (h) Each Borrower waives all rights and defenses that such Borrower may have because the
Obligations are secured by Real Property. This means, among other things:



               (i) Agent and Lenders may collect from such Borrower without first foreclosing on any Real or
Personal Property Collateral pledged by Borrowers.



               (ii) If Agent or any Lender forecloses on any Real Property Collateral pledged by Borrowers:



                    (A) Subject to applicable law, the amount of the Obligations may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price.



                    (B) Agent and Lenders may collect from such Borrower even if Agent or Lenders, by foreclosing
on the Real Property Collateral, has destroyed any right such Borrower may have to collect from the
other Borrowers.


Subject to applicable law, this is an unconditional and irrevocable waiver of any rights and
defenses such Borrower may have because the Obligations are secured by Real Property. These rights
and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b,
580d or 726 of the California Code of Civil Procedure.




          (i) The provisions of this Section 2.16 are made for the benefit of Agent, Lenders and
their respective successors and assigns, and may be enforced by it or them from time to time
against any or all Borrowers as often as occasion therefor may arise and without requirement on the
part of Agent, Lender, successor or assign first to marshal any of its or their claims or to
exercise any of its or their rights against any Borrower or to exhaust any remedies available to it
or them against any Borrower or to resort to any other source or means of obtaining payment of any
of the Obligations hereunder or to elect any other remedy. The provisions of this Section
2.16 shall remain in effect until all of the Obligations shall have been paid in full or
otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of
any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or any
Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the
provisions of this Section 2.16 will forthwith be reinstated in effect, as though such
payment had not been made.



          (j) Until the Obligations have been paid in full and all of the Commitments terminated, each
Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation
against any other Borrower with respect to any liability incurred by it hereunder or under any of
the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the
Obligations or any collateral security therefor until such time as all of the Obligations have been
paid in
full in cash. Any claim which any Borrower may have against any other Borrower with respect
to any



- 25 -









 







payments to any Agent or Lender hereunder or under any other Loan Documents are hereby
expressly made subordinate and junior in right of payment, without limitation as to any increases
in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the
Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation,
reorganization or other similar proceeding under the laws of any jurisdiction relating to any
Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be
paid in full in cash before any payment or distribution of any character, whether in cash,
securities or other property, shall be made to any other Borrower therefor.



          (k) Each Borrower hereby agrees that, after the occurrence and during the continuance of any
Default or Event of Default, the payment of any amounts due with respect to the indebtedness owing
by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash
of the Obligations. Each Borrower hereby agrees that after the occurrence and during the
continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise
attempt to collect any indebtedness of any other Borrower owing to such Borrower until the
Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such
Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such
amounts shall be collected, enforced and received by such Borrower as trustee for Agent, and such
Borrower shall deliver any such amounts to Agent for application to the Obligations in accordance
with Section 2.4(b).



3. CONDITIONS; TERM OF AGREEMENT.




     3.1 Conditions Precedent to the Initial Extension of Credit. The obligation of each Lender
to make its initial extensions of credit provided for hereunder, is subject to the fulfillment, to
the satisfaction of Agent and each Lender of each of the conditions precedent set forth on
Schedule 3.1 (the making of such initial extension of credit by a Lender being conclusively
deemed to be its satisfaction or waiver of the conditions precedent ).



     3.2 Conditions Precedent to all Extensions of Credit. The obligation of the Lender Group
(or any member thereof) to initially make the Term Loan, any Closing Date Advance and thereafter
any future Advances hereunder (or to extend any other credit hereunder) at any time shall be
subject to the following conditions precedent:



          (a) the representations and warranties of Parent or its Subsidiaries contained in this
Agreement or in the other Loan Documents or other certificate delivered to the Agent or any Lender
pursuant hereto or thereto shall be true and correct in all respects on and as of the date of such
extension of credit, as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);




          (b) no Default or Event of Default shall have occurred and be continuing on the date of such
extension of credit, nor shall either result from the making thereof;




          (c) no injunction, writ, restraining order, or other order of any nature restricting or
prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain
in force by any Governmental Authority against any Borrower, Agent, or any Lender; and




          (d) no Material Adverse Change shall have occurred since December 31, 2006.




     3.3 Term. This Agreement shall continue in full force and effect for a term ending on
December 13, 2012 (the “Maturity Date”). The foregoing notwithstanding, the Lender Group,
upon the
election of the Required Lenders, shall have the right to terminate its obligations under this
Agreement immediately and without notice upon the occurrence and during the continuation of an
Event of Default.




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     3.4 Effect of Termination. On the date of termination of this Agreement, all Obligations
(including contingent reimbursement obligations of Borrowers with respect to outstanding Letters of
Credit and including all Bank Product Obligations) immediately shall become due and payable without
notice or demand (including the requirement that Borrower provide (a) Letter of Credit
Collateralization, and (b) Bank Product Collateralization). No termination of this Agreement,
however, shall relieve or discharge Parent or its Subsidiaries of their duties, Obligations, or
covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral shall
remain in effect until all Obligations have been paid in full and the Lender Group’s obligations to
provide additional credit hereunder have been terminated. When this Agreement has been terminated
and all of the Obligations have been paid in full and the Lender Group’s obligations to provide
additional credit under the Loan Documents have been terminated irrevocably, Agent will, at
Borrowers’ sole expense, without recourse, representation or warranty, execute and deliver any
termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges
of security interests, and other similar discharge or release documents (and, if applicable, in
recordable form) as are reasonably necessary to release, as of record, Agent’s Liens and all
notices of security interests and liens previously filed by Agent with respect to the Obligations.



     3.5 Early Termination by Borrowers. Borrowers have the option, at any time upon 10 days
prior written notice to Agent, to terminate this Agreement and terminate the Commitments hereunder
by paying to Agent, in cash, the Obligations (including (a) providing Letter of Credit
Collateralization with respect to the then existing Letter of Credit Usage and (b) providing Bank
Product Collateralization with respect to the then existing Bank Products), in full. If Borrowers
have sent a notice of termination pursuant to the provisions of this Section, then the Commitments
shall terminate and Borrowers shall be obligated to repay the Obligations (including (a) providing
Letter of Credit Collateralization with respect to the then existing Letter of Credit Usage and (b)
providing Bank Product Collateralization with respect to the then existing Bank Products), in full
on the date set forth as the date of termination of this Agreement in such notice.



4. REPRESENTATIONS AND WARRANTIES.




          In order to induce the Lender Group to enter into this Agreement, each Borrower makes the
following representations and warranties with respect to itself and its property to the Lender
Group which shall be true, correct, and complete, in all respects, as of the date hereof, and at
and as of the date of the making of each Advance (or other extension of credit) made thereafter, as
though made on and as of the date of such Advance (or other extension of credit) (except to the
extent that such representations and warranties relate solely to an earlier date which shall have
been true, correct and complete as of such earlier date) and such representations and warranties
shall survive the execution and delivery of this Agreement:



     4.1 No Encumbrances. Schedule 4.1 sets forth all Real Property (other than Oil and
Gas Properties) owned, leased, subleased or used by Parent or any of its Subsidiaries as of the
Closing Date. Parent and its Subsidiaries have good and defensible title to, or a valid leasehold
interest in, their personal property assets and good and marketable title to, or a valid leasehold
interest in, their Real Property (other than Oil and Gas Properties), in each case, free and clear
of Liens except for Permitted Liens. Schedule 4.1 also describes any purchase options,
rights of first refusal or other similar contractual rights in favor of Parent or any of its
Subsidiaries pertaining to any Real Property (other than Oil and Gas Properties) owned or leased by
Parent or any of its Subsidiaries as of the Closing Date. No portion of any Real Property (other
than Oil and Gas Properties) has suffered any material damage by fire or other casualty loss which
has not heretofore been repaired and restored in all material respects to its original condition or
otherwise remedied. All material permits required to have been issued or appropriate to enable the
Real Property (other than Oil and Gas Properties) to be lawfully occupied and used for all of the
purposes for



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which they are currently occupied and used have been lawfully issued and are in full
force and effect in all material respects.



     4.2 Margin Stock. Neither Parent nor any of its Subsidiaries is engaged, nor will it
engage, principally or as one of their important activities, in the business of extending credit
for the purpose of “purchasing” or “carrying” any “margin security” as such terms are defined in
Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such
securities being referred to herein as “Margin Stock”). Neither Parent nor any of its Subsidiaries
owns any Margin Stock, and none of the proceeds of the Term Loan, Advances or other extensions of
credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any Margin Stock or for any other purpose which might
cause any of the Term Loan, Advances or other extensions of credit under this Agreement to be
considered a “purpose credit” within the meaning of Regulation T, U or X of the Federal Reserve
Board.



     4.3 Brokers. No broker or finder acting on behalf of any Borrower brought about the
obtaining, making or closing of the Loans and no Borrower has any obligation to any Person in
respect of any finder’s or brokerage fees in connection therewith, other than those fees owing to
Rivington Capital Advisors, LLC and SMH Capital Inc. and previously disclosed to the Lenders.



     4.4 Jurisdiction of Organization; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims.




          (a) The name of (within the meaning of Section 9-503 of the Code) and jurisdiction of
organization of Parent and each of its Subsidiaries is set forth on Schedule 4.4(a) (as
such Schedule may be updated from time to time to reflect changes permitted to be made under
Section 6.5).




          (b) The chief executive office of Parent and each of its Subsidiaries is located at the
address indicated on Schedule 4.4(b) (as such Schedule may be updated from time to time
to reflect changes permitted to be made under Section 6.5).




          (c) Parent’s and each of its Subsidiaries’ tax identification numbers and organizational
identification numbers, if any, are identified on Schedule 4.4(c) (as such Schedule may
be updated from time to time to reflect changes permitted to be made under Section 6.5).




          (d) As of the Closing Date, Parent and its Subsidiaries do not hold any commercial tort
claims, except as set forth on Schedule 4.4(d).



     4.5 Due Organization and Qualification; Compliance with Laws; Subsidiaries.




          (a) Each Borrower is duly organized and existing and in good standing under the laws of the
jurisdiction of its organization and qualified to do business in any state where the failure to
be so qualified reasonably could be expected to result in a Material Adverse Change.




          (b) Set forth on Schedule 4.5(b), is a complete and accurate description of the
authorized capital Stock of each Borrower, by class, and, as of the Closing Date, a description
of the number of shares of each such class that are issued and outstanding. Other than as
described on Schedule 4.5(b), there are no subscriptions, options, warrants, or calls
relating to any shares of each Borrower’s capital Stock, including any right of conversion or
exchange under any outstanding
security or other instrument. No Borrower is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any
security convertible into or



- 28 -









 







exchangeable for any of its capital Stock. Sufficient shares of
Common Stock have been (and will remain) authorized and reserved for the Lenders, free from
pre-emptive rights, for the purpose of enabling Borrowers to satisfy any obligation to issue
Common Stock upon the exercise of the Warrants.




          (c) Set forth on Schedule 4.5(c) (as such Schedule may be updated from time to time
to reflect changes permitted to be made under Section 5.15), is a complete and accurate
list of Parent’s direct and indirect Subsidiaries, showing: (i) the jurisdiction of their
organization, (ii) the number of shares of each class of common and preferred Stock authorized
for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by the applicable Borrower. Borrowers have no
joint ventures or similar arrangements with any Person. All of the outstanding capital Stock of
each such Subsidiary has been validly issued and is fully paid and non-assessable.




          (d) Except as set forth on Schedule 4.5(d), there are no subscriptions, options,
warrants, or calls relating to any shares of Parent’s Subsidiaries’ capital Stock, including any
right of conversion or exchange under any outstanding security or other instrument. Neither
Parent nor any of its Subsidiaries are subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Parent’s Subsidiaries’ capital Stock or
any security convertible into or exchangeable for any such capital Stock.




          (e) (i) Neither Parent nor any of its Subsidiaries are in violation of any law, statute,
regulation, ordinance, judgment, order, or decree applicable to it (other than (A) Environmental
Law which is addressed in Section 4.11 below and (B) as set forth below in subclause
(ii)), which violation could reasonably be expected to cause a Material Adverse Change.




               (ii) Neither Parent nor any of its Subsidiaries have violated any laws or failed to obtain
any material license, permit, franchise or other authorization from any Governmental Authority
necessary for the ownership of any of its Oil and Gas Properties or the conduct of its business.
The Oil and Gas Properties of Parent and its Subsidiaries (and assets and properties utilized
therewith) have been maintained, operated and developed in a good and workmanlike manner and in
substantial conformity with all applicable laws and all rules, regulations and orders of all
Governmental Authorities having jurisdiction and in substantial 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 such Oil and Gas Properties; specifically in this
connection, (A) no Oil and Gas Property of Parent (or any of its Subsidiaries) with a Total
Reserve Value in excess of $100,000 is subject to having allowable production reduced below the
full and regular allowable production (including the maximum permissible tolerance) because of
any overproduction (whether or not the same was permissible at the time) prior to the Closing
Date and (B) none of the wells comprising a part of such Oil and Gas Properties (or assets and
properties utilized therewith) is deviated from the vertical by more than the maximum permitted
by applicable laws, regulations, rules and orders of any Governmental Authority, and such wells
are, in fact, bottomed under and are producing from, and the well bores are wholly within, such
Oil and Gas Properties (or in the case of wells located on Real Property utilized therewith, such
utilized Real Property) covered by the leases.



     4.6 Due Authorization; No Conflict.




          (a) As to each Borrower, the execution, delivery, and performance by such Borrower of this
Agreement and the Loan Documents to which it is a party have been duly authorized
by all necessary action on the part of such Borrower and such Borrower has full power and
authority to



- 29 -









 







own and hold under lease its property and to conduct its business substantially as
currently conducted by it.




          (b) As to each Borrower, the execution, delivery, and performance by such Borrower of this
Agreement and the other Loan Documents to which it is a party do not and will not (i) violate any
provision of federal, state, or local law or regulation applicable to any Borrower, the Governing
Documents of any Borrower, or any order, judgment, or decree of any court or other Governmental
Authority binding on any Borrower, (ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any Material Contract of any Borrower or
require any approval or consent of any Person under any Material Contract of any Borrower, other
than consents or approvals that have been obtained and that are still in force and effect, (iii)
result in or require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of any
Borrower’s equityholders, other than approvals that have been obtained and that are still in
force and effect.




          (c) Other than the filing of financing statements and the recordation of the Mortgages and
the entering into of Control Agreements, and any other filings or actions to be taken after the
Closing Date necessary to perfect Liens granted to Agent in future acquired Collateral, the
execution, delivery, and performance by each Borrower of this Agreement and the other Loan
Documents to which such Borrower is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any Governmental Authority,
other than consents or approvals that have been obtained and that are still in force and effect.




          (d) As to each Borrower, this Agreement and the other Loan Documents to which such Borrower
is a party, and all other documents contemplated hereby and thereby, when executed and delivered
by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors’ rights generally.




          (e) Agent’s Liens on all assets of the Parent and its Subsidiaries, including, without
limitation, the Oil and Gas Properties are validly created, perfected (other than any Deposit
Accounts and Securities Accounts not subject to a Control Agreement as permitted by Section
6.11, and subject only to the filing of financing statements and the recordation of the
Mortgages), and first priority Liens, subject as to priority only to (i) Permitted Liens and (ii)
in the case of Oil and Gas Properties not included within the group of Oil and Gas Properties
reflecting 80% of the Total Reserve Value as required under Section 5.21, interests
arising under oil and gas leases, farm-out agreements, net profits agreements and other similar
agreements (but in no event shall such interest secure Indebtedness) (hereinafter, the “Limited
Priority Exception for 20% of TRV”).




          (f) The execution, delivery, and performance by each Guarantor of the Loan Documents to
which it is a party have been duly authorized by all necessary action on the part of such
Guarantor and each Guarantor has full power and authority to own and hold under lease its
property and to conduct its business substantially as currently conducted by it.




          (g) The execution, delivery, and performance by each Guarantor of the Loan Documents to
which it is a party do not and will not (i) violate any provision of federal, state, or local law
or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any
order, judgment, or decree of any court or other Governmental Authority binding on such
Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default
under



- 30 -









 







any Material Contract of such Guarantor or require any approval or consent of any
Person under any Material Contract of such Guarantor, other than consents or approvals that have
been obtained and that are still in force and effect, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor,
other than Permitted Liens, or (iv) require any approval of such Guarantor’s equityholders other
than approvals that have been obtained and that are still in force and effect.




          (h) Other than the filing of financing statements, the recordation of the Mortgages, and
other filings or actions necessary to perfect Liens granted to Agent in the Collateral, the
execution, delivery, and performance by each Guarantor of the Loan Documents to which such
Guarantor is a party do not and will not require any registration with, consent, or approval of,
or notice to, or other action with or by, any Governmental Authority, other than as expressly
contemplated by the Loan Documents, and consents or approvals that have been obtained and that
are still in force and effect.




          (i) The Loan Documents to which each Guarantor is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by such Guarantor will be the
legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in
accordance with their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors’ rights generally.




          (j) No Default or Event of Default exists.



     4.7 Litigation. Other than those matters disclosed on Schedule 4.7 and other than
matters arising after the Closing Date that reasonably could not be expected to result in a
Material Adverse Change, there are no actions, suits, or proceedings pending or, to the best
knowledge of each Borrower, threatened against any Borrower.



     4.8 No Material Adverse Change.




          (a) All financial statements relating to Parent and its Subsidiaries that have been
delivered by Borrowers to the Lender Group have been prepared in accordance with GAAP (except, in
the case of unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and present fairly in all material respects, Parent’s and its
Subsidiaries’ financial condition as of the date thereof and results of operations for the period
then ended. There has not been a Material Adverse Change with respect to Parent and its
Subsidiaries since December 31, 2006.




          (b) The Projections, including any Projections delivered on or before the Closing Date, when
submitted to Agent as required pursuant to the Loan Documents represent Borrowers’ good faith
estimate of the future performance of Parent and its consolidated Subsidiaries for the periods
set forth therein based on assumptions believed by Borrowers to be reasonable at the time of
delivery thereof to Agent (it being understood that such projections and forecasts are subject to
uncertainties and contingencies, many of which are beyond the control of Parent and its
Subsidiaries and no assurances can be given that such projections or forecasts will be realized
and further understood that projections concerning volumes attributable to the Oil and Gas
Properties and production and cost estimates contained in the Projections are necessarily based
upon third-party professional opinions, estimates and projections and that Parent and its
Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove
to have been accurate, provided that all such Projections shall be prepared in good faith based
upon assumptions believed by Borrowers to be reasonable at the time of the delivery thereof to
Agent and consistent with industry standards).



- 31 -









 





     4.9 Fraudulent Transfer.




          (a) Parent and each of its Subsidiaries are Solvent.




          (b) No transfer of property is being made by Parent or any of its Subsidiaries and no
obligation is being incurred by Parent or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Parent or its Subsidiaries.



     4.10 Employee Benefits. None of Parent, any of its Subsidiaries, or any of their ERISA
Affiliates maintains or contributes to any Pension Plan, Multiemployer Plan or other Defined
Benefit Plan.



4.11 Environmental Condition. Except as set forth on Schedule 4.11,





          (a) Parent, its Subsidiaries and their businesses, operations, Real Property and real
property formerly owned, leased, operated, managed, or occupied by Parent, its Subsidiaries or
any of their predecessors in interest (the “Former Real Property”) are and have at all
times during Borrowers’ or any Subsidiary’s ownership, lease, operation, management, occupation
or use thereof been in material compliance with any applicable Environmental Laws;




          (b) Parent and its Subsidiaries have obtained all material permits required for the conduct
of their business and operations, and the ownership, operation and use of the Real Property,
under all applicable Environmental Laws (the “Environmental Permits”). Parent and its
Subsidiaries are in material compliance with the terms and conditions of such Environmental
Permits, and all such Environmental Permits are valid and in good standing. No material
expenditures or operational adjustments are reasonably anticipated to be required to remain in
compliance with the terms and conditions of, or to renew or modify such Environmental Permits;




          (c) There has been no Release or threatened Release or any handling, management, generation,
treatment, storage or disposal of Hazardous Materials on, at, under or from any Real Property or
Former Real Property that has resulted in, or is reasonably likely to result in, a material
Environmental Liability for Parent or any of its Subsidiaries;




          (d) There is no material Environmental Action or Environmental Liability pending or, to the
knowledge of Parent or its Subsidiaries, threatened against Parent or its Subsidiaries, or
relating to the Real Property or Former Real Property or relating to the operations of Parent or
its Subsidiaries, and, to the knowledge of Parent or its Subsidiaries, there are no actions,
activities, circumstances, conditions, events or incidents that are reasonably likely to form the
basis of such an Environmental Action or Environmental Liability;




          (e) Neither Parent nor any of its Subsidiaries is conducting, financing or is obligated to
perform any material Response Action or otherwise incur any material expense under Environmental
Law pursuant to any Environmental Action or agreement by which it is bound or has expressly
assumed by contract or agreement;




          (f) No Real Property or facility owned, operated or leased by Parent or any of its
Subsidiaries and, to the knowledge of Parent or any of its Subsidiaries, no Former Real Property
is (i) listed or proposed for listing on the National Priorities List as defined in and
promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. §9601 et seq. (“CERCLA”) or (ii) included on any similar list maintained by any
Governmental Authority that



- 32 -









 







indicates that Parent or any of its Subsidiaries has or may have an obligation to undertake
any material Response Action;




          (g) No Environmental Lien has been recorded or, to the knowledge of Parent or any of its
Subsidiaries, threatened with respect to any Real Property;




          (h) The execution, delivery and performance of this Agreement, the other Loan Documents and
the other transactions contemplated hereby and thereby will not require any notification,
registration, filing, reporting, disclosure, investigation, remediation or cleanup obligations
pursuant to any requirement of Governmental Authority or any other Environmental Law;




          (i) Parent and its Subsidiaries have made available to the Lenders all material records and
files in the possession, custody or control of, or otherwise reasonably available to, Parent or
its Subsidiaries concerning compliance with or liability or obligation under Environmental Law,
including those concerning the condition of the Real Property or the existence of Hazardous
Materials at the Real Property or Former Real Property; and




          (j) None of the matters disclosed in Schedule 4.11, individually or in the
aggregate, is reasonably likely to cause a Material Adverse Change.



     4.12 Intellectual Property. Except with respect to Seismic Licenses, Parent and each of
its Subsidiaries own, or hold licenses in, all trademarks, trade names, copyrights, patents, patent
rights, and licenses that are necessary to the conduct of its business as currently conducted, and
attached hereto as Schedule 4.12 (as updated from time to time) is a true, correct, and
complete listing of all material patents, patent applications, trademarks, trademark applications,
copyrights, and copyright registrations as to which Parent or one of its Subsidiaries is the owner
or is an exclusive licensee; provided, however, that Borrowers may amend Schedule 4.12 to
add additional property so long as such amendment occurs by written notice to Agent not less than
10 days before the date on which Parent or any of its Subsidiaries acquires any such property after
the Closing Date.



     4.13 Leases. Parent and its Subsidiaries enjoy good and defensible title under all leases
covering any Proved Oil and Gas Property with a Total Reserve Value in excess of $100,000 and any
other Real Property material to their business and to which they are parties or under which they
are operating, and all of such leases are valid and subsisting and no material default by Parent or
its Subsidiaries exists under any of them. Except as set forth on Schedule 4.13, there are
no leases, subleases, contracts or other operating agreements that allocate operating expenses to
Parent or any of its Subsidiaries in excess of its working interest of record in the particular Oil
and Gas Property subject to such lease, the sublease, contract or other operating agreement.



     4.14 Deposit Accounts and Securities Accounts. Set forth on Schedule 4.14 is a
listing of all of Parent’s and its Subsidiaries’ Deposit Accounts and Securities Accounts,
including, with respect to each bank or securities intermediary (a) the name and address of such
Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with
such Person. So long as no Default or Event of Default has occurred and is continuing, Borrowers
may amend Schedule 4.14 to add or replace a Deposit Account or Securities Account;
provided, however, that (i) such prospective bank or securities intermediary shall be reasonably
satisfactory to Agent, and (ii) prior to the time of the opening of such Deposit Account or
Securities Account, Parent (or its Subsidiaries, as applicable) and such prospective bank or
securities intermediary shall have executed and delivered to Agent a Control Agreement, provided
that this Section 4.14 shall not require the execution and delivery of a Control Agreement with
respect to two certificates of deposit issued by Wells Fargo Bank, N.A., for $15,000 and $20,000,
which are outstanding on the Closing Date and mature in April 2008 (but such certificates of



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deposit shall not be rolled over, renewed or extended unless a Control Agreement with respect to
such certificates of deposit shall have been executed and delivered).



     4.15 Complete Disclosure. Subject to Section 4.8(b) as to the Projections, none of
the factual information (taken as a whole) furnished by or on behalf of Parent or its Subsidiaries
in writing to Agent or any Lender (including all information contained in the Schedules hereto or
in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan
Documents, or any transaction contemplated herein or therein contains any material misstatement of
fact, or omits to state any material fact necessary to make such information not misleading in any
material respect, at such time in light of the circumstances under which such information was
provided.



     4.16 Indebtedness. Set forth on Schedule 4.16 is a true and complete list of all
Indebtedness of Parent and its Subsidiaries outstanding immediately prior to the Closing Date that
is to remain outstanding after the Closing Date and such Schedule accurately sets forth the
aggregate principal amount of such Indebtedness and the principal terms thereof.



     4.17 Material Contracts. Set forth on Schedule 4.17 is a description of all
Material Contracts of Parent and its Subsidiaries, showing the parties and principal subject matter
thereof and amendments and modifications thereto; provided, however, that Borrowers may amend
Schedule 4.17 to add additional Material Contracts so long as such amendment of
Schedule 4.17 occurs by written notice to Agent not less than 5 days after the date on
which Parent or its Subsidiary enters into such Material Contract after the Closing Date. Except
for matters which, either individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Change, each Material Contract (other than those that have expired at
the end of their normal terms) (a) is in full force and effect and is binding upon and enforceable
against Parent or its Subsidiary and, to the best of Parent’s knowledge, each other Person that is
a party thereto in accordance with its terms, (b) has not been otherwise amended or modified (other
than amendments or modifications permitted by Section 6.7(c)), and (c) is not in default
due to the action or inaction of Parent or any of its Subsidiaries.



     4.18 Government Regulation. Neither Parent or any of its Subsidiaries is an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company,” as such terms are defined in the Investment Company Act of 1940 as amended. Neither
Parent nor any of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 2005, the Federal Power Act, or any other federal or state statute that restricts or
limits its ability to incur Indebtedness or to perform its obligations hereunder. The Advances and
the other transactions contemplated hereunder, the application of the proceeds thereof and
repayment thereof comply in all material respects with any such statute or any rule, regulation or
order issued by the SEC.



     4.19 Foreign Assets Control Regulations, Etc.




          (a) Neither Parent nor any of its Subsidiaries is in violation in any material respect of
the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of
the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.




          (b) Neither Parent nor any of its respective Subsidiaries (i) is, or will become, a Person
described or designated in the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (ii) engages or
will engage in any dealings or transactions, or is or will be otherwise associated, with any such
Person. Parent and its Subsidiaries are in compliance, in all material respects, with the USA
Patriot Act.



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          (c) No part of the proceeds from the loans made hereunder will be used by Borrowers,
directly or indirectly, for any payments to any governmental official or employee, political
party, official of a political party, candidate for political office, or anyone else acting in an
official capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.



     4.20 Insurance and Bonds. Schedule 4.20 lists all insurance policies of any nature
maintained for current occurrences by Borrowers, as well as a summary of the terms of each such
policy. No Borrower is in default of any obligation under any such policy. Except as set forth on
Schedule 4.20, all such policies are in full force and effect, all premiums with respect
thereto covering all periods up to and including the Closing Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy. Schedule
4.20 contains an accurate and complete description of all performance bonds related to
operations on or pertaining to the Oil and Gas Properties of Parent and its Subsidiaries as of the
Closing Date. Such bonds and insurance policies are sufficient for compliance with all
requirements of law and of all agreements to which Parent and each of its Subsidiaries is a party;
are valid, outstanding and enforceable policies; provide adequate coverage in at least such amounts
and against at least such risks (but including in any event public liability) as are required by
Governmental Authorities and/or usually insured or bonded against in the same general area by
companies engaged in the same or a similar business for the assets and operations of Parent and its
Subsidiaries; will remain in full force and effect through the respective dates set forth in
Schedule 4.20 without the payment of additional premiums except as set forth on
Schedule 4.20; and will not in any way be affected by, or terminate or lapse by reason of,
the transactions contemplated by this Agreement.



     4.21 Government Contracts. Except as set forth in Schedule 4.21, neither Parent
nor any of its Subsidiaries is a party to any contract or agreement with any Governmental Authority
and no Account of either Parent or any of its Subsidiaries is subject to the Federal Assignment of
Claims Act, as amended (31 U.S.C. Section 3727).



     4.22 Taxes. All federal, state and other material tax returns, reports and statements,
including information returns, required by any Governmental Authority to be filed by Parent and its
Subsidiaries have been filed with the appropriate Governmental Authority (and all such returns,
reports and statements accurately reflect in all material respects all liabilities of Parent and
each of its Subsidiaries for the periods covered thereby) and all charges have been paid prior to
the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment
thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding charges
or other amounts that are subject to a Permitted Protest. Proper and accurate amounts have been
withheld by Parent and its Subsidiaries from its respective employees for all periods in full and
complete compliance with all applicable federal, state, local and foreign law and such withholdings
have been timely paid to the respective Governmental Authorities. Schedule 4.22 sets forth
as of the Closing Date those taxable years for which Parent’s and its Subsidiaries’ tax returns are
currently being audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or otherwise currently
outstanding. As of the Closing Date and except as set forth on Schedule 4.22, there is no
action, suit, proceeding, investigation, audit or claim now pending or threatened by any authority
regarding any taxes relating to Parent or its Subsidiaries, which, either individually or in the
aggregate, could reasonably be expected to cause a Material Adverse Change or to result in a
material liability to Parent or its Subsidiaries. Except as described on Schedule 4.22,
neither Parent nor any of its Subsidiaries has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any charges or other amounts. None of Parent
or its Subsidiaries and their respective predecessors are liable for any charges or other amounts:
(a) under any agreement (including any tax sharing agreements) or (b) to Parent’s or its
Subsidiaries’ knowledge, as a transferee. As of the Closing Date, neither Parent nor its



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Subsidiaries has agreed or been requested to make any adjustment under IRC Section 481(a), by
reason of a change in accounting method or otherwise, which could cause a Material Adverse Change.



     4.23 Gas, Imbalances, Prepayments. As of the date hereof, except as set forth on
Schedule 4.23 or on the most recent certificate delivered pursuant to Section
5.20(c), on a net basis there are no gas imbalances, take-or-pay or other similar arrangement
or any prepayment with respect to any of the Oil and Gas Properties that would require Parent or
any of its Subsidiaries either to make cash settlements for such production or to deliver
Hydrocarbons produced from the Oil and Gas Properties at some future time in any case without then
or thereafter receiving full payment therefor exceeding, during any monthly period, two percent
(2%) of the current aggregate monthly gas production for such monthly period from the Oil and Gas
Properties of Parent and its Subsidiaries.



     4.24 Swap Agreements. Schedule 4.24 sets forth, as of the Closing Date, a true and
complete list of all Swap Agreements (including any commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of
Hydrocarbons or other commodities) of Borrowers, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), all credit support
agreements relating thereto (including any margin required or supplied), and the counterparty to
each such agreement.



     4.25 Location of Real Property and Leased Premises.




          (a) Schedule 4.25 lists completely and correctly as of the Closing Date all Oil and
Gas Properties that are Real Property whether leased or owned by Parent (and its Subsidiaries, as
applicable) and the respective addresses (if any), counties and states thereof.




          (b) Parent and each of its Subsidiaries have good and defensible title to all of their Oil
and Gas Properties set forth on Schedule 4.25 which constitute Real Property and good and
defensible title to all of their Oil and Gas Properties which constitute personal property,
except for (i) such imperfections of title which do not in the aggregate materially detract from
the value thereof to, or the use thereof in, the business of Borrowers or (ii) Permitted Liens.
The quantum and nature of the interest of Parent and its Subsidiaries in and to the Oil and Gas
Properties as set forth in the Initial Reserve Report or the most recent Reserve Report, as the
case may be, includes the entire interest of Parent and its Subsidiaries in such Oil and Gas
Properties as of the date of the Initial Reserve Report (subject, in the case of the Lower Rio
Del formation acreage, to the Farmout Agreement) or such applicable Reserve Report delivered by
Administrative Borrower to Agent pursuant to Section 5.20, as the case may be, and are
complete and accurate in all material respects as of the date of the Initial Reserve Report or
such applicable Reserve Report, as the case may be; and there are no “back-in” or “reversionary”
interests held by third parties which could materially reduce the interest of any Borrower in
such Oil and Gas Properties except as expressly set forth in the Initial Reserve Report or the
most recent Reserve Report, as the case may be. The ownership of the Oil and Gas Properties by
Parent and each of its Subsidiaries shall not in any material respect obligate Parent or any such
Subsidiary to bear the costs and expenses relating to the maintenance, development or operations
of each such Oil and Gas Property in an amount in excess of the working interest of record of
Borrowers in each Oil and Gas Property set forth in the Initial Reserve Report or the most recent
Reserve Report, as the case may be, other than with respect to the ORRI Conveyance pursuant to
which Foothills Texas, Inc. retains responsibility for costs and expenses associated with
maintenance, development and operations of the Oil and Gas Properties covered by such agreement
as set forth therein.




          (c) For current volumes of production of Hydrocarbons from the Oil and Gas Properties of
Parent and its Subsidiaries, Parent and each of its Subsidiaries’ marketing, gathering,
transportation, processing and treating facilities and equipment, together with any marketing,



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gathering, transportation, processing and treating contracts in effect between and/or among
Parent, its Subsidiaries and any other Person, are sufficient to gather, transport, process
and/or treat such volumes of production of Hydrocarbons from such Oil and Gas Properties.




          (d) For reasonably anticipated volumes (in excess of current volumes referred to in
clause (c) above) of production of Hydrocarbons from the Oil and Gas Properties of Parent
and its Subsidiaries arising after the Closing Date, Parent and each of its Subsidiaries fully
expect to acquire sufficient marketing, gathering, transportation, processing and treating
facilities and equipment, together with any marketing, gathering, transportation, processing and
treating contracts in effect between and/or among Parent, its Subsidiaries and any other Person
to gather, transport, process and/or treat such reasonably anticipated volumes of production of
Hydrocarbons from the Oil and Gas Properties, and the Projections most recently furnished to
Agent and Lenders reflect the anticipated cost and expense of obtaining and rendering the
foregoing operational.



     4.26 Nature of Business. Neither Parent nor any of its Subsidiaries is engaged in any
business other than the Oil and Gas Business within the continental United States.



     4.27 Seismic Licenses. To the extent not prohibited by the terms thereof, or any
confidentiality agreement, Schedule 4.27 (as amended by Borrowers from time to time)
identifies all of the license agreements relating to the performance of seismic exploration on the
Oil and Gas Properties (“Seismic Licenses”) to which Parent and its Subsidiaries are a party. With
respect to the Seismic Licenses: (i) all Seismic Licenses are in effect and have not expired or
terminated; (ii) neither Parent nor any of its Subsidiaries is in material breach or material
default, and there has occurred no event, fact, or circumstance, that, with the lapse of time or
the giving of notice, or both, would constitute such a material breach or material default by
Parent or any of its Subsidiaries, as applicable, with respect to the terms of any Seismic License;
and (iii) neither Parent, nor any Subsidiary thereof, nor, to the knowledge of Borrowers, any other
party to any Seismic License has given written notice of any action to terminate, cancel, rescind,
or procure a judicial reformation of any Seismic License or any provision thereof. To the extent
not prohibited by the terms of the Seismic Licenses or any confidential agreement, all of the
transfer fees or similar amounts payable by Parent or any of its Subsidiaries, as applicable, under
the terms of the Seismic Licenses upon the consummation of the transactions contemplated herein, or
the method of calculating same, are set forth in Schedule 4.27.



     4.28 Marketing of Production. Except for (i) contracts listed and in effect on the date
hereof on Schedule 4.28, and (ii) contracts thereafter either disclosed in writing to Agent
or included in the most recently delivered Reserve Report and, in any case, approved by Agent (with
respect to all of which contracts Borrowers represent that they or their 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), Borrowers have no Long Term Fixed Rate Contracts. As used
herein, “Long Term Fixed Rate Contracts” means any material agreement that is not cancelable on 60
days notice or less without penalty or detriment for the sale of production from Parent’s or its
Subsidiaries’ Hydrocarbons (including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that (a) pertains to the sale of
production at a fixed price and (b) has a maturity or expiry date of more than six (6) months from
the date of such agreement. Each Borrower (and each of its Subsidiaries) (x) is presently
receiving a price for all production from (or attributable to) each Oil and Gas Property covered by
a production sales contract or marketing contract that is computed in accordance with the terms of
such contract and none of such proceeds are currently being held in suspense by such purchaser or
any other Person and (y) is not having deliveries of production from such Oil and Gas Property
curtailed by any purchaser or transporter of production substantially below such property’s
delivery capacity. Except as set forth in Schedule 4.28, none of the Oil and Gas
Properties of Parent or any Subsidiary thereof) are subject



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to any contractual or other arrangement whereby payment for production therefrom is to be
deferred for a substantial period of time after the month in which such production is delivered
(i.e., in the case of oil, not in excess of 60 days, and in the case of gas, not in excess of 90
days).



5. AFFIRMATIVE COVENANTS.




          Each Borrower covenants and agrees that, until termination of all of the Commitments and
payment in full of the Obligations, Borrowers shall and shall cause each of their respective
Subsidiaries to do all of the following:




     5.1 Accounting System. Maintain a system of accounting that enables Parent and its
Subsidiaries to produce financial statements in accordance with GAAP and maintain records
pertaining to the Collateral that contain information as from time to time reasonably may be
requested by Agent. Parent and its Subsidiaries also shall keep a reporting system that shows all
additions, sales, claims, returns, and allowances with respect to their and their Subsidiaries’
sales.



     5.2 Collateral Reporting. Provide Agent (and if so requested by Agent, with copies for
each Lender) with each of the reports set forth on Schedule 5.2 at the times specified
therein.



     5.3 Financial Statements, Reports, Certificates. Deliver to Agent, with copies to each
Lender, each of the financial statements, reports, or other items set forth on Schedule 5.3
at the times specified therein. In addition, Parent agrees that no Subsidiary of Parent will have
a fiscal year different from that of Parent.



     5.4 Guarantor Reports. Cause each Guarantor to deliver its annual financial statements at
the time when Parent provides its audited financial statements to Agent, but only to the extent
such Guarantor’s financial statements are not consolidated with Parent’s financial statements.



     5.5 Inspection. Permit Agent, Regiment and each of their duly authorized representatives
or agents to visit any of its properties and inspect any of its assets or books and records, to
examine and make copies of its books and records, and to discuss its affairs, finances, and
accounts with, and to be advised as to the same by, its officers and employees at such reasonable
times and intervals as Agent or any such Lender may designate and, so long as no Default or Event
of Default then exists, (i) up to two such visits per calendar year shall be at the sole cost of
Borrowers (it being understood and agreed that except as otherwise expressly provided in this
Section with respect to visits, nothing in this Section 5.5 shall limit in any respect the
obligation of Parent and its Subsidiaries to pay other Obligations and Lender Group Expenses,
including, without limitation, all out-of-pocket fees, costs and expenses in connection with the
preparation and delivery of Reserve Reports and all fees and charges set forth in the Fee Letter),
and (ii) such visits shall be with reasonable prior notice to Administrative Borrower.



     5.6 Maintenance of Properties. Parent and its Subsidiaries will:



          (a) prudently operate their Oil and Gas Properties for the production of Hydrocarbons, operate
their other Properties and, to the extent Parent or one of its Subsidiaries is not the operator of
a Property in which it has an interest, Borrowers shall use reasonable efforts to cause the
operator to operate such Property, in each case in a careful and efficient manner in accordance
with the usual and customary practices of the industry, in substantial compliance with all
applicable contracts and agreements, in the case of Oil and Gas Properties in accordance with good
engineering practices and in all cases in compliance in all respects with all laws, including,
without limitation, applicable proration 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 their



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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 (either individually or in
the aggregate) reasonably be expected to result in a Material Adverse Change;



          (b) keep and maintain all Property material to the conduct of their 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 their material Oil and Gas
Properties and other material Properties, including, without limitation, all equipment, machinery,
facilities, and marketing, gathering, transportation and processing assets and, from time to time,
will make all the reasonably necessary repairs, renewals and replacements so that at all times the
state and conditions of such Oil and Gas Properties and other material Properties will be fully
preserved and maintained, except to the extent a portion of such assets is no longer capable of
producing Hydrocarbons in economically reasonable amounts;



          (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 their 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; and



          (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 their interests in their Oil and Gas
Properties and other material Properties and all the accompanying elements in quantities and at
prices providing for continued efficient and profitable operations of business and do all other
things necessary to keep unimpaired, except for Permitted Liens, their rights with respect thereto
and prevent any forfeiture thereof or a default thereunder, except to the extent a portion of such
properties is no longer capable of producing Hydrocarbons in economically reasonable amounts.



     5.7 Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or
payable by, or imposed, levied, or assessed against Parent and its Subsidiaries or any of their
respective assets to be paid in full, before delinquency or before the expiration of any extension
period, except to the extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Parent and its Subsidiaries will make timely payment or deposit of all tax
payments and withholding taxes required of them by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon
request, furnish Agent with proof satisfactory to Agent indicating that the applicable Borrower
have made such payments or deposits.



     5.8 Insurance.




          (a) At Borrowers’ expense, maintain insurance respecting their and their Subsidiaries assets
wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and
risks as ordinarily are insured against by other Persons engaged in the same or similar
businesses. All such policies of insurance shall be in such amounts and with such insurance
companies as are reasonably satisfactory to Agent. Borrowers shall deliver copies of all such
policies to Agent with an endorsement naming Agent (on behalf of the Lenders) as the sole loss
payee (under a satisfactory lender’s loss payable endorsement) or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause requiring the
insurer to give not less than 30 days prior written notice to Agent in the event of cancellation
of the policy for any reason whatsoever. During the period of the drilling of wells and the
construction of any other improvements comprising a part of the Oil and Gas Properties of
Borrowers, Borrowers shall, and shall cause its contractors or



- 39 -









 







subcontractors to, obtain and maintain well control insurance (including coverage for costs
and redrilling), in such form and amounts as is customary in the industry, and worker’s
compensation insurance covering all Persons employed by Borrowers or such contractors or
subcontractors, as applicable, or their agents or further subcontractors of any tier in
connection with any construction affecting such Oil and Gas Properties, including, without
limitation, all agents and employees of Borrowers and their subcontractors with respect to whom
death or bodily injury claims could be asserted against Borrowers. If Borrowers at any time or
times hereafter shall fail to obtain or maintain any of the policies of insurance required above
or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and
maintain such policies of insurance and pay such premiums and take any other action with respect
thereto which Agent deems advisable. Agent shall have no obligation to obtain insurance for
Borrowers or pay any premiums therefor. By doing so, Agent shall not be deemed to have waived
any Default or Event of Default arising from Borrowers’ failure to maintain such insurance or pay
any premiums therefor. All sums so disbursed, including reasonable attorneys’ fees, court costs
and other charges related thereto, shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.




          (b) Administrative Borrower shall give Agent prompt notice of any loss exceeding $100,000
covered by such insurance. So long as no Event of Default has occurred and is continuing,
Borrowers shall have the exclusive right to adjust any losses payable under any such insurance
policies which are less than $100,000. Following the occurrence and during the continuation of
an Event of Default, or in the case of any losses payable under such insurance exceeding
$100,000, Agent shall have the exclusive right to adjust any losses payable under any such
insurance policies, without any liability to Borrowers whatsoever in respect of such adjustments.




          (c) Borrowers will not take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained under this Section 5.8, unless Agent is
included thereon as an additional insured or loss payee under a lender’s loss payable
endorsement. Administrative Borrower shall notify Agent promptly whenever such separate
insurance is taken out, specifying the insurer and the type and amount of insurance provided
thereunder as to the policies evidencing the same, and copies of such policies shall be provided
to Agent promptly after receipt by Loan Parties thereof.



     5.9 Compliance with Laws. Comply with the requirements of all applicable laws, rules,
regulations, and orders of any Governmental Authority, other than Environmental Laws (which are
addressed in Section 5.12 below) and laws (other than Environmental Laws), rules,
regulations, and orders the non-compliance with which, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Change. Each Borrower and each of its
Subsidiaries shall obtain and maintain all material licenses, permits, franchises, and governmental
authorizations necessary to own their property and to conduct their business as conducted on the
Closing Date.



     5.10 Leases. Pay when due all rents and other amounts payable under all leases covering
any Proved Oil and Gas Property with a Total Reserve Value in excess of $100,000 and any other Real
Property material to their business or by which Borrowers’ material properties and assets are
bound, unless such payments are the subject of a Permitted Protest.



     5.11 Existence. At all times preserve and keep in full force and effect each Borrower’s
and each of its Subsidiaries’, valid existence and good standing and, except as could not
reasonably be expected to result in a Material Adverse Change to Parent and its Subsidiaries, taken
as a whole, any rights, franchises, permits, licenses, accreditations, authorizations, or other
approvals material to their businesses.



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     5.12 Environmental.



          (a) Keep any Real Property free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such Environmental
Liens,



          (b) Comply, in all material respects, with all Environmental Laws and Environmental Permits;
obtain and maintain in full force and effect all material Environmental Permits; and conduct all
actions, including Response Actions, required under any Environmental Actions or applicable
Environmental Laws, and in material compliance with, the requirements of any Governmental Authority
and applicable Environmental Laws;



          (c) Do or cause to be done all things necessary to prevent any Release in, on, under, to or
from any Real Property except in full compliance with applicable Environmental Laws or an
Environmental Permit, and ensure that there shall be no Hazardous Materials in, on, under or from
any Real Property except those that are used, stored, handled and managed in material compliance
with applicable Environmental Laws;



          (d) Undertake all actions, including Response Actions, necessary, at the sole cost and expense
of Borrowers, to address (i) any Environmental Action and any obligations thereunder; (ii) any
Release at, from or onto any Real Property as required pursuant to Environmental Law or the
requirements of any Governmental Authority; and (iii) Environmental Liability;



          (e) Diligently pursue and use commercially reasonable efforts to cause any Person with an
indemnity, contribution or other obligation to any of the Loan Parties or their Subsidiaries
relating to any Environmental Action or compliance with or liability under Environmental Law to
satisfy such obligations in full and in a timely manner; and shall not amend in any way or waive
any or all rights to such obligations without the prior written consent of Agent;



          (f) Upon Agent’s reasonable request, promptly provide to Agent documentation reasonably
acceptable to Agent of compliance with items (a) through (e), including, without limitation, within
45 days following a written request of Agent, but no more frequently than once each year unless an
Event of Default exists, pursuant to Section 5.12(g) below, or a Default caused by reason
of a breach of Sections 4.11 or 5.12 herein, provide Agent with an environmental
assessment, including where appropriate any soil and/or groundwater sampling, prepared by an
environmental consulting firm reasonably acceptable to Agent, and in form and substance reasonably
acceptable to Agent; and



          (g) Promptly, but in any event within 10 days of its obtaining knowledge or receipt of notice
thereof, provide Agent with written notice of, and all data, information and reports generated or
prepared in connection with, any of the following: (i) an Environmental Lien has been filed or is
threatened against the Real Property or any personal property of Parent or any of its Subsidiaries,
(ii) commencement of any material Environmental Action or notice that a material Environmental
Action will be filed against Parent or any of its Subsidiaries, and (iii) any Release or threatened
Release of a reportable quantity, and that could reasonably be expected to result in a material
Environmental Liability, in, on, under, at, from or migrating to any Real Property owned, leased or
operated by Parent or any of its Subsidiaries, except as otherwise pursuant to and in compliance
with the terms and conditions of an Environmental Permit, (iv) any material non-compliance with, or
violation of, any Environmental Law applicable to Parent or any of its Subsidiaries, any of Parent
or any of its Subsidiaries’ business and any Real Property, (v) any Response Action which could
reasonably be expected to result in a material Environmental Liability, (vi) any notice or other
communication received by Parent or any of its



- 41 -









 







Subsidiaries from any Person or Governmental Authority relating to any material Environmental
Liability.



     5.13 Disclosure Updates. Promptly and in no event later than 5 Business Days after
obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished
to the Lender Group contained, at the time it was furnished, any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made. The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the
effect of the prior untrue statement of a material fact or omission of any material fact nor shall
any such notification have the effect of amending or modifying this Agreement or any of the
Schedules hereto.



     5.14 Control Agreements. As required herein, take all reasonable steps in order for Agent
to obtain control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the Code
with respect to (subject to the proviso contained in Section 6.11) all of its Securities
Accounts, Deposit Accounts, electronic chattel paper, investment property, and letter-of-credit
rights.



     5.15 Formation of Subsidiaries. To the extent expressly permitted under this Agreement, if
at the time that any Borrower or any Guarantor forms any direct or indirect Subsidiary or acquires
any direct or indirect Subsidiary after the Closing Date, prior to formation or acquisition, such
Borrower or such Guarantor shall (a) cause such new Subsidiary to provide to Agent a joinder to
this Agreement or to the Guaranty (as the Agent shall determine) and the Security Agreement,
together with such other security documents (including Mortgages with respect to any Real Property
of such new Subsidiary), as well as appropriate financing statements (and with respect to all
property subject to a Mortgage, fixture filings), all in form and substance satisfactory to Agent
(including being sufficient to grant Agent a first priority Lien (subject to Permitted Liens and
in the case of the Oil and Gas Properties subject to the Limited Priority Exception for 20% of TRV)
in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Agent a pledge
agreement and appropriate certificates and powers or financing statements, hypothecating all of the
direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory
to Agent, and (c) provide to Agent all other documentation, including one or more opinions of
counsel satisfactory to Agent, which in its opinion is appropriate with respect to the execution
and delivery of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a Mortgage, subject to any
limitation expressly set forth in Section 5.21). Any document, agreement, or instrument
executed or issued pursuant to this Section 5.15 shall be a Loan Document.



     5.16 Further Assurances. At any time upon the request of Agent, Borrowers shall execute or
deliver to Agent, and shall cause their Subsidiaries to execute or deliver to Agent, any and all
financing statements, fixture filings, security agreements, pledges, assignments, endorsements of
certificates of title, mortgages, deeds of trust, opinions of counsel, and all other documents
(collectively, the “Additional Documents”) that Agent may request in form and substance reasonably
satisfactory to Agent, to create, perfect, and continue perfected or to better perfect Agent’s
Liens with respect to Oil and Gas Properties and all of the other properties and assets of Parent
and its Subsidiaries (whether now owned or hereafter arising or acquired, tangible or intangible,
real or personal), to create and perfect Liens in favor of Agent in any Real Property acquired by
Parent or any of its Subsidiaries after the Closing Date, and in order to fully consummate all of
the transactions contemplated hereby and under the other Loan Documents, provided that Section
5.21 shall govern the obligation of Borrowers to deliver title information with respect to Oil
and Gas Properties. To the maximum extent permitted by applicable law, Parent and its Subsidiaries
authorize Agent to execute any such Additional Documents in their or their Subsidiaries’ names, as
applicable and to file such executed Additional Documents in any appropriate filing office. With
respect to any Oil and Gas Property that Parent or any of its Subsidiaries acquires after the
Closing



- 42 -









 







Date or any post Closing Date discovery and/or confirmation of the existence of Hydrocarbons in any
property owned or leased by Parent or of its Subsidiaries that is not subject to an existing
Mortgage, Parent and its Subsidiaries shall promptly: (a) notify Agent of such acquisition (not
more than 5 Business Days after such acquisition), (b) execute and deliver to Agent such additional
Mortgages or amendments to the Mortgages or such other documents as Agent shall deem necessary or
advisable to grant to Agent, for the benefit of the Lenders, a perfected first priority Lien on
such Oil and Gas Property (subject to Permitted Liens and in the case of the Oil and Gas Properties
subject to the Limited Priority Exception for 20% of TRV); and (b) take all actions necessary or
advisable to cause such Lien to be duly perfected in accordance with all applicable law, including,
without limitation, the filing of Mortgages (within 20 days after Agent’s request therefor), or UCC
financing statements in such jurisdictions as may be requested by Agent.



     5.17 Material Contracts. Contemporaneously with the delivery of each Compliance
Certificate pursuant hereto, provide Agent with copies of (a) each Material Contract entered into
since the delivery of the previous Compliance Certificate, and (b) each amendment or modification
of any Material Contract entered into since the delivery of the previous Compliance Certificate.



     5.18 Intellectual Property. Parent and each Subsidiary will conduct its business and
affairs without material infringement of or material interference with any intellectual property of
any other Person.



     5.19 Exercise of Rights. Borrowers shall enforce all of its material rights, including,
without limitation, all material indemnification rights, and pursue all material remedies available
to Borrowers with diligence and in good faith in connection with the enforcement of any such
rights.



     5.20 Reserve Reports.



          (a) On or before April 3rd and October 3rd of each year, commencing April 3, 2008, Parent and
its Subsidiaries shall furnish to Agent and the Lenders a Reserve Report as of the immediately
preceding January 1 or July 1, as applicable. The Reserve Report as of January 1 of each year
shall be prepared by one or more independent third party Petroleum Engineers reasonably acceptable
to Agent and the Reserve Report as of July 1 of each year shall be prepared by or under the
supervision of the chief engineer of Borrowers who shall certify such Reserve Report to be true and
accurate in all material respects 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, Parent and its Subsidiaries shall furnish to
Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer
of Borrowers who shall certify such Reserve Report to be true and accurate in all material respects
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 Agent or Borrowers pursuant
to Section 2.1, Borrowers shall provide such Reserve Report with an “as of” date as
required by 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, Parent and its Subsidiaries shall provide to
Agent and the Lenders a certificate from a Responsible Officer certifying that in all material
respects: (i) the information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct, (ii) Parent and its Subsidiaries owns good and
defensible title to the Proved Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted under clauses (a), (b), (e), (k) and
(m) of the definition of “Permitted Liens,” (iii) except as set forth on an exhibit to the
certificate, on a net basis there are no gas imbalances,



- 43 -









 







take or pay or other prepayments in excess of the volume specified in Section 4.25
with respect to their Oil and Gas Properties evaluated in such Reserve Report that would require
Parent or any of its Subsidiaries to deliver Hydrocarbons either generally or produced from such
Oil and Gas Properties at some future time without then or thereafter receiving full payment
therefor, (iv) none of their Proved Oil and Gas Properties have been sold since the date of the
last Borrowing Base determination except as set forth on an exhibit to the certificate, which
certificate shall list all of their Proved Oil and Gas Properties sold and in such detail as
reasonably required by 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 that Borrowers could reasonably be expected to have been obligated to list on Schedule
4.28 had such agreement been in effect on the date hereof, (vi) attached thereto is a schedule
of the Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the Total Reserve Value that such Mortgaged Properties represent,
including a listing of the Mortgaged Properties at such time that are equal to at least 80% of the
Total Reserve Value of the Proved Oil and Gas Properties evaluated by such Reserve Report and for
which satisfactory title information has been received by Agent pursuant to Section 5.21, and (vii)
all Oil and Gas Properties are subject to the Security Documents securing the Obligations, and such
Security Documents constitute legal, valid and duly perfected, first priority security interests
and Liens in favor of Agent in such properties and in the oil and gas attributable to such
properties and proceeds thereof; subject only to Permitted Liens and the Limited Priority Exception
for 20% of TRV set forth in Section 4.6(e).



     5.21 Title Information.



          (a) On or prior to the Closing Date, unless otherwise agreed to by Agent, Parent and its
Subsidiaries will deliver title information in form and substance acceptable to Agent covering
enough of the Oil and Gas Properties evaluated by the Initial Reserve Report, so that Agent shall
have received, together with title information previously delivered to Agent, satisfactory title
information on at least 80% of the Total Reserve Value of the Proved Oil and Gas Properties
evaluated by the Initial Reserve Report.



          (b) On or before the delivery to Agent and the Lenders of each Reserve Report required by
Section 5.20(a), Parent and its Subsidiaries will deliver title information in form and
substance acceptable to 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 Agent
shall have received together with title information previously delivered to Agent, satisfactory
title information on at least 80% of the Total Reserve Value of the Proved Oil and Gas Properties
evaluated by such Reserve Report.



          (c) If Parent or its Subsidiaries have provided title information for additional Properties
under Section 5.21(b), Parent and its Subsidiaries shall, within 60 days of notice from
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 6.2 raised by such information, (ii) substitute acceptable
Mortgaged Properties with no title defects or exceptions except for Permitted Liens (other than
Permitted Liens described in clause (g) of such definition) having an equivalent value or (iii)
deliver title information in form and substance reasonably acceptable to Agent so that Agent shall
have received, together with title information previously delivered to Agent, satisfactory title
information on at least 80% of the Total Reserve Value of the Oil and Gas Properties evaluated by
such Reserve Report. For purposes of clarity, delivery of such title information in respect of 80%
of the value of such Oil and Gas Properties shall not preclude Agent from establishing reserves
against the then-existing Borrowing Base pursuant to Section 2.1(b).



- 44 -









 





          (d) If Parent and its Subsidiaries are unable to cure any title defect requested by Agent or
the Lenders to be cured within the 60-day period or Parent or any of its Subsidiaries do not comply
with the requirements to provide acceptable title information covering 80% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall
not be a Default, but instead Agent and/or the Required Lenders shall have the right to exercise
the following remedy in their sole discretion from time to time, and any failure to so exercise
this remedy at any time shall not be a waiver as to future exercise of the remedy by Agent or the
Lenders. To the extent that Agent or the Required Lenders are not reasonably satisfied with title
to any Mortgaged Property after the 60-day period has elapsed, such unacceptable Mortgaged Property
shall not count towards “the 80% requirement,” and Agent may send a notice to Administrative
Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as
determined by the Required Lenders to cause Parent and its Subsidiaries to be in compliance with
the requirement to provide acceptable title information on 80% of the Total Reserve Value of the
Proved Oil and Gas Properties pursuant to this Section 5.21. This new Borrowing Base shall
become effective immediately after receipt of such notice.



     5.22 Swap Agreements. Subject to the provisions of Section 6.23, Borrowers shall
maintain in effect one or more Swap Agreements with respect to its Hydrocarbon production, with the
aggregate notional volumes of Hydrocarbons covered by such Swap Agreements constituting not less
than 50% of the aggregate amount of Borrowers’ estimated Hydrocarbon production volumes on an Mcf
equivalent basis (where one barrel of oil is equal to six Mcf of gas) for the succeeding twelve
calendar months on a rolling twelve month basis for such period from Oil and Gas Properties
classified as Proved Developed Producing Reserves in the most recent Reserve Report delivered
pursuant to Section 5.20. Borrowers shall use such Swap Agreements solely as a part of
their normal business operations as a risk management strategy and/or hedge against changes
resulting from market conditions related to their oil and gas operations and not as a means to
speculate for investment purposes on trends and shifts in financial or commodities markets.



     5.23 Assignment of Government Contracts. Promptly, and in no event later than 5
Business Days after the entry of any material contract or other material arrangement with the
United States or any other Governmental Authority (but in any event any agreement that could
reasonably be expected to give rise to Accounts from any Governmental Authority exceeding $100,000
in the aggregate during any calendar year), deliver to Agent (a) copies of each such contract, (b)
each amendment or modification of any such contract, (c) consents to assignments of each such
contract executed by the customer party to such contract and (d) such Additional Documents as the
Agent may require in accordance with Section 5.16.



     5.24 Post Closing Obligations.



     (a) No later than January 31, 2008, Foothills California, Inc. shall deliver to the Agent
satisfactory title opinions with respect to the additional acreage assignment of the Lower Rio Del
formation pursuant to Section 3.3(c) of the Farmout Agreement.



     (b) No later than 30 days following the Closing Date, the Borrowers shall deliver to the Agent
revised stock certificates representing the shares of common stock of the applicable Borrower
pledged to the Agent for the benefit of the Lenders pursuant to the Security Agreement, such
certificates to contain legends reasonably satisfactory to Agent.



- 45 -









 





6. NEGATIVE COVENANTS.




          Each Borrower covenants and agrees that, until termination of all of the Commitments and
payment in full of the Obligations, Borrowers will not and will not permit any of their respective
Subsidiaries to do any of the following:



     6.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or otherwise become
or remain, directly or indirectly, liable with respect to any Indebtedness, except:




          (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with
Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit;




          (b) Indebtedness set forth on Schedule 4.16 and any Refinancing Indebtedness in
respect of such Indebtedness;




          (c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of
such Indebtedness;




          (d) endorsement of instruments or other payment items for deposit;




          (e) Indebtedness associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of the Oil and Gas Properties; provided,
that (i) such bond or surety obligation is incurred in the ordinary course of business to support
plug and abandonment, general liability or operator obligations or any future Governmental
Requirements not existing on the Closing Date in respect of an Oil and Gas Property of a
Borrower, and (ii) neither any Borrower nor any Subsidiary thereof will create, incur or suffer
to exist any Lien on any of its assets or properties (whether by contract, statute, suretyship
law or otherwise) in respect of any such bond or surety obligation except for any Lien arising
under clause (j) of the definition of Permitted Lien;




          (f) Indebtedness composing Permitted Investments;




          (g) intercompany Indebtedness described in Section 6.12(a);




          (h) Indebtedness under Swap Agreements in the ordinary course of business, for
non-speculative purposes and to the extent permitted under Section 6.23; and




          (i) other unsecured Indebtedness in an amount not to exceed $500,000 in the aggregate at any
one time outstanding.



     6.2 Liens . Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on
or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any
income or profits therefrom, except for Permitted Liens.



6.3 Restrictions on Fundamental Changes .





          (a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify
its Stock;




          (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution); or



- 46 -









 






          (c) Suspend or go out of a substantial portion of its or their business;




provided, that any Borrower (except Parent) or Guarantor may merge with or into any other
Borrower or Guarantor and any Guarantor may merge with or into a Borrower, so long as (i) in the
case of a merger of a Guarantor with a Borrower, such Borrower is the surviving entity, (ii) no
other provision of this Agreement would be violated thereby, (iii) Agent receives at least 30
days’ prior written notice of such merger, (iv) no Default or Event of Default shall have
occurred and be continuing either before or after giving effect to such transaction, and (v) 
Agent’s and Lenders’ rights in any Collateral (other than the equity interest in such
non-surviving entity), including, without limitation, the existence, perfection and priority of
any Lien thereon, are not adversely affected by such merger or consolidation.



     6.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease, license,
assign, transfer, or otherwise dispose of (or enter into an agreement to convey, sell, lease,
license, assign, transfer, or otherwise dispose of) any of Parents’ or its Subsidiaries’ assets,
including the Stock of any of their Subsidiaries.



     6.5 Change of Jurisdiction, Corporate Name or Location; Change of Fiscal Year. (a) Change
Parent’s or any Subsidiary’s jurisdiction of organization and/or organization and/or organizational
identification number (if any), (b) change their corporate name or (c) change their chief executive
office, principal place of business, corporate offices or warehouses or locations at which
Collateral is held or stored, or the location of its records concerning the Collateral, in any case
without at least thirty (30) days prior written notice to Agent and after Agent’s written
acknowledgment that any reasonable action requested by Agent in connection therewith, including to
continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral,
has been completed or taken, and provided that any such new location shall be in the continental
United States. Without limiting the foregoing, neither Parent nor any Subsidiary shall change its
location, name, identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within the meaning of
Section 9-506 of the Code or any other then applicable provision of the Code except upon prior
written notice to Agent and Lenders and after Agent’s written acknowledgment that any reasonable
action requested by Agent in connection therewith, including to continue the perfection of any
Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken.
Neither Parent nor any Subsidiary shall change its fiscal year.



     6.6 Nature of Business. Make any change in the nature of their business as described in
Schedule 6.6 or, to the extent permitted hereunder, acquire any properties or assets that
are not reasonably related to the conduct of such business activities.



     6.7 Prepayments and Amendments. Except in connection with Refinancing Indebtedness
permitted by Section 6.1,




          (a) optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of
any Borrower or any Subsidiary of any Borrower, other than the Obligations in accordance with
this Agreement;




          (b) make any payment on account of Indebtedness that has been contractually subordinated in
right of payment if such payment is not permitted at such time under the subordination terms and
conditions applicable thereto, or




          (c) directly or indirectly, amend, modify, alter, increase, or change any of the terms or
conditions of (i) any agreement, instrument, document, indenture, or other writing evidencing or
concerning Indebtedness permitted under Section 6.1(b) or (c), or (ii) any other
Material Contract



- 47 -









 







except to the extent that such amendment, modification, alteration, increase, or change
could not, individually or in the aggregate, reasonably be expected to result in a Material
Adverse Change.



     6.8 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of
Control.



     6.9 Distributions. Make any distribution or declare or pay any dividends (in cash or other
property, other than common Stock) on, or purchase, acquire, redeem, or retire any of any
Borrower’s Stock, of any class, whether now or hereafter outstanding.



     6.10 Accounting Methods. Modify or change their fiscal year or their method of accounting
(other than as may be required to conform to GAAP).



     6.11 Investments. Except for Permitted Investments, directly or indirectly, make or acquire
any Investment or incur any liabilities (including contingent obligations) for or in connection
with any Investment; provided, however, that (a) Administrative Borrower may make
loans and advances to another Borrower in the ordinary course of business, so long as such Person
shall have executed and delivered to such lender a demand note (collectively, the “Intercompany
Notes”) to evidence any such loan and advance owing at any time by such Person to such other
lender, which Intercompany Note shall be in form and substance reasonably satisfactory to Agent and
shall be pledged and delivered to Agent in accordance with the terms of the Security Agreement, and
(b) Parent and its Subsidiaries shall not have Permitted Investments (other than in the Cash
Management Accounts) in Deposit Accounts or Securities Accounts in an aggregate amount in excess of
$50,000 at any one time unless Parent or its Subsidiary, as applicable, and the applicable
securities intermediary or bank have entered into Control Agreements governing such Permitted
Investments in order to perfect (and further establish) Agent’s Liens in such Permitted
Investments. Subject to clause (b) of the foregoing proviso, Borrowers shall not and shall not
permit their Subsidiaries to establish or maintain any Deposit Account or Securities Account unless
Agent shall have received a Control Agreement in respect of such Deposit Account or Securities
Account.



     6.12 Transactions with Affiliates. Directly or indirectly enter into or permit to exist
any transaction with any Affiliate of any Borrower or any Subsidiary of a Borrower except for:




          (a) transactions (other than the payment of management, consulting, monitoring, or advisory
fees) between Parent and its Subsidiaries, on the one hand, and any Affiliate of Parent and its
Subsidiaries, on the other hand, so long as such transactions (i) have individually a value of
less than $250,000, (ii)  are upon fair and reasonable terms, (iii) are fully disclosed to Agent
and the Required Lenders, and (iv) are no less favorable to Parent and its Subsidiaries, as
applicable, than would be obtained in an arm’s length transaction with a non-Affiliate;




          (b) the payment of reasonable director, officer and employee compensation (including
bonuses) and other reasonable benefits (including retirement, health, stock option and other
benefit plans) and indemnification arrangements, each made in the ordinary course of business and
consistent with industry practice; and




          (c) each transaction between Parent or its Subsidiaries and any Affiliates thereof entered
into on or before the Closing Date and as described on Schedule 6.12.



     6.13 Use of Proceeds. Use the proceeds of the Advances and the Term Loan for any purpose
other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued
interest, make-whole payment and accrued fees and expenses owing to Existing Lender and (ii) to pay
transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan
Documents and the



- 48 -









 







transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted purposes.



6.14 Financial Covenants.





          (a) Minimum Asset Coverage Ratio. Fail to achieve a minimum Asset Coverage Ratio, measured
on the last day of each calendar quarter, of at least 1.60:1.00, based on the Total Reserve Value
reflected in the most recently delivered Reserve Report by Borrowers.




          (b) Interest Coverage Ratio. Have an Interest Coverage Ratio, calculated on the last day of
the quarterly period indicated below, of less than the required amount set forth in the following
table for the applicable quarterly period set forth opposite thereto:



	 	 	 
	Applicable Ratio	 	Applicable Period
	1.25:1.00
	 	For the quarter

ending December 31, 2007
	 	 	 
	1.25:1.00
	 	For the quarter

ending March 31, 2008
	 	 	 
	1.40:1.00
	 	For the quarter

ending June 30, 2008
	 	 	 
	1.50:1.00
	 	For the quarter

ending September 30, 2008
	 	 	 
	1.75:1.00
	 	For the quarter

ending December 31, 2008
	 	 	 
	2.00:1.00
	 	For the quarter

ending March 31, 2009
	 	 	 
	2.25:1.00
	 	For the quarter

ending June 30, 2009
	 	 	 
	2.50:1.00
	 	For the quarter

ending September 30, 2009, and for each quarter

ending thereafter







          (c) Leverage Ratio. Have a Leverage Ratio, calculated on the last day of the quarterly
period indicated below, greater than the applicable ratio set forth in the following table for
the applicable quarterly period set forth opposite thereto:



	 	 	 
	Applicable Ratio	 	Applicable Period
	7.00:1.00
	 	For the quarter

ending December 31, 2007






- 49 -









 






	 	 	 
	Applicable Ratio	 	Applicable Period
	6.75:1.00
	 	For the quarter

ending March 31, 2008
	 	 	 
	6.25:1.00
	 	For the quarter

ending June 30, 2008
	 	 	 
	5.75:1.00
	 	For the quarter

ending September 30, 2008
	 	 	 
	5.00:1.00
	 	For the quarter

ending December 31, 2008
	 	 	 
	4.50:1.00
	 	For the quarter

ending March 31, 2009
	 	 	 
	4.00:1.00
	 	For the quarter

ending June 30, 2009
	 	 	 
	3.50:1.00
	 	For the quarter

ending September 30, 2009, and for each quarter

ending thereafter






     6.15 Forward Sales. Except in accordance with the ordinary course of the Oil and Gas
Business, enter into or permit to exist any advance payment agreement or other arrangement pursuant
to which Parent or any of its Subsidiaries, having received full or substantial payment of the
purchase price for a specified quantity of Hydrocarbons upon entering such agreement or
arrangement, is required to deliver, in one or more installments subsequent to the date of such
agreement or arrangement, such quantity of Hydrocarbons pursuant to and during the terms of such
agreement or arrangement.



     6.16 Oil and Gas Imbalances. Enter into any contracts or agreements which guarantee
production of Hydrocarbons (other than Swap Agreements otherwise permitted hereunder) and shall not
hereafter allow gas imbalances, take-or-pay or other similar arrangement or any prepayment with
respect to their Oil and Gas Properties that would require Parent or any of its Subsidiaries either
to make cash settlements for such production or to deliver Hydrocarbons produced from the Oil and
Gas Properties at some future time in any case without then or thereafter receiving full payment
therefor to exceed, during any monthly period, two percent (2%) of the current aggregate monthly
gas production for such monthly period from the Oil and Gas Properties of Parent and its
Subsidiaries.



6.17 Marketing Activities.





          (a) 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 reasonable 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 Borrowers that Borrowers have the right to market pursuant to
Hydrocarbon Interests, 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) that 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



- 50 -









 







appropriate credit support has been taken to alleviate the material credit risks of the
counterparty thereto.




          (b) All Hydrocarbon produced from the Oil and Gas Properties of Borrowers shall be marketed
on an arm’s-length basis using one or more Persons that are not Affiliates of Borrowers.



     6.18 Sale-Leasebacks. Engage in any sale-leaseback, synthetic lease or similar transaction
involving any of their assets.



     6.19 Cancellation of Indebtedness. Cancel any claim or debt owing to it, except for
reasonable consideration negotiated on an arm’s-length basis and in the ordinary course of their
business consistent with past practice.



     6.20 No Amendment of Governing Documents. Amend, modify, supplement, restate or otherwise
change their Governing Documents to the extent adverse to the rights or interests of the Lenders
without the prior written consent of the Required Lenders.



     6.21 No Impairment of Intercompany Transfers; Negative Pledge. (a) Directly or indirectly
enter into or become bound by any agreement, instrument, indenture or other obligation (other than
this Agreement and the other Loan Documents) which could directly or indirectly restrict, prohibit
or require the consent of any Person with respect to the payment of dividends or distributions or
the making or repayment of intercompany loans by a Subsidiary of a Borrower to such Borrower or (b)
directly or indirectly enter into, incur or permit to exist any agreement or other arrangement
(other than this Agreement) that prohibits, restricts or imposes any condition upon the ability of
Parent or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its
property or assets; provided, however, that the preceding restriction in clause (b) shall not apply
to any prohibition, restriction or imposition arising under or by reason of (i) any operating lease
(other than a lease of Oil and Gas Properties) entered into as lessee by Parent or any of its
Subsidiaries in the ordinary course of business with respect to the asset leased, (ii) any
Permitted Lien securing Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in
respect of such Indebtedness, but only to the extent restricting on customary terms the transfer of
an asset subject to such Permitted Lien, and (iii) any prohibition, restriction or imposition of a
condition with respect to a Subsidiary of a Borrower imposed pursuant to an agreement entered into
for the direct or indirect sale or disposition of all or substantially all of the equity or
Property of such Subsidiary (or the Property that is subject to such restriction) pending the
closing of such sale or disposition, provided that (A) such agreement is entered into in connection
with a sale or disposition that would constitute a Permitted Disposition and (B) at the time such
agreement is entered into no Default or Event of Default then exists.



     6.22 Change in Management. Terminate or permit the resignation of any two of: John L.
Moran, Dennis B. Tower and W. Kirk Bosché, as President, Chief Executive Officer and Chief
Financial Officer, respectively, in each case, without appointing a replacement officer acceptable
to the Required Lenders in their sole discretion.



     6.23 Swap Agreements. 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 January 1, 2008, for (A) natural gas, 90% of the reasonably anticipated projected
production from Proved Developed Producing Reserves for each month during the period commencing on
such date and ending on the date twelve months thereafter, and for each month during any period
after such twelve-month period, 85% of the reasonably anticipated projected production from Proved
Developed Producing



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Reserves for each month during such period, and (B) crude oil, 90% of the reasonably anticipated
projected production from Proved Developed Producing Reserves for each month during the period
commencing on such date and ending on the date twelve months thereafter, and for each month during
any period after such twelve-month period, 85% of the reasonably anticipated projected production
from Proved Developed Producing Reserves for each month during such period, provided, that
Borrowers shall not enter into any additional Swap Agreements with respect to crude oil for which
payment dates occur in 2007 or which relate to periods in 2007, (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 Parent and its Subsidiaries then in effect effectively converting
interest rates from fixed to floating) do not exceed 50% of the then outstanding principal amount
of Borrowers’ Indebtedness 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 Parent and its Subsidiaries then in effect
effectively converting interest rates from floating to fixed) do not exceed 75% of the then
outstanding principal amount of Borrowers’ Indebtedness for borrowed money which bears interest at
a floating rate; and (c) Swap Agreements listed on Schedule 4.24 hereto. In no event shall
any Swap Agreement contain any requirement, agreement or covenant for Parent or any of its
Subsidiaries to post collateral or margin to secure their obligations under such Swap Agreement or
to cover market exposures except to the extent permitted by Section 6.2.



7. EVENTS OF DEFAULT.




          Any one or more of the following events shall constitute an event of default (each, an
“Event of Default”) under this Agreement:



     7.1 If Borrowers fail to pay when due and payable, or when declared due and payable, (a) all
or any portion of the Obligations consisting of interest, fees, or charges due the Lender Group,
reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof
constituting principal) constituting Obligations (including any portion thereof that accrues after
the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole
or in part as a claim in any such Insolvency Proceeding), or (b) all or any portion of the
principal of the Obligations;



     7.2 If Parent or any of its Subsidiaries:




          (a) fail to perform or observe any covenant or other agreement contained in any of
Sections 2.7, 5.2, 5.3, 5.4, 5.5, 5.8,
5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.20,
5.21, 5.22, 5.24 and Section 6 of this Agreement or Section 6 of
the Security Agreement;




          (b) fail to perform or observe any covenant or other agreement contained in any of
Sections 5.6, 5.7, 5.9, and 5.10 of this Agreement and such
failure continues for a period of 10 days after the earlier of (i) the date on which such failure
shall first become known to any officer of any Borrower or (ii) written notice thereof is given
to Administrative Borrower by Agent; or




          (c) fail to perform or observe any covenant or other agreement contained in this Agreement,
or in any of the other Loan Documents, in each case, other than any such covenant or agreement
that is the subject of another provision of this Section 7 (in which event such other
provision of this Section 7 shall govern), and such failure continues for a period of 30
days after the earlier of (i) the date on which such failure shall first become known to any
officer of any Borrower or (ii) written notice thereof is given to Administrative Borrower by
Agent;



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     7.3 If any material portion of Parent or any of its Subsidiaries’ assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any
third Person and the same is not discharged before the earlier of 30 days after the date it first
arises or 5 days prior to the date on which such property or asset is subject to forfeiture by such
Borrower or the applicable Subsidiary;



     7.4 If an Insolvency Proceeding is commenced by Parent or any of its Subsidiaries;



     7.5 If an Insolvency Proceeding is commenced against Parent or any of its Subsidiaries and
any of the following events occur: (a) the applicable Borrower or Subsidiary consents to the
institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof, (d) an interim trustee is
appointed to take possession of all or any substantial portion of the properties or assets of, or
to operate all or any substantial portion of the business of, Parent or any of its Subsidiaries, or
(e) an order for relief shall have been issued or entered therein;



     7.6 If Parent or any of its Subsidiaries is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business affairs;



     7.7 If one or more judgments, orders, or awards involving an aggregate amount of $500,000, or
more (except to the extent fully covered by insurance pursuant to which the insurer has accepted
liability therefor in writing) shall be entered or filed against Parent or any of its Subsidiaries
or with respect to any of their respective assets, and the same is not released, discharged, bonded
against, or stayed pending appeal before the earlier of 30 days after the date it first arises or 5
days prior to the date on which such asset is subject to being forfeited by the applicable Borrower
or the applicable Subsidiary;



     7.8 If there is a default in one or more agreements to which Parent or any of its Subsidiaries
is a party with one or more third Persons relative to Indebtedness of Parent or any of its
Subsidiaries involving an aggregate amount of $500,000 or more, and such default (i) occurs at the
final maturity of the obligations thereunder, or (ii) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of the applicable Borrower’s or
Subsidiary’s obligations thereunder;



     7.9 If any warranty, representation, statement, or Record made herein or in any other Loan
Document or delivered to Agent or any Lender in connection with this Agreement or any other Loan
Document proves to be untrue in any material respect (except that such materiality qualifier shall
not be applicable to any representations and warranties that already are qualified or modified by
materiality in the text thereof) as of the date of issuance or making or deemed making thereof;



     7.10 If the obligation of any Guarantor under the Guaranty is limited or terminated by
operation of law or by such Guarantor (except as expressly permitted by Section 6.3 of this
Agreement), or any such Guarantor becomes subject of an Insolvency Proceeding;



     7.11 If the Security Agreement or any other Loan Document that purports to create a Lien
shall, for any reason, fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien on or security interest in the
Collateral covered hereby or thereby, except (a) as a result of a disposition of the
applicable Collateral in a transaction permitted under this Agreement or (b) to the extent such
Collateral has an aggregate fair market value of less than $250,000;



     7.12 If any provision of any Loan Document shall at any time for any reason be declared to be
null and void, or the validity or enforceability thereof shall be contested by Parent or any of its



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Subsidiaries, or a proceeding shall be commenced by Parent or any of its Subsidiaries, or by
any Governmental Authority having jurisdiction over Parent or any of its Subsidiaries, seeking to
establish the invalidity or unenforceability thereof, or Parent or any of its Subsidiaries shall
deny that it has any liability or obligation purported to be created under any Loan Document;



     7.13 The loss, suspension or revocation of, or failure to renew, any license or permit now
held or hereafter acquired by Parent or any of its Subsidiaries, if such loss, suspension,
revocation or failure to renew could reasonably be expected to result in a Material Adverse Change;



     7.14 The indictment of Parent or any of its Subsidiaries under any criminal statute, or
commencement of criminal or civil proceedings against Parent or any of its Subsidiaries, pursuant
to which statute or proceedings the penalties or remedies sought or available include forfeiture to
any Governmental Authority of any portion of the property of such Person which would result in a
Material Adverse Change;



     7.15 If (i) an ERISA Event shall occur with respect to a Pension Plan that has resulted or
could reasonably be expected to result in liability of Parent and its Subsidiaries, either
individually or in the aggregate, under Title IV of ERISA to the Pension Plan, Multiemployer Plan
or the PBGC in an aggregate amount in excess of $250,000; (ii) the aggregate amount of Unfunded
Pension Liability among all Pension Plans at any time exceeds $250,000; or (iii) Parent or any of
its Subsidiaries or any ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal liability under
Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $250,000; or



     7.16 Any Material Adverse Change shall have occurred.



8. THE LENDER GROUP’S RIGHTS AND REMEDIES.




     8.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of
Default, Agent at the request of the Required Lenders for the benefit of the Lender Group shall
without notice or demand, all of which are authorized by Borrowers:




          (a) Declare all or any portion of the Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;




          (b) Cease advancing money or extending credit to or for the benefit of Borrowers under this
Agreement, under any of the Loan Documents, or under any other agreement between Borrowers and
the Lender Group;




          (c) Agent, on behalf of the Lender Group, may foreclose any or all of the Mortgages and sell
the Real Property Collateral or Oil and Gas Properties or cause the Real Property Collateral or
Oil and Gas Properties to be sold in accordance with the provisions of the Mortgages and
applicable law, and exercise any and all other rights or remedies available to Agent, on behalf
of the Lender Group, under the Mortgages, any of the other Loan Documents, at law or in equity
with respect to the Collateral encumbered by the Mortgages;




          (d) Terminate this Agreement and any of the other Loan Documents as to any future liability
or obligation of the Lender Group, but without affecting any of Agent’s Liens in the Collateral
and without affecting the Obligations; and




          (e) The Lender Group shall have all other rights and remedies available at law or in equity
or pursuant to any other Loan Document.



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The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default
described in Section 7.4 or Section 7.5, in addition to the remedies set forth
above, without any notice to Borrowers or any other Person or any act by the Lender Group, the
Commitments shall automatically terminate and the Obligations then outstanding, together with all
accrued and unpaid interest thereon and all fees and all other amounts due under this Agreement and
the other Loan Documents, shall automatically and immediately become due and payable, without
presentment, demand, protest, or notice of any kind, all of which are expressly waived by
Borrowers.




     8.2 Remedies Cumulative . The rights and remedies of the Lender Group under this
Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender
Group shall have all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed
an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing
waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.



9. TAXES AND EXPENSES.




     If Parent or any of its Subsidiaries fail to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable
under such leases) due to third Persons, or fail to make any deposits or furnish any required proof
of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its sole
discretion and without prior notice to any Borrower, may do any or all of the following: (a) make
payment of the same or any part thereof, (b) set up such reserves against the Borrowing Base or the
Maximum Revolver Amount as Agent deems necessary to protect the Lender Group from the exposure
created by such failure, or (c) in the case of the failure to comply with Section 5.8
hereof, obtain and maintain insurance policies of the type described in Section 5.8 and
take any action with respect to such policies as Agent deems prudent. Any such amounts paid by
Agent shall constitute Lender Group Expenses and any such payments shall not constitute an
agreement by the Lender Group to make similar payments in the future or a waiver by the Lender
Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and owing.



10. WAIVERS; INDEMNIFICATION.




     10.1 Demand; Protest; etc. Each Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and
guarantees at any time held by the Lender Group on which any such Borrower may in any way be
liable.



     10.2 The Lender Group’s Liability for Collateral. Each Borrower hereby agrees that:
(a) so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall
not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii)
any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Borrowers.



     10.3 Indemnification. Each Borrower shall pay, indemnify, defend, and hold Agent-Related
Persons, the Lender-Related Persons, and each Participant (each, an “Indemnified Person”) harmless
(to the fullest extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all
reasonable fees and disbursements of attorneys, experts, or consultants and all other costs and
expenses actually incurred in




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connection therewith or in connection with the enforcement of this
indemnification (as and when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution, delivery, enforcement, performance, or administration
(including any restructuring or workout with respect hereto) of this Agreement, any of the other
Loan Documents, or the transactions contemplated hereby or thereby or the monitoring of Parent and
its Subsidiaries’ compliance with the terms of the Loan Documents, (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the
use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified
Person is a party thereto), or any act, omission, event, or circumstance in any manner related
thereto, and (c) in connection with or arising out of any presence or Release of Hazardous
Materials, any Environmental Actions, any Environmental Liabilities or any Response Actions related
in any way to any assets or properties of Parent or any of its Subsidiaries (each and all of the
foregoing, the “Indemnified Liabilities”). The foregoing to the contrary notwithstanding,
Borrowers shall have no obligation to any Indemnified Person under this Section 10.3 with
respect to any Indemnified Liability that a court of competent jurisdiction finally determines to
have resulted from the gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of the Obligations. If
any Indemnified Person makes any payment to any other Indemnified Person with respect to an
Indemnified Liability as to which Borrowers were required to indemnify the Indemnified Person
receiving such payment, the Indemnified Person making such payment is entitled to be indemnified
and reimbursed by Borrowers with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY
SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN
PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF
ANY OTHER PERSON.




11. NOTICES.




          Unless otherwise provided in this Agreement, all notices or demands by Borrowers or Agent to
the other relating to this Agreement or any other Loan Document shall be in writing and (except for
financial statements and other informational documents which may be sent by first-class mail,
postage
prepaid) shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as
Administrative Borrower or Agent, as applicable, may designate to each other in accordance
herewith), or telefacsimile to Parent and its Subsidiaries in care of Administrative Borrower or
Agent, as the case may be, at its address set forth below:




	 	 	 	 	 
	 

	 	If to Administrative
	 	Foothills Resources, Inc.
	 
	 	 	 	 
	 

	 	Borrower:	 	 
	 

	 	 	 	4540 California Avenue, Suite 550
	 

	 	 	 	Bakersfield, California 93309
	 

	 	 	 	Attn: Kirk Bosché, Chief Financial Officer
	 

	 	 	 	Fax No. (661) 716-1340
	 
	 	 	 	 
	 

	 	If to Agent:
	 	Wells Fargo Foothill, LLC
	 

	 	 	 	1100 Abernathy Road, Suite 1600
	 

	 	 	 	Atlanta, Georgia 30328
	 

	 	 	 	Attn: Business Finance Manager
	 

	 	 	 	Fax No.: (770) 804-0785
	 
	 	 	 	 
	 

	 	with copies to:
	 	Schulte Roth & Zabel LLP






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	 	 	 	919 Third Avenue
	 

	 	 	 	New York, New York 10022
	 

	 	 	 	Attn: Kirby Chin, Esq.
Fax No.: (212) 593-5955
	 
	 	 	 	 
	 

	 	If to Lenders:
	 	To the addresses set forth on the signature
	 

	 	 	 	pages under each Lender’s name.
	 
	 	 	 	 
	 

	 	with copies to:
	 	Proskauer Rose LLP
	 

	 	 	 	One International Place
	 

	 	 	 	Boston, Massachusetts 02110-2600
	 

	 	 	 	Attn: Steven M. Ellis, Esq.
	 

	 	 	 	Fax No.: (617) 526-9899






          Agent, any Lender and Borrowers may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other party. All notices or
demands sent in accordance with this Section 11, other than notices by Agent in connection
with enforcement rights against the Collateral under the provisions of the Code, shall be deemed
received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof
in the mail. Each Borrower acknowledges and agrees that notices sent by the Lender Group in
connection with the exercise of enforcement rights against Collateral under the provisions of the
Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted
by law, transmitted by telefacsimile or any other method set forth above.




12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.





          (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED
TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.




          (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF
NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
BORROWERS AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE
WITH THIS SECTION 12(b).




          (c) BORROWERS AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR



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CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWERS AND EACH MEMBER OF THE
LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.



13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.




     13.1 Assignments and Participations.



          (a) Any Lender may at any time assign and delegate to one or more assignees (each an
“Assignee”) all or any portion of the Obligations, the Commitments and the other rights and
obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount
(unless waived by Agent) of $1,000,000 (except such minimum amount shall not apply to (x) an
assignment or delegation by any Lender to any other Lender or an Affiliate of any Lender or an
Approved Fund or (y) a group of new Lenders, each of whom is an Affiliate of each other or a fund
or account managed by any such new Lender or an Affiliate of such new Lender to the extent that the
aggregate amount to be assigned to all such new Lenders is at least $3,000,000); provided,
however, that Borrowers and Agent may continue to deal solely and directly with such Lender
in connection with the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses, and related information with respect to
the Assignee, have been given to Administrative Borrower and Agent by such Lender and the Assignee,
(ii) such Lender and its Assignee have delivered to Administrative Borrower and Agent an Assignment
and Acceptance and Agent has notified the assigning Lender of its receipt thereof in accordance
with Section 13.1(b), and (iii) unless waived by Agent, the assigning Lender or Assignee
has paid to Agent for Agent’s separate account a processing fee in the amount of $3,500.
Anything contained herein to the contrary notwithstanding, the payment of any fees shall not
be required if such assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan portfolio of the
assigning Lender.




          (b) From and after the date that Agent notifies the assigning Lender (with a copy to
Administrative Borrower) that it has received an executed Assignment and Acceptance and, if
applicable, payment of the required processing fee, (i) the Assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder
and under the other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except with respect to Section 10.3 hereof) and be
released from any future obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations
under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and
thereto), and such assignment shall effect a novation among Borrowers, the assigning Lender, and
the Assignee; provided, however, that nothing contained herein shall release any
assigning Lender from obligations that survive the termination of this Agreement, including such
assigning Lender’s obligations under Section 15 and Section 17.9(a) of this
Agreement.




          (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder
and the Assignee thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any statements,




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warranties or representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document furnished pursuant hereto, (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial condition of Borrowers or
the performance or observance by Borrowers of any of their obligations under this Agreement or any
other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a
copy of this Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such Assignment and
Acceptance, (iv) such Assignee will, independently and without reliance upon Agent, such assigning
Lender or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under this Agreement, (v) such Assignee appoints and authorizes Agent to take such actions and to
exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together
with such powers as are reasonably incidental thereto, and (vi) such Assignee agrees that it will
perform all of the obligations which by the terms of this Agreement are required to be performed by
it as a Lender.




          (d) Immediately upon Agent’s receipt of the required processing fee, if applicable, and
delivery of notice to the assigning Lender pursuant to Section 13.1(b), this Agreement
shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The
Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro
tanto.




          (e) Any Lender may at any time sell to one or more commercial banks, financial institutions,
or other Persons (a “Participant”) participating interests in all or any portion of its
Obligations, its Commitment, and the other rights and interests of that Lender (the
“Originating Lender”) hereunder and under the other Loan Documents; provided,
however, that (i) the Originating Lender shall remain a “Lender” for all purposes of this
Agreement and the other Loan Documents and the Participant receiving the participating interest in
the Obligations, the Commitments, and the other rights and interests
of the Originating Lender hereunder shall not constitute a “Lender” hereunder or under the
other Loan Documents and the Originating Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such
obligations, (iii) Borrowers, Agent, and the Lenders shall continue to deal solely and directly
with the Originating Lender in connection with the Originating Lender’s rights and obligations
under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any
participating interest under which the Participant has the right to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan
Document would (A) extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder
in which such Participant is participating, (C) release all or substantially all of the Collateral
or guaranties (except to the extent expressly provided herein or in any of the Loan Documents)
supporting the Obligations hereunder in which such Participant is participating, (D) postpone the
payment of, or reduce the amount of, the interest or fees payable to such Participant through such
Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrowers hereunder shall be determined as if such Lender
had not sold such participation, except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of set off in respect of
its participating interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under this Agreement.
The rights of any Participant only shall be derivative through the Originating Lender with whom
such Participant participates and no Participant shall have any rights under this Agreement or the
other Loan Documents or any direct rights as to the




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other Lenders, Agent, Borrowers, the
Collections of Parent or its Subsidiaries, the Collateral, or otherwise in respect of the
Obligations. No Participant shall have the right to participate directly in the making of
decisions by the Lenders among themselves. The provisions of this Section 13.1(e) are
solely for the benefit of the Lender Group and Borrowers shall not have any rights as third party
beneficiaries of any such provisions.




          (f) In connection with any such assignment or participation or proposed assignment or
participation, a Lender may, subject to the provisions of Section 17.9, disclose all
documents and information which it now or hereafter may have relating to Parent and its
Subsidiaries and their respective businesses.




          (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a
security interest in, or pledge, all or any portion of its rights under and interest in this
Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Bank or U.S. Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.




     13.2 Successors. This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Borrower may
not assign this Agreement or any rights or duties hereunder without the Lenders’ prior written
consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment
by the Lenders shall release Borrowers from its Obligations. A Lender may assign this Agreement
and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 13.1 hereof.



14. AMENDMENTS; WAIVERS.




     14.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or
any other Loan Document (other than Bank Product Agreements), and no consent with respect to any
departure by Borrowers therefrom, shall be effective unless the same shall be in writing and signed
by the Required Lenders (or by Agent at the written request of the Required Lenders) and
Administrative Borrower (on behalf of all Borrowers) and then any such waiver or consent shall be
effective, but only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed
by all of the Lenders directly affected thereby and Administrative Borrower (on behalf of all
Borrowers), do any of the following:



          (a) increase or extend any Commitment of any Lender,




          (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any
payment of principal, interest, fees, or other amounts due hereunder or under any other Loan
Document,




          (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit
hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document,




          (d) change the Pro Rata Share that is required to take any action hereunder,




          (e) amend or modify this Section or any provision of this Agreement providing for consent or
other action by all Lenders,




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          (f) other than as permitted by Section 15.11, release Agent’s Lien in and to any of
the Collateral,




          (g) change the definition of “Required Lenders” or “Pro Rata Share”,




          (h) contractually subordinate any of Agent’s Liens,




          (i) other than in connection with a merger, liquidation, dissolution or sale of such Person
expressly permitted by the terms hereof or the other Loan Documents, release Borrowers or any
Guarantor from any obligation for the payment of money,




          (j) amend any of the provisions of Section 2.4(b)(i) or (ii),




          (k) change the definition of Borrowing Base, Maximum Revolver Amount, Term Loan Amount, or
change Section 2.1, or




          (l) amend any of the provisions of Section 15.



and, provided further, however, that no amendment, waiver or consent shall, unless
in writing and signed by Agent, Issuing Lender, or Swing Lender, as applicable, affect the rights
or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any
other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of, or with respect to, any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Lender Group among themselves, and that does
not affect the rights or obligations of Borrowers, shall not require consent by or the agreement of
Borrowers.




     14.2 Replacement of Lenders.



          (a) If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent,
authorization, or agreement of all Lenders, and a Lender (“Holdout Lender”) fails to give its
consent, authorization, or agreement, or (ii) any Lender (an “Increased Cost Lender”; Increased
Cost Lenders and Holdout Lenders are each referred to herein as “Replaceable Lenders”) shall give
notice to Administrative Borrower that such Lender is entitled to receive payments under
Section 2.13(d)(i) or (d)(ii) or Section 2.14, then Agent or
Administrative Borrower, upon at least 5 Business Days prior irrevocable notice to the Replaceable
Lender, may permanently replace the Replaceable Lender with one or more substitute Lenders (each, a
“Replacement Lender”; provided, that no Borrower, Guarantor or Permitted Holder or
Affiliate of a Borrower, Guarantor or Permitted Holder shall be permitted to become a Replacement
Lender), and the Replaceable Lender shall have no right to refuse to be replaced hereunder. Such
notice to replace the Replaceable Lender shall specify an effective date for such replacement,
which date shall not be later than 15 Business Days after the date such notice is given.




          (b) Prior to the effective date of such replacement, the Replaceable Lender and each
Replacement Lender shall execute and deliver an Assignment and Acceptance, subject only to the
Replaceable Lender being repaid its share of the outstanding Obligations (including an assumption
of its Pro Rata Share of the Risk Participation Liability) but without any premium or penalty of
any kind whatsoever. If the Replaceable Lender shall refuse or fail to execute and deliver any
such Assignment and Acceptance prior to the effective date of such replacement, the Replaceable
Lender shall be deemed to have executed and delivered such Assignment and Acceptance. The
replacement of any Replaceable Lender shall be made in accordance with the terms of Section 13.1.
Until such time as the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Replaceable Lender hereunder and under the
other Loan Documents, the Replaceable Lender shall remain obligated to make the Replaceable
Lender’s Pro Rata Share of Advances and to purchase a




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participation in each Letter of Credit, in an
amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit.




     14.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any
right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or any
Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender
will be effective unless it is in writing, and then only to the extent specifically stated. No
waiver by Agent or any Lender on any occasion shall affect or diminish Agent’s and each Lender’s
rights thereafter to require strict performance by Borrowers of any provision of this Agreement.
Agent’s and each Lender’s rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.



15. AGENT; THE LENDER GROUP.




     15.1 Appointment and Authorization of Agent. Each Lender hereby designates and appoints
WFF as its representative under this Agreement and the other Loan Documents and each Lender hereby
irrevocably authorizes Agent to execute and deliver each of the other Loan Documents on its behalf
and to take such other action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are expressly delegated to
Agent by the terms of this Agreement or any other Loan Document, together
with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express
conditions contained in this Section 15. The provisions of this Section 15 are
solely for the benefit of Agent and the Lenders, and Borrowers shall have no rights as a third
party beneficiary of any of such provisions contained herein. Any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall
not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent
have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement
or any other Loan Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word “Agent” is for convenience only, that WFF is merely the
representative of the Lenders, and only has the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion
with respect to exercising or refraining from exercising any discretionary rights or taking or
refraining from taking any actions that Agent expressly is entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent,
Lenders agree that Agent shall have the right to exercise the following powers as long as this
Agreement remains in effect: (a) maintain, in accordance with its customary business practices,
ledgers and records reflecting the status of the Obligations, the Collateral, the Collections of
Parent and its Subsidiaries, and related matters, (b) execute or file any and all financing or
similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances,
for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive,
apply, and distribute the Collections of Parent and its Subsidiaries as provided in the Loan
Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems
necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with
respect to the Collateral and the Collections of Parent and its Subsidiaries, (f) perform,
exercise, and enforce any and all other rights and remedies of the Lender Group with respect to
Parent and its Subsidiaries, the Obligations, the Collateral, the Collections of Parent and its
Subsidiaries, or otherwise related to any of same as provided in the Loan Documents, and (g) incur
and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance
and fulfillment of its functions and powers pursuant to the Loan Documents.



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     15.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible
for the negligence or misconduct of any agent or attorney in fact that it selects as long as such
selection was made without gross negligence or willful misconduct.



     15.3 Liability of Agent. None of Agent-Related Persons shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by any Borrower or any of its Subsidiaries or
Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan
Document, or in any certificate, report, statement or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any
other Loan Document, or for any failure of any Borrower or its Subsidiaries or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the books and records or properties of Parent and its Subsidiaries.



     15.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
telefacsimile or other electronic method of transmission, telex or telephone message, statement or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to Borrowers or counsel to any Lender), independent accountants and other
experts selected by Agent. Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless Agent shall first receive such advice
or concurrence of the Lenders as it deems appropriate and until such instructions are received,
Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall
first be indemnified to its reasonable satisfaction by the Lenders against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take any such action.
Agent shall in all cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of the requisite
Lenders and such request and any action taken or failure to act pursuant thereto shall be binding
upon all of the Lenders.



     15.5 Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with respect to defaults in the
payment of principal, interest, fees, and expenses required to be paid to Agent for the account of
the Lenders and, except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Administrative Borrower referring
to this Agreement, describing such Default or Event of Default, and stating that such notice is a
“notice of default.” Agent promptly will notify the Lenders of its receipt of any such notice or
of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of
such Event of Default. Each Lender shall be solely responsible for giving any notices to its
Participants, if any. Subject to Section 15.4, Agent shall take such action with respect
to such Default or Event of Default as may be requested by the Required Lenders in accordance with
Section 8; provided, however, that unless and until Agent has received any such request,
Agent may (but shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable.



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     15.6 Credit Decision. Each Lender acknowledges that none of Agent-Related Persons has made
any representation or warranty to it, and that no act by Agent hereinafter taken, including any
review of the affairs of Parent and its Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents
to Agent that it has, independently and without reliance upon any Agent-Related Person and based on
such documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers or any other Person party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it
will, independently and without reliance upon any Agent-Related Person and based on such documents
and information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary to inform itself as
to the business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers or any other Person party to a Loan Document. Except for notices,
reports, and other documents expressly herein required to be furnished to the Lenders by Agent,
Agent shall not have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial and other condition
or creditworthiness of Borrowers or any other Person party to a Loan Document that may come into
the possession of any of Agent-Related Persons.



     15.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to
the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of
its functions, powers, and obligations pursuant to the Loan Documents, including court costs,
attorneys fees and expenses, fees and expenses of financial accountants, advisors, consultants, and
appraisers, costs of collection by outside collection agencies, auctioneer fees and expenses, and
costs of security guards or insurance premiums paid to maintain the Collateral, whether or not
Parent or its Subsidiaries are obligated to reimburse Agent or Lenders for such expenses pursuant
to this Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient
amounts from the Collections of Parent and its Subsidiaries received by Agent to reimburse Agent
for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In
the event Agent is not reimbursed for such costs and expenses by Parent or its Subsidiaries, each
Lender hereby agrees that it is and shall be obligated to pay to Agent such Lender’s Pro Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand Agent-Related Persons (to the extent not reimbursed by or on behalf of
Borrowers and without limiting the obligation of Borrowers to do so), according to their Pro Rata
Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender
shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person’s gross negligence or willful misconduct nor shall
any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or
other extension of credit hereunder. Without limitation of the foregoing, each Lender shall
reimburse Agent upon demand for such Lender’s Pro Rata Share of any costs or out of pocket expenses
(including attorneys, accountants, advisors, and consultants fees and expenses) incurred by Agent
in connection with the preparation, execution, delivery, administration, modification, amendment,
or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such
expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of Agent.



     15.8 Agent in Individual Capacity. WFF and its Affiliates may make loans to, issue letters
of credit for the account of, accept deposits from, acquire equity interests in, and generally
engage in any



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kind of banking, trust, financial advisory, underwriting, or other business with
Parent and its Subsidiaries and Affiliates and any other Person party to any Loan Documents as
though WFF were not Agent hereunder, and, in each case, without notice to or consent of the other
members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to
such activities, WFF or its Affiliates may receive information regarding Borrowers or their
Affiliates or any other Person party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable
best
efforts to obtain), Agent shall not be under any obligation to provide such information to them.
The terms “Lender” and “Lenders” include WFF in its individual capacity.



     15.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the Lenders (unless
such notice is waived by the Required Lenders). If Agent resigns under this Agreement, the
Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is
appointed prior to the effective date of the resignation or removal of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. At any time, Agent may be removed upon prior
notice from the Required Lenders to Agent and the other Lenders. If Agent has been removed by the
Required Lenders, Required Lenders may agree in writing to replace Agent with a successor Agent
from among the Lenders. In any such event, upon the acceptance of its appointment as successor
Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the
retiring Agent and the term “Agent” shall mean such successor Agent and the retiring Agent’s
appointment, powers, and duties as Agent shall be terminated. After any retiring Agent’s
resignation hereunder as Agent, the provisions of this Section 15 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor Agent has accepted appointment as Agent by the date which is 45 days
following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent
hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above.



     15.10 Lender in Individual Capacity. Any Lender and its respective Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial advisory, underwriting,
or other business with Parent and its Subsidiaries and Affiliates and any other Person party to any
Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of
the other members of the Lender Group. The other members of the Lender Group acknowledge that,
pursuant to such activities, such Lender and its respective Affiliates may receive information
regarding Borrowers or their Affiliates or any other Person party to any Loan Documents that is
subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit
the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver
such Lender will use its reasonable best efforts to obtain), such Lender shall not be under any
obligation to provide such information to them.



15.11 Collateral Matters.




          (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion,
to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and
satisfaction in full by Borrowers of all Obligations (or, if the only remaining Obligations are
with respect to the Warrant, upon termination of all other Obligations), (ii) constituting property
being sold or disposed of if a release is required or desirable in connection therewith and if
Administrative Borrower certifies to Agent that the sale or disposition is permitted under
Section 6.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively
on any such certificate, without further inquiry), (iii) constituting property in which neither
Parent nor any of its Subsidiaries owned any interest




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at the time the Agent’s Lien was granted nor
at any time thereafter, or (iv) constituting property leased to Parent or any of its Subsidiaries
under a lease that has expired or is terminated in a transaction permitted
under this Agreement. Except as provided above, Agent will not execute and deliver a release
of any Lien on any Collateral without the prior written authorization of (y) if the release is of
all or substantially all of the Collateral, all of the Lenders, or (z) otherwise, the Required
Lenders. Upon request by Agent or Administrative Borrower at any time, the Lenders will confirm in
writing Agent’s authority to release any such Liens on particular types or items of Collateral
pursuant to this Section 15.11; provided, however, that (1) Agent shall not
be required to execute any document necessary to evidence such release on terms that, in Agent’s
opinion, would expose Agent to liability or create any obligation or entail any consequence other
than the release of such Lien without recourse, representation, or warranty, and (2) such release
shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of Borrowers in respect of) all interests retained
by Borrowers, including, the proceeds of any sale, all of which shall continue to constitute part
of the Collateral.




          (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the
Collateral exists or is owned by Parent or any of its Subsidiaries or is cared for, protected, or
insured or has been encumbered, or that the Agent’s Liens have been properly or sufficiently or
lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity,
or to continue exercising, any of the rights, authorities and powers granted or available to Agent
pursuant to any of the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given
Agent’s own interest in the Collateral in its capacity as one of the Lenders and that Agent shall
have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as
otherwise provided herein.




     15.12 Restrictions on Actions by Lenders; Sharing of Payments.



          (a) Each of the Lenders agrees that it shall not, without the express written consent of
Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the written request
of Agent, set off against the Obligations, any amounts owing by such Lender to Parent or any of its
Subsidiaries or any deposit accounts of Parent or any of its Subsidiaries now or hereafter
maintained with such Lender. Each of the Lenders further agrees that it shall not, unless
specifically requested to do so in writing by Agent, take or cause to be taken any action,
including, the commencement of any legal or equitable proceedings to enforce any Loan Document
against the Borrowers or Guarantors or to foreclose any Lien on, or otherwise enforce any security
interest in, any of the Collateral.




          (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or
otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for
any such proceeds or payments received by such Lender from Agent pursuant to the terms of this
Agreement, or (ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such
distributions by Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and
with such endorsements as may be required to negotiate the same to Agent, or in immediately
available funds, as applicable, for the account of all of the Lenders and for application to the
Obligations in accordance with the applicable provisions of this Agreement, or (B) purchase,
without recourse or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably as among the
Lenders in accordance with their Pro Rata Shares; provided, however, that to the
extent that such excess payment received by the purchasing party is thereafter recovered from it,
those purchases of participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to such




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purchasing party, but without interest except to the extent that such purchasing party is
required to pay interest in connection with the recovery of the excess payment.




     15.13 Agency for Perfection. Agent hereby appoints each other Lender as its agent (and
each Lender hereby accepts such appointment) for the purpose of perfecting Agent’s Liens in assets
which, in accordance with Article 8 or Article 9, as applicable, of the Code can be perfected only
by possession or control. Should any Lender obtain possession or control of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver
possession or control of such Collateral to Agent or in accordance with Agent’s instructions.



     15.14 Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders
shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer
instructions as each party may designate for itself by written notice to Agent. Concurrently with
each such payment, Agent shall identify whether such payment (or any portion thereof) represents
principal, premium, fees, or interest of the Obligations.



     15.15 Concerning the Collateral and Related Loan Documents. Each member of the Lender
Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents. Each
member of the Lender Group agrees that any action taken by Agent in accordance with the terms of
this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of
its powers set forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.



     15.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information. By becoming a party to this Agreement, each Lender:



          (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes
available, a copy of each field audit or examination report respecting Parent and its Subsidiaries
(each a “Report” and collectively, “Reports”) prepared by or at the request of
Agent, and Agent shall so furnish each Lender with such Reports,




          (b) expressly agrees and acknowledges that Agent does not (i) make any representation or
warranty as to the accuracy of any Report, and (ii) shall not be liable for any information
contained in any Report,




          (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Agent or other party performing any audit or examination will inspect only
specific information regarding Parent and its Subsidiaries and will rely significantly upon Parent
and its Subsidiaries’ books and records, as well as on representations of Borrowers’ personnel,




          (d) agrees to keep all Reports and other material, non-public information regarding Parent and
its Subsidiaries and their operations, assets, and existing and contemplated business plans in a
confidential manner in accordance with Section 17.9, and




          (e) without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless
from any action the indemnifying Lender may take or fail to take or any conclusion the
indemnifying Lender may reach or draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying
Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or loans of Borrowers,
and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender
preparing a Report




 - 67 - 









 




harmless from and against, the claims, actions, proceedings, damages, costs,
expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such
other Lender preparing a Report as the direct or indirect result of any third parties who might
obtain all or part of any Report through the indemnifying Lender.



In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that
Agent provide to such Lender a copy of any report or document provided by Parent or any of its
Subsidiaries to Agent that has not been contemporaneously provided by Parent or any of its
Subsidiaries to such Lender, and, upon receipt of such request, Agent promptly shall provide a copy
of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan
Documents, to request additional reports or information from Parent or any of its Subsidiaries, any
Lender may, from time to time, reasonably request Agent to exercise such right as specified in such
Lender’s notice to Agent, whereupon Agent promptly shall request of Administrative Borrower the
additional reports or information reasonably specified by such Lender, and, upon receipt thereof
from Administrative Borrower, Agent promptly shall provide a copy of same to such Lender, and (z)
any time that Agent renders to Administrative Borrower a statement regarding the Loan Account,
Agent shall send a copy of such statement to each Lender.




     15.17 Several Obligations; No Liability. Notwithstanding that certain of the Loan
Documents now or hereafter may have been or will be executed only by or in favor of Agent in its
capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of
Agent (if any) to make any credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time
outstanding, the amount of their respective Commitments. Nothing contained herein shall confer
upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the
business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan Documents to the
extent any such notice may be required, and no Lender shall have any obligation, duty, or liability
to any Participant of any other Lender. Except as provided in Section 15.7, no member of
the Lender Group shall have any liability for the acts of any other member of the Lender Group. No
Lender shall be responsible to any Borrower or any other Person for any failure by any other Lender
to fulfill its obligations to make credit available hereunder, nor to advance for it or on its
behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or
in connection with the financing contemplated herein.



16. WITHHOLDING TAXES.




          (a) All payments made by any Borrower hereunder or under any note or other Loan Document will
be made without setoff, counterclaim, or other defense. In addition, all such payments will be
made free and clear of, and without deduction or withholding for, any present or future Indemnified
Taxes and Other Taxes, and in the event any deduction or withholding of Indemnified Taxes and Other
Taxes is required, each Borrower shall comply with the penultimate sentence of this Section
16(a). If any Indemnified Taxes and Other Taxes are so levied or imposed, each Borrower agrees
to pay the full amount of such Indemnified Taxes and Other Taxes and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement, any note, or Loan
Document, including any amount paid pursuant to this Section 16(a) after withholding or
deduction for or on account
of any Indemnified Taxes and Other Taxes, will not be less than the amount provided for
herein; provided, however, that Borrowers shall not be required to increase any such amounts if the
increase in such amount payable results from Agent’s or such Lender’s own willful misconduct or
gross negligence (as finally determined by a court of competent jurisdiction). Each Borrower will
furnish to Agent as promptly as possible after the date the payment of any Indemnified Tax and
Other Tax is due pursuant to applicable law certified copies of tax receipts evidencing such
payment by Borrower.




 - 68 - 









 








          (b) If a Lender claims an exemption from United States withholding tax, Lender agrees with and
in favor of Agent and any Borrower, to deliver to Agent:




                    (i) if such Lender claims an exemption from United States withholding tax pursuant to its
portfolio interest exception, (A) a statement of the Lender, signed under penalty of perjury, that
it is not a (I) a “bank” as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of
any Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign
corporation related to any Borrower within the meaning of Section 864(d)(4) of the IRC, and (B) a
properly completed and executed IRS Form W-8BEN, before receiving its first payment under this
Agreement and at any other time reasonably requested by Agent or any Borrower;



                    (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a
United States tax treaty, properly completed and executed IRS Form W-8BEN before receiving its
first payment under this Agreement and at any other time reasonably requested by Agent or any
Borrower;



                    (iii) if such Lender claims that interest paid under this Agreement is exempt from United
States withholding tax because it is effectively connected with a United States trade or business
of such Lender, two properly completed and executed copies of IRS Form W-8ECI before receiving its
first payment under this Agreement and at any other time reasonably requested by Agent or any
Borrower; or



                    (iv) such other form or forms, including IRS Form W-9, as may be required under the IRC or
other laws of the United States as a condition to exemption from, or reduction of, United States
withholding or backup withholding tax before receiving its first payment under this Agreement and
at any other time reasonably requested by Agent or any Borrower.


Lender agrees promptly to notify Agent and Administrative Borrower of any change in circumstances
which would modify or render invalid any claimed exemption or reduction. In addition, each such
Lender agrees that it will deliver, upon Administrative Borrower’s written request, updated
versions of the foregoing documents whenever they have become obsolete or inaccurate in any
material respect, together with such other forms or documents as may be required in order to
confirm or establish the entitlement of such Lender to continued exemption from or reduction of
withholding tax, but only if, and to the extent that, such Lender is eligible for such exemption or
reduction.




          (c) If a Lender claims an exemption from withholding tax in a jurisdiction other than the
United States, Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent any such
form or forms, as may be required under the laws of such jurisdiction as a condition to exemption
from, or reduction of, foreign withholding or backup withholding tax before receiving its first
payment under this Agreement and at any other time reasonably requested by Agent or Administrative
Borrower.



Lender agrees promptly to notify Agent and Administrative Borrower of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.




          (d) If any Lender claims exemption from, or reduction of, withholding tax and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of
Borrowers to such Lender, such Lender agrees to notify Agent and Administrative Borrower of the
percentage amount in which it is no longer the beneficial owner of Obligations of Borrowers to such
Lender. To the extent of such percentage amount, Agent and Borrowers will treat such Lender’s
documentation provided pursuant to Sections 16(b) or 16(c) as no longer valid. With
respect to such




 - 69 - 









 




percentage amount, Lender may provide new documentation, pursuant to Sections
16(b) or 16(c), if applicable.




          (e) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may
withhold from any interest payment to such Lender an amount equivalent to the applicable
withholding tax after taking into account such reduction. If the forms or other documentation
required by subsection (b) or (c) of this Section 16 are not delivered to Agent,
then Agent may withhold from any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.




          (f) If the IRS or any other Governmental Authority of the United States or other jurisdiction
asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of
any Lender due to a failure on the part of the Lender (because the appropriate form was not
delivered, was not properly executed, or because such Lender failed to notify Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts paid,
directly or indirectly, by Agent, as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to Agent under this
Section 16, together with all costs and expenses (including attorneys fees and expenses).
The obligation of the Lenders under this subsection shall survive the payment of all Obligations
and the resignation or replacement of Agent.




          (g) If Agent or a Lender determines, in its sole discretion, that it has received a refund of
any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Borrower or with
respect to which a Borrower paid additional amounts pursuant to this Section 16, it shall
pay over such refund to such Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by such Borrower under this Section 16 with respect to the
Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
Agent or such Lender and without interest (other than any interest paid by the relevant
governmental authority with respect to such refund); provided, that the amount paid over to
such Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental
Authority) shall be repaid to Agent or such Lender by such Borrower in the event that Agent or such
Lender is required to repay such refund to such governmental authority. This section shall not be
construed to require Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to any Borrower or any other Person.




17. GENERAL PROVISIONS.




     17.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by
Borrowers, Agent, and each Lender whose signature is provided for on the signature pages hereof.



     17.2 Section Headings. Headings and numbers have been set forth herein for convenience
only. Unless the contrary is compelled by the context, everything contained in each Section
applies equally to this entire Agreement.



     17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall
be construed against the Lender Group or Borrowers, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the
purposes and intentions of all parties hereto.



 - 70 - 









 





     17.4 Severability of Provisions. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal enforceability of
any specific provision.



     17.5 Bank Product Providers. Each Bank Product Provider shall be deemed a party hereto for
purposes of any reference in a Loan Document to the parties for whom Agent is acting; it being
understood and agreed that the rights and benefits of such Bank Product Provider under the Loan
Documents consist exclusively of such Bank Product Provider’s right to share in payments and
collections out of the Collateral as more fully set forth herein. In connection with any such
distribution of payments and collections, Agent shall be entitled to assume no amounts are due to
any Bank Product Provider unless such Bank Product Provider has notified Agent in writing of the
amount of any such liability owed to it prior to such distribution.



     17.6 Lender-Creditor Relationship. The relationship between the Lenders and Agent, on the
one hand, and Borrowers, on the other hand, is solely that of creditor and debtor. No member of
the Lender Group has (or shall be deemed to have) any fiduciary relationship or duty to Borrowers
arising out of or in connection with, and there is no agency or joint venture relationship between
the members of the Lender Group, on the one hand, and Borrowers, on the other hand, by virtue of
any Loan Document or any transaction contemplated therein.



     17.7 Counterparts; Electronic Execution. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile or other electronic method of transmission shall be equally as effective as
delivery of an original executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.



     17.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the
Obligations by any Borrower or Guarantor or the transfer to the Lender Group of any property should
for any reason subsequently be declared to be void or voidable under any state or federal law
relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, or other voidable or recoverable payments of money or transfers of
property (each, a “Voidable Transfer”), and if the Lender Group is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of
its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is
required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys
fees of the Lender Group related thereto, the liability of Borrowers or Guarantors automatically
shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.



17.9 Confidentiality.




          (a) Agent and Lenders each individually (and not jointly or jointly and severally) agree that
material, non-public information regarding Parent or any of its Subsidiaries, their operations,
assets, and existing and contemplated business plans shall be treated by Agent and the Lenders in a
confidential manner, and shall not be disclosed by Agent and the Lenders to Persons who are not
parties to this Agreement, except: (i) to attorneys for and other advisors, accountants, auditors,
and consultants to any member of the Lender Group, (ii) to Subsidiaries and Affiliates of any
member of the Lender




 - 71 - 









 




Group (including the Bank Product Providers), provided that any such
Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the
terms of this Section 17.9, (iii) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation, (iv) as may be agreed to in advance by Administrative
Borrower or its Subsidiaries or as requested or required by any Governmental Authority pursuant to
any subpoena or other legal process, (v) as to any such information that is or becomes generally
available to the public (other than as a result of prohibited disclosure by Agent or the Lenders),
(vi) in connection with any assignment, prospective assignment, sale, prospective sale,
participation, prospective participation or pledge or prospective or pledge of any Lender’s
interest under this Agreement, provided that any such assignee, prospective assignment, sale,
prospective sale, participation, prospective participation or pledge or prospective or pledgee
shall have agreed in writing to receive such information hereunder subject to the terms of this
Section, and (vii) in connection with any litigation or other adversary proceeding involving
parties hereto which such litigation or adversary proceeding involves claims related to the rights
or duties of such parties under this Agreement or the other Loan Documents. The provisions of this
Section 17.9(a) shall survive for 2 years after the payment in full of the Obligations.




          (b) Anything in this Agreement to the contrary notwithstanding, Agent may provide information
concerning the terms and conditions of this Agreement and the other Loan Documents to loan
syndication and pricing reporting services.




     17.10 Lender Group Expenses. Borrowers agree to pay any and all Lender Group Expenses
promptly after demand therefor by Agent or any Lender and agree that their obligations contained in
this Section 17.10 shall survive payment or satisfaction in full of all other Obligations.



     17.11 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA Patriot
Act (Title 111 of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies
Borrowers that pursuant to the requirements of the Act, it is required to obtain, verify and record
information that identifies Borrowers, which information includes the name and address of Borrowers
and other information that will allow such Lender to identify Borrowers in accordance with the Act.



     17.12 Integration. This Agreement, together with the other Loan Documents, reflects the
entire understanding of the parties with respect to the transactions contemplated hereby and shall
not be contradicted or qualified by any other agreement, oral or written, before the date hereof.



     17.13 Parent as Agent for Borrowers. Each Borrower hereby irrevocably appoints Parent as
the borrowing agent and attorney-in-fact for all Borrowers (the “Administrative Borrower”)
which appointment shall remain in full force and effect unless and until Agent shall have received
prior written notice signed by each Borrower that such appointment has been revoked and that
another Borrower has been appointed Administrative Borrower. Each Borrower hereby irrevocably
appoints and authorizes the Administrative Borrower (i) to provide Agent with all notices with
respect to Advances and Letters of Credit obtained for the benefit of any Borrower and all other
notices and instructions under this Agreement and (ii) to take such action as the Administrative
Borrower deems appropriate on its behalf to obtain Advances and Letters of Credit and to exercise
such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement.
It is understood that the handling of the Loan Account and Collateral of Borrowers in a combined
fashion, as more fully set forth herein, is done solely as an accommodation to Borrowers in order
to utilize the collective borrowing powers of Borrowers in the most efficient and economical manner
and at their request, and that Lender Group shall not incur liability to any Borrower as a result
hereof. Each Borrower expects to derive benefit, directly or indirectly, from the handling of the
Loan Account and the Collateral in a combined fashion since the successful operation of each
Borrower is dependent on the continued successful performance of the integrated group. To induce
the Lender Group to do so, and in consideration thereof, each Borrower hereby jointly and



 - 72 - 









 







severally
agrees to indemnify each member of the Lender Group and hold each member of the Lender Group
harmless against any and all liability, expense, loss or claim of damage or injury, made against
the Lender Group by any Borrower or by any third party whosoever, arising from or incurred by
reason of (a) the handling of the Loan Account and Collateral of Borrowers as herein provided, (b)
the Lender Group’s relying on any instructions of the Administrative Borrower, or (c) any other
action taken by the Lender Group hereunder or under the other Loan Documents, except that Borrowers
will have no liability to the relevant Agent-Related Person or Lender-Related Person under this
Section 17.13 with respect to any liability that has been finally determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of
such Agent-Related Person or Lender-Related Person, as the case may be.



[Signature pages follow.]





 - 73 - 












 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered
as of the date first above written.



	 	 	 	 	 	 	 
	 	 	FOOTHILLS RESOURCES, INC.,	 	 
	 	 	as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Dennis B. Tower	 	 
	 	 	 	 	 


	 

	 	Name:
	 	Dennis B. Tower	 	 
	 

	 	Title:	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	FOOTHILLS CALIFORNIA, INC.,	 	 
	 	 	as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Dennis B. Tower	 	 
	 	 	 	 	 


	 

	 	Name:
	 	Dennis B. Tower
	 	 
	 

	 	Title:	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	FOOTHILLS OKLAHOMA, INC.,	 	 
	 	 	as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Dennis B. Tower	 	 
	 	 	 	 	 


	 

	 	Name:
	 	Dennis B. Tower
	 	 
	 

	 	Title:	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	FOOTHILLS TEXAS, INC.,	 	 
	 	 	as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Dennis B. Tower	 	 
	 	 	 	 	 


	 

	 	Name:
	 	Dennis B. Tower
	 	 
	 

	 	Title:	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	WELLS FARGO FOOTHILL, LLC,	 	 
	 	 	as Agent and as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ SN Thomas	 	 
	 	 	 	 	 


	 

	 	Name:
	 	SN Thomas
	 	 
	 

	 	Title:	 	Vice President	 	 






 









 






	 	 	 	 	 	 	 
	 	 	REGIMENT CAPITAL SPECIAL SITUATIONS FUND	 	 
	 	 	III, L.P., as a Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Regiment Capital GP, LLC	 	 
	 

	 	 	 	its General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 /s/ Richard T. Miller	 	 
	 

	 	Name:
	 	 
Richard T. Miller
	 	 
	 

	 	Title:	 	Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notice:	 	 
	 	 	222 Berkeley Street, 12th Floor	 	 
	 	 	Boston, Massachusetts 02116	 	 
	 	 	Attn: Kyle O’Neil	 	 
	 	 	Fax No.: (617) 488-1688	 	 











-2-









 











TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	1. DEFINITIONS AND CONSTRUCTION
	 	 	1	 
	1.1 Definitions
	 	 	1	 
	1.2 Accounting Terms
	 	 	1	 
	1.3 Code
	 	 	1	 
	1.4 Construction
	 	 	1	 
	1.5 Schedules and Exhibits
	 	 	2	 
	 
	 	 	 	 
	2. LOAN AND TERMS OF PAYMENT.
	 	 	2	 
	2.1 Revolver Advances.
	 	 	2	 
	2.2 Term Loan
	 	 	4	 
	2.3 Borrowing Procedures and Settlements.
	 	 	5	 
	2.4 Payments.
	 	 	9	 
	2.5 Overadvances
	 	 	13	 
	2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.
	 	 	13	 
	2.7 Cash Management.
	 	 	16	 
	2.8 Crediting Payments; Clearance Charge
	 	 	17	 
	2.9 Designated Account
	 	 	17	 
	2.10 Maintenance of Loan Account; Statements of Obligations
	 	 	17	 
	2.11 Fees
	 	 	17	 
	2.12 Letters of Credit.
	 	 	18	 
	2.13 LIBOR Option.
	 	 	20	 
	2.14 Capital Requirements
	 	 	22	 
	2.15 Tax Reporting
	 	 	22	 
	2.16 Joint and Several Liability of Borrowers
	 	 	223	 
	 
	 	 	 	 
	3. CONDITIONS; TERM OF AGREEMENT.
	 	 	26	 
	3.1 Conditions Precedent to the Initial Extension of Credit
	 	 	26	 
	3.2 Conditions Precedent to all Extensions of Credit
	 	 	26	 
	3.3 Term
	 	 	26	 
	3.4 Effect of Termination
	 	 	27	 
	3.5 Early Termination by Borrower
	 	 	27	 
	 
	 	 	 	 
	4. REPRESENTATIONS AND WARRANTIES.
	 	 	27	 
	4.1 No Encumbrances
	 	 	27	 
	4.2 Margin Stock
	 	 	28	 
	4.3 Brokers
	 	 	28	 
	4.4 Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.
	 	 	28	 
	4.5 Due Organization and Qualification; Compliance with Laws; Subsidiaries.
	 	 	28	 
	4.6 Due Authorization; No Conflict.
	 	 	29	 
	4.7 Litigation
	 	 	31	 
	4.8 No Material Adverse Change.
	 	 	31	 
	4.9 Fraudulent Transfer.
	 	 	32	 
	4.10 Employee Benefits
	 	 	32	 
	4.11 Environmental Condition
	 	 	32	 
	4.12 Intellectual Property
	 	 	33	 
	4.13 Leases
	 	 	33	 






 









 





TABLE OF CONTENTS
(continued)




	 	 	 	 	 
	 	 	Page	 
	4.14 Deposit Accounts and Securities Accounts
	 	 	33	 
	4.15 Complete Disclosure
	 	 	34	 
	4.16 Indebtedness
	 	 	34	 
	4.17 Material Contracts
	 	 	34	 
	4.18 Government Regulation
	 	 	34	 
	4.19 Foreign Assets Control Regulations, Etc.
	 	 	34	 
	4.20 Insurance and Bonds
	 	 	35	 
	4.21 Government Contracts
	 	 	35	 
	4.22 Taxes
	 	 	35	 
	4.23 Gas, Imbalances, Prepayments
	 	 	36	 
	4.24 Swap Agreements
	 	 	36	 
	4.25 Location of Real Property and Leased Premises.
	 	 	36	 
	4.26 Nature of Business
	 	 	37	 
	4.27 Seismic Licenses
	 	 	37	 
	4.28 Marketing of Production
	 	 	37	 
	 
	 	 	 	 
	5. AFFIRMATIVE COVENANTS.
	 	 	38	 
	5.1 Accounting System
	 	 	38	 
	5.2 Collateral Reporting
	 	 	38	 
	5.3 Financial Statements, Reports, Certificates
	 	 	38	 
	5.4 Guarantor Reports
	 	 	38	 
	5.5 Inspection
	 	 	38	 
	5.6 Maintenance of Properties
	 	 	38	 
	5.7 Taxes
	 	 	39	 
	5.8 Insurance.
	 	 	39	 
	5.9 Compliance with Laws
	 	 	40	 
	5.10 Leases
	 	 	40	 
	5.11 Existence
	 	 	40	 
	5.12 Environmental
	 	 	41	 
	5.13 Disclosure Updates
	 	 	42	 
	5.14 Control Agreements
	 	 	42	 
	5.15 Formation of Subsidiaries
	 	 	42	 
	5.16 Further Assurances
	 	 	42	 
	5.17 Material Contracts
	 	 	43	 
	5.18 Intellectual Property
	 	 	43	 
	5.19 Exercise of Rights
	 	 	43	 
	5.20 Reserve Reports
	 	 	43	 
	5.21 Title Information
	 	 	44	 
	5.22 Swap Agreements
	 	 	454	 
	5.23 Assignment of Government Contracts
	 	 	454	 
	 
	 	 	 	 
	6. NEGATIVE COVENANTS.
	 	 	46	 
	6.1 Indebtedness
	 	 	46	 
	6.2 Liens
	 	 	46	 
	6.3 Restrictions on Fundamental Changes
	 	 	46	 
	6.4 Disposal of Assets
	 	 	47	 
	6.5 Change of Jurisdiction, Corporate Name or Location; Change of Fiscal Year
	 	 	47	 






-2-









 




TABLE OF CONTENTS
(continued)




	 	 	 	 	 
	 	 	Page	 
	6.6 Nature of Business
	 	 	47	 
	6.7 Prepayments and Amendments
	 	 	47	 
	6.8 Change of Control
	 	 	48	 
	6.9 Distributions
	 	 	48	 
	6.10 Accounting Methods
	 	 	48	 
	6.11 Investments
	 	 	48	 
	6.12 Transactions with Affiliates
	 	 	48	 
	6.13 Use of Proceeds
	 	 	48	 
	6.14 Financial Covenants
	 	 	49	 
	6.15 Forward Sales
	 	 	50	 
	6.16 Oil and Gas Imbalances
	 	 	50	 
	6.17 Marketing Activities
	 	 	50	 
	6.18 Sale-Leasebacks
	 	 	51	 
	6.19 Cancellation of Indebtedness
	 	 	51	 
	6.20 No Amendment of Governing Documents
	 	 	51	 
	6.21 No Impairment of Intercompany Transfers; Negative Pledge
	 	 	51	 
	6.22 Change in Management
	 	 	51	 
	6.23 Swap Agreements
	 	 	51	 
	 
	 	 	 	 
	7. EVENTS OF DEFAULT.
	 	 	52	 
	 
	 	 	 	 
	8. THE LENDER GROUP’S RIGHTS AND REMEDIES.
	 	 	54	 
	8.1 Rights and Remedies
	 	 	54	 
	8.2 Remedies Cumulative
	 	 	55	 
	 
	 	 	 	 
	9. TAXES AND EXPENSES.
	 	 	55	 
	 
	 	 	 	 
	10. WAIVERS; INDEMNIFICATION.
	 	 	55	 
	10.1 Demand; Protest; etc
	 	 	55	 
	10.2 The Lender Group’s Liability for Collateral
	 	 	55	 
	10.3 Indemnification
	 	 	55	 
	 
	 	 	 	 
	11. NOTICES
	 	 	56	 
	 
	 	 	 	 
	12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
	 	 	57	 
	 
	 	 	 	 
	13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
	 	 	58	 
	13.1 Assignments and Participations
	 	 	58	 
	13.2 Successors
	 	 	60	 
	 
	 	 	 	 
	14. AMENDMENTS; WAIVERS.
	 	 	60	 
	14.1 Amendments and Waivers
	 	 	60	 
	14.2 Replacement of Lenders
	 	 	61	 
	14.3 No Waivers; Cumulative Remedies
	 	 	62	 
	 
	 	 	 	 
	15. AGENT; THE LENDER GROUP.
	 	 	62	 






-3-









 





TABLE OF CONTENTS
(continued)




	 	 	 	 	 
	 	 	Page	 
	15.1 Appointment and Authorization of Agent
	 	 	62	 
	15.2 Delegation of Duties
	 	 	63	 
	15.3 Liability of Agent
	 	 	63	 
	15.4 Reliance by Agent
	 	 	63	 
	15.5 Notice of Default or Event of Default
	 	 	63	 
	15.6 Credit Decision
	 	 	64	 
	15.7 Costs and Expenses; Indemnification
	 	 	64	 
	15.8 Agent in Individual Capacity
	 	 	64	 
	15.9 Successor Agent
	 	 	65	 
	15.10 Lender in Individual Capacity
	 	 	65	 
	15.11 Collateral Matters
	 	 	65	 
	15.12 Restrictions on Actions by Lenders; Sharing of Payments
	 	 	66	 
	15.13 Agency for Perfection
	 	 	67	 
	15.14 Payments by Agent to the Lenders
	 	 	67	 
	15.15 Concerning the Collateral and Related Loan Documents
	 	 	67	 
	15.16 Field Audits and Examination Reports; Confidentiality; Disclaimers
by Lenders; Other Reports and Information
	 	 	67	 
	15.17 Several Obligations; No Liability
	 	 	68	 
	 
	 	 	 	 
	16. WITHHOLDING TAXES.
	 	 	68	 
	 
	 	 	 	 
	17. GENERAL PROVISIONS.
	 	 	70	 
	17.1 Effectiveness
	 	 	70	 
	17.2 Section Headings
	 	 	70	 
	17.3 Interpretation
	 	 	70	 
	17.4 Severability of Provisions
	 	 	71	 
	17.5 Bank Product Providers
	 	 	71	 
	17.6 Lender-Creditor Relationship
	 	 	71	 
	17.7 Counterparts; Electronic Execution
	 	 	71	 
	17.8 Revival and Reinstatement of Obligations
	 	 	71	 
	17.9 Confidentiality
	 	 	71	 
	17.10 Lender Group Expenses
	 	 	72	 
	17.11 USA PATRIOT Act
	 	 	72	 
	17.12 Integration
	 	 	72	 
	17.13 Parent as Agent for Borrowers
	 	 	72	 







-4-









 








EXHIBITS AND SCHEDULES




	 	 	 
	Exhibit A-1

	 	Form of Assignment and Acceptance
	Exhibit C-1

	 	Form of Compliance Certificate
	Exhibit L-1

	 	Form of LIBOR Notice
	Schedule A-1

	 	Agent’s Account
	Schedule A-2

	 	Authorized Persons
	Schedule C-1

	 	Commitments
	Schedule P-1

	 	Permitted Holders
	Schedule P-2

	 	Permitted Liens
	Schedule 1.1

	 	Definitions
	Schedule 2.7(a)

	 	Cash Management Banks
	Schedule 3.1

	 	Conditions Precedent
	Schedule 4.1

	 	Real Property, Leases, Encumbrances, Rights to Purchase
	Schedule 4.4(a)

	 	States of Organization
	Schedule 4.4(b)

	 	Chief Executive Offices
	Schedule 4.4(c)

	 	Organizational Identification Numbers
	Schedule 4.4(d)

	 	Commercial Tort Claims
	Schedule 4.5(b)

	 	Capitalization of Borrower
	Schedule 4.5(c)

	 	Capitalization of Borrower’s Subsidiaries
	Schedule 4.5(d)

	 	Subscriptions, Options, Warrants, Calls
	Schedule 4.7

	 	Litigation
	Schedule 4.11

	 	Environmental Matters
	Schedule 4.12

	 	Intellectual Property
	Schedule 4.13

	 	Leases
	Schedule 4.14

	 	Deposit Accounts and Securities Accounts
	Schedule 4.16

	 	Permitted Indebtedness
	Schedule 4.17

	 	Material Contracts
	Schedule 4.20

	 	Insurance; Bonds
	Schedule 4.21

	 	Government Contracts
	Schedule 4.22

	 	Taxes
	Schedule 4.23

	 	Gas Imbalances
	Schedule 4.24

	 	Swap Agreements
	Schedule 4.25

	 	Oil and Gas Properties
	Schedule 4.27

	 	Seismic Licenses
	Schedule 4.28

	 	Marketing of Production
	Schedule 5.2

	 	Collateral Reporting
	Schedule 5.3

	 	Financial Statements, Reports, Certificates
	Schedule 6.6

	 	Nature / Description of Business
	Schedule 6.12

	 	Transactions with Affiliates







 











 





Schedule 1.1



As used in the Agreement, the following terms shall have the following definitions:




          “Account” means an account (as that term is defined in the Code).




          “Account Debtor” means any Person who is obligated on an Account, chattel paper, or a
general intangible.




          “ACH Transactions” means any cash management or related services (including the
Automated Clearing House processing of electronic fund transfers through the direct Federal Reserve
Fedline system) provided by a Bank Product Provider for the account of Parent or its Subsidiaries.




          “Act” has the meaning specified therefor in Section 17.11.




          “Additional Documents” has the meaning specified therefor in Section 5.17.




          “Administrative Borrower” has the meaning specified therefore in Section
17.13.




          “Advances” has the meaning specified therefor in Section 2.1(a).




          “Affiliate” shall mean, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary,
ten percent (10%) or more of the Stock having ordinary voting power in the election of directors of
such Persons, (b) each Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person’s officers, directors, joint venturers and partners and (d) in the
case of any Borrower, the immediate family members, spouses and lineal descendants of individuals
who are Affiliates of such Borrower. For the purposes of this definition, “control” of a
Person shall mean the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that the term “Affiliate” shall
specifically exclude Agent and each Lender.




          “Agent” has the meaning specified therefor in the preamble to the Agreement.




          “Agent-Related Persons” means Agent, together with its Affiliates, officers,
directors, employees, attorneys, and agents.




          “Agent’s Account” means the Deposit Account of Agent identified on Schedule
A-1.




          “Agent’s Liens” mean the Liens granted by Parent or its Subsidiaries to Agent under
the Loan Documents.




          “Agreement” means the Credit Agreement to which this Schedule 1.1 is attached.




          “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-/A3 by S&P or Moody’s (or their
equivalent) or higher.




 









 








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




          “Asset Coverage Ratio” means, as of any date of determination (a) Parent’s and its
Subsidiaries’ Total Reserve Value as of such date, divided by (b) the amount of Parent’s
and its Subsidiaries’ Total Debt as of such date.




          “Assignee” has the meaning specified therefor in Section 13.1(a).




          “Assignment and Acceptance” means an Assignment and Acceptance Agreement substantially
in the form of Exhibit A-1.




          “Authorized Person” means any one of the individuals identified on Schedule
A-2.




          “Availability” means, as of any date of determination, the amount that Borrowers are
entitled to borrow as Advances under Section 2.1 of the Agreement (after giving effect to
all then outstanding Obligations (other than Bank Product Obligations) and all sublimits and
reserves then applicable hereunder).




          “Bank Product” means any financial accommodation extended to Borrowers or their
Subsidiaries by a Bank Product Provider (other than pursuant to the Agreement) including: (a)
credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH
Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g)
transactions under Swap Agreements.




          “Bank Product Agreements” means those agreements entered into from time to time by
Borrowers or their Subsidiaries with a Bank Product Provider in connection with the obtaining of
any of the Bank Products.




          “Bank Product Collateralization” means providing cash collateral (pursuant to
documentation reasonably satisfactory to Agent) to be held by Agent for the benefit of the Bank
Product Providers in an amount determined by Agent as sufficient to satisfy the reasonably
estimated credit exposure with respect to the then existing Bank Products.




          “Bank Product Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by Borrowers or their Subsidiaries to any Bank
Product Provider pursuant to or evidenced by the Bank Product Agreements and irrespective of
whether for the payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all such amounts that Borrowers or
their Subsidiaries are obligated to reimburse to Agent or any member of the Lender Group as a
result of Agent or such member of the Lender Group purchasing participations from, or executing
indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank
Products provided by such Bank Product Provider to any Borrower or its Subsidiaries.




          “Bank Product Provider” means Wells Fargo or any of its Affiliates.




          “Bank Product Reserve” means, as of any date of determination, (I) an amount equal to
the amount of reserves that Agent has established from time to time in connection with



2









 






Swap Agreements and (II) the lesser of (a) $1,000,000 and (b) an amount equal to the amount of
reserves that Agent has established (based upon the Bank Product Providers’ reasonable
determination of the credit exposure of Parent and its Subsidiaries in respect of non Swap
Agreement related Bank Products) in respect of non Swap Agreement related Bank Products then
provided or outstanding.




          “Bankruptcy Code” means title 11 of the United States Code, as in effect from time to
time.




          “Base LIBOR Rate” means the rate per annum, determined by Agent in accordance with its
customary procedures, and utilizing such electronic or other quotation sources as it considers
appropriate, to be the rate at which Dollar deposits (for delivery on the first day of the
requested Interest Period) are offered to major banks in the London interbank market 2 Business
Days prior to the commencement of the requested Interest Period, for a term and in an amount
comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an
initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a Base Rate
Loan to a LIBOR Rate Loan) by Borrowers in accordance with the Agreement, which determination shall
be conclusive in the absence of manifest error; provided that for purposes of the Term Loan, such
rate shall be the rate applicable to the rate on a one-, two-, three- or six-month LIBOR contract
on the relevant date of determination and shall apply to the entire Term Loan.




          “Base Rate” means, the rate of interest announced, from time to time, within Wells
Fargo at its principal office in San Francisco as its “prime rate”, with the understanding that the
“prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and
serves as the basis upon which effective rates of interest are calculated for those loans making
reference thereto and is evidenced by the recording thereof after its announcement in such internal
publications as Wells Fargo may designate.




          “Base Rate Loan” means the portion of the Advances or the Term Loan that bears
interest at a rate determined by reference to the Base Rate.




          “Base Rate Margin” means (i) for purposes of determining the interest rate applicable
to Base Rate Loans that are Advances, 0.75% and (ii) for purposes of determining the interest rate
applicable to the Term Loan or upon the occurrence of an event described in Section
2.13(d)(ii), 5.25%.




          “Board of Directors” means the board of directors (or comparable managers) of Parent
or any committee thereof duly authorized to act on behalf of the board of directors (or comparable
managers).




          “Borrowers” has the meaning specified therefor in the preamble to the Agreement.




          “Borrowing” means a borrowing hereunder consisting of Advances made, converted or
continued on the same day by the Lenders (or Agent on behalf thereof) and, in the case of Advances
that are LIBOR Rate Loans, as to which a single Interest Period is in effect, or by Swing Lender in
the case of a Swing Loan, or by Agent in the case of a Protective Advance.




          “Borrowing Base” means, initially, $25,000,000, as set forth in Section
2.1(b), or such other amount as may be determined pursuant to Section 2.1(d), as the
same may be adjusted



3









 






from time to time pursuant to Section 5.21(d) or clause (g) of the definition of
“Permitted Dispositions.”




          “Business Day” means any day that is not a Saturday, Sunday, or other day on which
banks are authorized or required to close in the state of New York, except that, if a determination
of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also shall exclude any
day on which banks are closed for dealings in Dollar deposits in the London interbank market.




          “Capital Expenditures” means, with respect to any Person for any period, the aggregate
of all expenditures by such Person and its Subsidiaries during such period that are capital
expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or
financed.




          “Capitalized Lease Obligation” means that portion of the obligations under a Capital
Lease that is required to be capitalized in accordance with GAAP.




          “Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.




          “Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within 1 year from the date of
acquisition thereof, (b) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality thereof maturing within 1
year from the date of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s
Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days
from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1
from S&P or at least P-1 from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing
within 1 year from the date of acquisition thereof issued by any bank organized under the laws of
the United States or any state thereof having at the date of acquisition thereof combined capital
and surplus of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that
satisfies the criteria described in clause (d) above, or (ii) any other bank organized
under the laws of the United States or any state thereof so long as the amount maintained with any
such other bank is less than or equal to $100,000 and is insured by the Federal Deposit Insurance
Corporation, and (f) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (e) above.




          “Cash Management Account” has the meaning specified therefor in Section
2.7(a).




          “Cash Management Agreements” means those certain cash management agreements, in form
and substance satisfactory to Agent, each of which is among Parent or one of its Subsidiaries,
Agent, and one of the Cash Management Banks.




          “Cash Management Bank” has the meaning specified therefor in Section 2.7(a).




          “Change of Control” means that (a) Permitted Holders fail to own and control, directly
or indirectly, 15%, or more, of the Stock of Parent having the right to vote for the election of
members of the Board of Directors, (b) any “person” or “group” (within the meaning



4









 






of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20%,
or more, of the Stock of Parent having the right to vote for the election of members of the Board
of Directors, or (c) a majority of the members of the Board of Directors do not constitute
Continuing Directors.




          “Closing Date” means the date of the making of the Term Loan and the initial Advances
made on the date hereof.




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




          “Collateral” means all assets and interests in assets and proceeds thereof now owned
or hereafter acquired by Parent or its Subsidiaries in or upon which a Lien is granted under any of
the Loan Documents.




          “Collateral Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in
possession of, having a Lien upon, or having rights or interests in Parent’s or its Subsidiaries’
books and records, Equipment, or Inventory, in each case, in form and substance satisfactory to
Agent.




          “Collections” means all cash, checks, notes, instruments, and other items of payment
(including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds).




          “Commitment” means, with respect to each Lender, its Revolver Commitment, its Term
Loan Commitment, or its Total Commitment, as the context requires, and, with respect to all
Lenders, their Revolver Commitments, their Term Loan Commitments, or their Total Commitments, as
the context requires, in each case as such Dollar amounts are set forth beside such Lender’s name
under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant
to which such Lender became a Lender hereunder, as such amounts may be reduced or increased from
time to time pursuant to assignments made in accordance with the provisions of Section
13.1.




          “Common Stock” means common stock of Parent, with a par value of $0.001 per share.




          “Compliance Certificate” means a certificate substantially in the form of Exhibit
C-1 delivered by the chief financial officer of Borrowers to Agent.




          “Consolidated Net Income” means, with respect to a Person, for any period, such
Person’s and its Subsidiaries’ gross revenues for such period, including any cash dividends or
distributions actually received from any other Person during such period, minus such Person’s and
its Subsidiaries’ expenses and other proper charges against income (including taxes on income to
the extent imposed), determined on a consolidated basis after eliminating earnings or losses
attributable to outstanding minority interests and excluding the net earnings of any Person other
than a Subsidiary in which such Person or any of its Subsidiaries has an ownership interest. 
Consolidated Net Income shall not include: (i) any gain or loss from the sale of assets, (ii)
any extraordinary gains, (iii) any extraordinary noncash losses, or (iv) any non-cash income,
gains, losses or charges resulting from the requirements of SFAS 133, 142, 143 or 144.




5









 








          “Continuing Director” means (a) any member of the Board of Directors who was a
director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes
a member of the Board of Directors after the Closing Date if such individual was appointed or
nominated for election to the Board of Directors by a majority of the Continuing Directors, but
excluding any such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election contest relating to the
election of the directors (or comparable managers) of Parent and whose initial assumption of office
resulted from such contest or the settlement thereof.




          “Control Agreement” means a control agreement, in form and substance satisfactory to
Agent, executed and delivered by Parent or one of its Subsidiaries, Agent, and the applicable
securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit
Account).




          “Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.




          “Default” means an event, condition, or default that, with the giving of notice, the
passage of time, or both, would be an Event of Default.




          “Defaulting Lender” means any Lender that fails to make any Advance (or other
extension of credit) that it is required to make hereunder on the date that it is required to do so
hereunder.




          “Defaulting Lender Rate” means (a) for the first 3 days from and after the date the
relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to
Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).




          “Defined Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) which Parent or any of its Subsidiaries or ERISA Affiliates sponsors, maintains or
contributes to, or has sponsored, maintained or contributed to (or has or had an obligation to
sponsor, maintain or contribute to) within the past six years.




          “Deposit Account” means any deposit account (as that term is defined in the Code).




          “Designated Account” means the Deposit Account of Borrowers identified on Schedule
4.14.




          “Designated Account Bank” has the meaning specified therefor in Schedule 4.14.




          “Disbursement Letter” means an instructional letter executed and delivered by
Administrative Borrower to Agent and Lenders regarding the extensions of credit to be made on the
Closing Date, the form and substance of which is satisfactory to Agent.




          “Disqualified Stock” shall mean any Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon the happening of
any event, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is one hundred eighty (180) days following the Maturity Date, (b) is convertible
into or exchangeable for (i) debt securities or (ii) any Stock referred to in (a) above, in each
case at



6









 






any time on or prior to the date that one hundred eighty (180) days following the Maturity
Date, or (c) is entitled to receive a dividend or distribution (other than for taxes attributable
to the operations of the business) prior to the time that the Obligations are paid in full, or
(d) has the benefit of any covenants or agreements that restrict the payment of any of the
Obligations or that are EBITDA or debt-multiple based (i.e. financial covenants).




          “Dollars” or “$” means United States dollars.




          “EBITDA” means, for any period (without duplication), the sum of (a) Consolidated Net
Income during such period (excluding all interest income earned or accrued during such period that
was included in determining such Consolidated Net Income), plus (b) all interest paid or accrued
during such period on Indebtedness (including amortization of original issue discount and the
interest component of any deferred payment obligations and capital lease obligations) that was
deducted in determining such Consolidated Net Income, plus (c) all income taxes that were deducted
in determining such Consolidated Net Income, plus (d) all depreciation, amortization (including
amortization of good will and debt issue costs), and other non-cash charges (including any
provision for the reduction in the carrying value of assets recorded in accordance with GAAP) that
were deducted in determining such Consolidated Net Income, minus (e) all non-cash items of income
that were included in determining such Consolidated Net Income; provided that EBITDA shall be
calculated as follows for the first three fiscal quarters following the Closing Date:





     (a) for the fiscal quarter ending December 31, 2007, EBITDA shall be EBITDA
for such quarter multiplied by four;




     (b) for the fiscal quarter ending March 31, 2008, EBITDA shall be EBITDA for
the six-month period ending on such date multiplied by two;




     (c) for the fiscal quarter ending June 30, 2008, EBITDA shall be EBITDA for
the nine-month period ending on such date multiplied by 4/3.



     Thereafter, EBITDA shall be calculated using 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.



     For the avoidance of doubt, “EBITDA” shall not include the payment in the amount of
$10,150,355.16.



          “Engineering Reports” has the meaning assigned such term in
Section 2.01(e)(i).




          “Environmental Actions” means any complaint, summons, citation, notice, directive,
demand, suit, order, claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter, or other communication from any Governmental Authority, or any third party
involving violations of Environmental Laws or Releases (a) at, onto or from any assets, properties,
or businesses of Parent, its Subsidiaries, or any of their predecessors in interest, including the
Real Property, (b) from or onto adjoining properties or businesses, or (c) from or onto any
facilities which received Hazardous Materials generated by Parent, its Subsidiaries, or any of
their predecessors in interest.




          “Environmental Law” means any applicable federal, state, provincial, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding



7









 






and enforceable written policy, or rule of common law now or hereafter in effect and in each
case as amended, or any judicial or administrative interpretation thereof, including any judicial
or administrative order, consent decree or judgment, in each case, to the extent binding on Parent
or its Subsidiaries, relating to the environment, health and safety, natural resources or natural
resource damages, or Hazardous Materials, in each case as amended from time to time.




          “Environmental Liabilities” means all liabilities, monetary obligations, losses,
damages, punitive damages, consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and interest that arise under
Environmental Laws or are incurred as a result of any (i) Environmental Action, (ii) Release or
(iii) Response Action.




          “Environmental Lien” means any Lien in favor of any Governmental Authority or Person
for Environmental Liabilities.




          “Environmental Permits” has the meaning specified therefor in Section 4.11.




          “Equipment” means equipment (as that term is defined in the Code).




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




          “ERISA Affiliate” means (a) any Person subject to ERISA whose employees are treated as
employed by the same employer as the employees of Parent or its Subsidiaries under IRC Section
414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the
same employer as the employees of Parent or its Subsidiaries under IRC Section 414(c), (c) solely
for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA
that is a member of an affiliated service group of which Parent or any of its Subsidiaries is a
member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any Person subject to ERISA that is a party to an arrangement with Parent or any of its
Subsidiaries and whose employees are aggregated with the employees of Parent or its Subsidiaries
under IRC Section 414(o).




          “ERISA Event” means, with respect to Parent or any of its Subsidiaries or any of their
ERISA Affiliates, (a) any event described in Section 4043(c) of ERISA with respect to a Pension
Plan or Defined Benefit Plan (collectively, “ERISA Plans”); (b) the withdrawal of any Loan
Party or ERISA Affiliate from an ERISA Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or
partial withdrawal of any Loan Party or any ERISA Affiliate from any Multiemployer Plan; (d) the
filing of a notice of intent to terminate a ERISA Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate an ERISA
Plan or Multiemployer Plan by the PBGC; (f) the failure by any Loan Party or ERISA Affiliate to
make when due required contributions to a Multiemployer Plan or ERISA Plan unless such failure is
cured within 30 days; (g) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any ERISA Plan or Multiemployer Plan or for the imposition of liability
under Section 4069 or 4212(c) of ERISA; or (h) the termination of a Multiemployer Plan under
Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section
4241 of ERISA.




8









 








          “Event of Default” has the meaning specified therefor in Section 7.




          “Excess Cash Flow” means, with respect to any fiscal period and with respect to Parent
and its Subsidiaries determined on a consolidated basis in accordance with GAAP (a) EBITDA for such
fiscal period, minus (b) the sum of (i) the cash portion of Interest Expense paid during such
fiscal period, (ii) the cash portion of income taxes paid during such fiscal period, (iii) all
scheduled principal payments made in respect of the Term Loan during such fiscal period, and (iv)
the cash portion of Capital Expenditures (net of (y) any proceeds reinvested in accordance with the
proviso to Section 2.4(c)(iii)(A) of the Agreement, and (z) any proceeds of related
financings with respect to such expenditures) made during such period.




          “Exchange Act” means the Securities Exchange Act of 1934, as in effect from time to
time.




          “Excluded Tax” means, with respect to Agent, any Lender, the Issuing Lender or any
other recipient of any payment to be made by or on account of any obligation of Borrowers
hereunder, the following Taxes, including interest, penalties or other additions thereto: (a)
income or franchise taxes imposed on (or measured by) its gross or net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in which it is otherwise deemed to be engaged in a trade or
business for Tax purposes 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 any Borrower is located; and (c) in the case of a
Foreign Lender, 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 16(b),
(c) or (d).




          “Existing Lender” means J. Aron & Company and all other lenders party to that certain
Credit and Guaranty Agreement, dated as of September 8, 2006, as amended.




          “Extraordinary Receipts” means any cash received by Parent or any of its Subsidiaries
not in the ordinary course of business, including (a) foreign, United States, state or local tax
refunds, (b) pension plan reversions, (c) proceeds of insurance (including key man life insurance
and business interruption insurance, but excluding any casualty insurance), (d) judgments, proceeds
of settlements or other consideration of any kind in connection with any cause of action (other
than with respect to the Zehil Matter), (e) indemnity payments, and (f) any purchase price
adjustment received in connection with any purchase agreement.




          “Farmout Agreement” means that certain Farmout and Participation Agreement, dated as
of January 3, 2006, by and between INNEX California, Inc., as Farmor and Foothills California, Inc.
(as successor in interest to Brasada Resources LLC), as Farmee.




          “Fee Letter” means that certain fee letter between Borrowers and Agent, in form and
substance satisfactory to Agent.




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




          “Funded Indebtedness” means, as of any date of determination, all Indebtedness for
borrowed money or letters of credit of Parent and its Subsidiaries, determined on a



9









 






consolidated basis in accordance with GAAP, that by its terms matures more than one year after
the date of calculation, and any such Indebtedness maturing within one year from such date that is
renewable or extendable at the option of Parent or its Subsidiaries, as applicable, to a date more
than one year from such date, including, in any event, but without duplication, with respect to
Parent and its Subsidiaries, the Revolver Usage, the Term Loan and the amount of their Capital
Lease Obligations.




          “Funding Date” means the date on which a Borrowing occurs.




          “Funding Losses” has the meaning specified therefor in Section 2.13(b)(ii).




          “GAAP” means generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.




          “Governing Documents” means, with respect to any Person, the certificate or articles
of incorporation, by-laws, or other organizational documents of such Person.




          “Governmental Authority” means any federal, state, local, or other governmental or
administrative body, instrumentality, board, department, or agency or any court, tribunal,
administrative hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.




          “Guarantors” means each Subsidiary of Borrowers and “Guarantor” means any one
of them; provided, that, if any Subsidiary is a “controlled foreign corporation” within the
meaning of Section 957 of the IRC, it shall not be required to be a Guarantor.




          “Guaranty” means that certain general continuing guaranty executed and delivered by
each Guarantor in favor of Agent, for the benefit of the Lender Group and the Bank Product
Providers, in form and substance satisfactory to Agent.




          “Hazardous Materials” means (a) chemicals, materials or substances that are regulated
under any Environmental Law, or defined or listed in, or otherwise classified pursuant to, any
Environmental Law as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or “EP toxicity,” (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated
with the exploration, development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives, (d) any radioactive materials, (e) asbestos
in any form, (f) oil or dielectric fluid containing levels of polychlorinated biphenyls in excess
of 50 parts per million, (g) lead based paint, (h) urea formaldehyde, (i) radon, and (j)
pesticides.




          “Holdout Lender” has the meaning specified therefor in Section 14.2(a).




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




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          “Hydrocarbons” means, collectively, oil, gas, coal seam gas, casinghead gas,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, all products and byproducts
refined, separated, settled and dehydrated therefrom and all products and byproducts refined
therefrom, including, without limitation, kerosene, liquefied petroleum gas, refined lubricating
oils, diesel fuel, drip gasoline, natural gasoline, helium, sulfur, geothermal steam, water, carbon
dioxide, and all other minerals.




          “Indebtedness” means (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations as a lessee under Capital Leases, (d) all obligations or
liabilities of others secured by a Lien on any asset of a Person or its Subsidiaries, irrespective
of whether such obligation or liability is assumed, (e) all obligations to pay the deferred
purchase price of assets or services (other than trade payables incurred in the ordinary course of
business and repayable in accordance with customary trade practices provided that such obligations
are not more than 90 days past due), (f) all obligations owing under Swap Agreements, (g) all
Disqualified Stock, and (h) any obligation guaranteeing or intended to guarantee (whether directly
or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of
any other Person that constitutes Indebtedness under any of clauses (a) through (g) above.




          “Indemnified Liabilities” has the meaning specified therefor in Section 10.3.




          “Indemnified Person” has the meaning specified therefor in Section 10.3.




          “Indemnified Taxes” means Taxes other than Excluded Taxes.




          “Initial Reserve Report” means the report of the chief engineer of Parent and its
Subsidiaries effective October 1, 2007, with respect to the Oil and Gas Properties of Parent and
its Subsidiaries.




          “Insolvency Proceeding” means any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or informal moratoria, compositions,
extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.




          “Interim Determination” has the meaning specified therefor in Section 2.1(d).




          “Interest Expense” means, for any period, the aggregate of the interest expense of
Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with
GAAP, less any non cash amounts including, but not limited to, (i) amortization of debt
discount, (ii) amortization of debt origination costs, and (ii) capitalized interest; provided that
Interest Expense shall be calculated as follows for the first three fiscal quarters following the
Closing Date:





     (a) for the fiscal quarter ending December 31, 2007, Interest Expense shall
be Interest Expense for such quarter multiplied by four;



11









 






     (b) for the fiscal quarter ending March 31, 2008, Interest Expense shall be
Interest Expense for the six-month period ending on such date multiplied by two;




     (c) for the fiscal quarter ending June 30, 2008, Interest Expense shall be
Interest Expense for the nine-month period ending on such date multiplied by 4/3.



     Thereafter, Interest Expense shall be calculated using Interest Expense 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.



     For the avoidance of doubt, “Interest Expense” shall not include the payment in the amount of
$10,150,355.16 to the Existing Lender.



          “Interest Expense Coverage Ratio” means, with respect to Parent and its Subsidiaries
for any period, the ratio of EBITDA to Interest Expense for such period.




          “Interest Period” means, with respect to (i) each LIBOR Rate Loan (other than the Term
Loan) a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of
a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, 3 or
6 months thereafter; provided, however, that (a) if any Interest Period would end
on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses
(c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable
rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but
excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (d) with respect to an Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period), the Interest Period shall end on the
last Business Day of the calendar month that is 1, 2, 3 or 6 months after the date on which the
Interest Period began, as applicable, and (e) Borrowers may not elect an Interest Period which will
end after the Maturity Date and (ii) the Term Loan (a) with respect to the first interest payment
date, the period from and including the Closing Date to and including the last day of the calendar
quarter in which the Closing Date occurs and (b) with respect to any subsequent interest payment
date, the calendar quarter immediately preceding the quarter in which the interest payment occurs;
provided, that if any Interest Period would otherwise extend beyond the Maturity Date for
which the interest rate is being calculated, the Interest Period shall end on such Maturity Date.




          “Inventory” means inventory (as that term is defined in the Code).




          “Investment” means, with respect to any Person, any investment by such Person in any
other Person (including Affiliates) in the form of loans, guarantees, advances, or capital
contributions (excluding bona fide Accounts arising in the ordinary course of business consistent
with past practice), purchases or other acquisitions of Indebtedness, Stock, or all or
substantially all of the assets of such other Person (or of any division or business line of such
other Person), and any other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.




12









 








          “IRC” means the Internal Revenue Code of 1986, as in effect from time to time.




          “IRS” shall mean the Internal Revenue Service, or any successor thereto.




          “Issuing Lender” means WFF or any other Lender that, at the request of Administrative
Borrower and with the consent of Agent, agrees, in such Lender’s sole discretion, to become an
Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section
2.12.




          “L/C” has the meaning specified therefor in Section 2.12(a).




          “L/C Disbursement” means a payment made by the Issuing Lender pursuant to a Letter of
Credit.




          “L/C Undertaking” has the meaning specified therefor in Section 2.12(a).




          “Lender” and “Lenders” have the respective meanings set forth in the preamble
to the Agreement, and shall include any other Person made a party to the Agreement in accordance
with the provisions of Section 13.1.




          “Lender Agreement” means that certain agreement dated as of the date hereof by and
between the Lenders.




          “Lender Group” means, individually and collectively, each of the Lenders (including
the Issuing Lender) and Agent.




          “Lender Group Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrowers or their Subsidiaries under any of the Loan
Documents that are paid, advanced, or incurred by the Lender Group, (b) out-of-pocket fees or
charges paid or incurred by Agent and Regiment in connection with the Lender Group’s transactions
with Borrowers or their Subsidiaries, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including tax lien, litigation,
and UCC searches and including searches with the patent and trademark office, the copyright office,
or the department of motor vehicles), filing, recording, publication, appraisal (including periodic
collateral appraisals or business valuations to the extent of the fees and charges (and up to the
amount of any limitation) contained in the Agreement or the Fee Letter), real estate surveys, real
estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred
by Agent in the disbursement of funds to Borrowers or other members of the Lender Group (by wire
transfer or otherwise), (d) charges paid or incurred by Agent resulting from the dishonor of
checks, (e) reasonable costs and expenses paid or incurred by the Lender Group to correct any
default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees
and expenses of Agent related to any inspections or audits to the extent of the fees and charges
(and up to the amount of any limitation) contained in the Agreement or the Fee Letter, (g)
reasonable costs and expenses of third party claims or any other suit paid or incurred by the
Lender Group in enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or the Lender Group’s relationship with Borrowers or any of
their Subsidiaries, (h) Agent’s and each Lender’s reasonable costs and expenses (including
attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, syndicating
(including rating the Term Loan), or amending the



13









 






Loan Documents, including the reasonable costs and expenses of any independent engineers and
consultants retained by Agent and each Lender in connection herewith, and (i) Agent’s and each
Lender’s reasonable costs and expenses (including attorneys, accountants, consultants, and other
advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants,
consultants, and other advisors fees and expenses incurred in connection with a “workout,” a
“restructuring,” or an Insolvency Proceeding concerning Borrowers or their Subsidiaries or in
exercising rights or remedies under the Loan Documents), or defending the Loan Documents,
irrespective of whether suit is brought, or in taking any Remedial Action concerning the
Collateral.




          “Lender-Related Person” means, with respect to any Lender, such Lender, together with
such Lender’s Affiliates, officers, directors, employees, attorneys, and agents.




          “Letter of Credit” means an L/C or an L/C Undertaking, as the context requires.




          “Letter of Credit Collateralization” means either (a) providing cash collateral
(pursuant to documentation reasonably satisfactory to Agent, including provisions that specify that
the Letter of Credit fee set forth in the Agreement will continue to accrue while the Letters of
Credit are outstanding) to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then existing Letter of Credit Usage, (b) causing the
Underlying Letters of Credit to be returned to the Issuing Lender, or (c) providing Agent with a
standby letter of credit, in form and substance reasonably satisfactory to Agent, from a commercial
bank acceptable to Agent (in its sole discretion) in an equal to 105% of the then existing Letter
of Credit Usage (it being understood that the Letter of Credit fee set forth in the Agreement will
continue to accrue while the Letters of Credit are outstanding and that any such fee that accrues
must be an amount that can be drawn under any such standby letter of credit).




          “Letter of Credit Usage” means, as of any date of determination, the aggregate undrawn
amount of all outstanding Letters of Credit.




          “Leverage Ratio” means, as of any date of determination (a) the amount of the Total
Debt of Parent and its Subsidiaries as of such date, divided by (b)  EBITDA of Parent and
its Subsidiaries as of such date.




          “LIBOR Deadline” has the meaning specified therefor in Section 2.13(b)(i).




          “LIBOR Notice” means a written notice in the form of Exhibit L-1.




          “LIBOR Option” has the meaning specified therefor in Section 2.13(a).




          “LIBOR Rate” means, for each Interest Period relating to any LIBOR Rate Loan, the rate
per annum determined by Agent by dividing (a) the Base LIBOR Rate for such Interest Period, by (b)
100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day
of any change in the Reserve Percentage.




          “LIBOR Rate Loan” means each portion of an Advance or the Term Loan that bears
interest at a rate determined by reference to the LIBOR Rate.




          “LIBOR Rate Margin” means with respect to (a) the Term Loan, 6.50% and (b) any
Advances, 2.00%.




14









 








          “Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge,
deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other
security arrangement and any other preference, priority, or preferential arrangement of any kind or
nature whatsoever, including any conditional sale contract or other title retention agreement, the
interest of a lessor under a Capital Lease and any synthetic or other financing lease having
substantially the same economic effect as any of the foregoing.




          “Loan Account” has the meaning specified therefor in Section 2.10.




          “Loan Documents” means the Agreement, the Bank Product Agreements, the Cash Management
Agreements, the Control Agreements, the Fee Letter, the Guaranty, the Lender Agreement, the Letters
of Credit, the Mortgages, the Security Agreement, the Warrant, any note or notes executed by
Borrowers in connection with the Agreement and payable to a member of the Lender Group, and any
other agreement entered into, now or in the future, by Parent or any of its Subsidiaries and the
Lender Group in connection with the Agreement.




          “Loan Party” means any Borrowers and any Guarantor.




          “Margin Stock” shall have the meaning specified therefor in Section 4.2.




          “Material Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition (financial or
otherwise) of Parent and its Subsidiaries, individually, (b) a material impairment of Borrowers’
and their Subsidiaries’ ability to perform their obligations under the Loan Documents to which they
are parties or of the Lender Group’s ability to enforce the Obligations or realize upon the
Collateral, or (c) a material impairment of the enforceability or priority of Agent’s Liens with
respect to the Collateral as a result of an action or failure to act on the part of Parent or its
Subsidiaries.




          “Material Contract” means, with respect to any Person, (i) each contract or agreement
to which such Person or any of its Subsidiaries is a party that is (A) a bond or surety obligation
or (B) an employment agreement with an officer or a director, (ii) the Farmout Agreement, (iii),
the ORRI Conveyance, (iv) the Operating Agreement, and (iv) all other contracts or agreements
(other than any oil and gas lease) to which such Person or any of its Subsidiaries is a party for
which breach, non-performance, cancellation or failure to renew could reasonably be expected to
result in a Material Adverse Change.




          “Maturity Date” has the meaning specified therefor in Section 3.3.




          “Maximum Revolver Amount” means $50,000,000.




          “Moody’s” has the meaning specified therefor in the definition of Cash Equivalents.




          “Mortgages” means, individually and collectively, one or more mortgages, deeds of
trust, or deeds to secure debt, executed and delivered by Parent or its Subsidiaries in favor of
Agent, in form and substance satisfactory to Agent, that encumber the Oil and Gas Properties.




          “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA, and to which Parent, any Subsidiary of Parent or ERISA Affiliate of Parent is making, is
obligated to make, has made or been obligated to make, contributions on behalf of participants who
are or were employed by any of them.




15









 








          “Net Cash Proceeds” means:




               (a) with respect to any sale or disposition by Parent or any of its Subsidiaries of property
or assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether
as initial consideration or through the payment of deferred consideration) by or on behalf of
Parent or its Subsidiaries, in connection therewith after deducting therefrom only (i) the amount
of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing
to Agent or any Lender under the Agreement or the other Loan Documents and (B) Indebtedness assumed
by the purchaser of such asset) which is required to be, and is, repaid in connection with such
sale or disposition, (ii) reasonable fees, commissions, and expenses related thereto and required
to be paid by Parent or such Subsidiary in connection with such sale or disposition and (iii) taxes
paid or estimated in good faith based on reasonable supporting documentation to be payable to any
taxing authorities by Parent or such Subsidiary in connection with such sale or disposition, in
each case to the extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid or estimated in good faith based on reasonable supporting
documentation to be payable to a Person that is not an Affiliate of Parent or any of its
Subsidiaries, and are properly attributable to such transaction; and



               (b) with respect to the issuance or incurrence of any Indebtedness by Parent or any of its
Subsidiaries, or the issuance by Parent or any of its Subsidiaries of any shares of its Stock, the
aggregate amount of cash received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration) by or on behalf of
Parent or such Subsidiary in connection with such issuance or incurrence, after deducting therefrom
only (i) reasonable fees, commissions, and expenses related thereto and required to be paid by
Parent or such Subsidiary in connection with such issuance or incurrence, (ii) taxes paid or
estimated in good faith based on reasonable supporting documentation to be payable to any taxing
authorities by Parent or such Subsidiary in connection with such issuance or incurrence, in each
case to the extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid or estimated in good faith based on reasonable supporting
documentation to be payable to a Person that is not an Affiliate of Parent or any of its
Subsidiaries, and are properly attributable to such transaction.



          “New Borrowing Base Notice” shall have the meaning specified therefor in
Section 2.1(e)(iii)(A).




          “Obligations” means (a) all loans (including the Term Loan), Advances, debts,
principal, interest (including any interest that accrues after the commencement of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such
Insolvency Proceeding), contingent reimbursement obligations with respect to outstanding Letters of
Credit, premiums, liabilities (including all amounts charged to Borrowers’ Loan Account pursuant to
the Agreement), obligations (including indemnification obligations), fees (including the fees
provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or
expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), lease
payments, guaranties, covenants, and duties of any kind and description owing by Borrowers to the
Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest not paid when due and all other expenses
or other amounts that Borrowers are required to pay or reimburse by the Loan Documents or by law or
otherwise in connection with the Loan Documents, and (b) all Bank



16









 






Product Obligations. Any reference in the Agreement or in the Loan Documents to the
Obligations shall include all or any portion thereof and any extensions, modifications, renewals,
or alterations thereof, both prior and subsequent to any Insolvency Proceeding.




          “Oil and Gas Business” means (a) the acquisition, exploration, exploitation,
development, operation and disposition of interests in Oil and Gas Properties and Hydrocarbons,
(b) the gathering, marketing, treating, processing, storage, selling and transporting of any
production from such interests or properties, including, without limitation, the marketing of
Hydrocarbons obtained from unrelated Persons, (c) any business relating to or arising from
exploration for or development, production, treatment, processing, storage, transportation or
marketing of oil, gas and other minerals and products produced in association therewith, (d) any
business relating to oilfield sales and service, and (e) any activity that is ancillary or
necessary or desirable to facilitate the activities described in clauses (a) through (d) of this
definition.




          “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, service rigs, trailers, backhoes, automotive equipment, rental equipment or other
personal Property which may be on such premises for the purpose of drilling and servicing 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.




          “Originating Lender” has the meaning specified therefor in Section 13.1(e).




          “ORRI Conveyance” means the Conveyance of Overriding Royalty Interest dated as of
September 8, 2006 by Foothills Texas, Inc. in favor of MTGLQ Investors, L.P.




          “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.




17









 








          “Operating Agreement” means that certain Operating Agreement dated as of January 3,
2006 by and between Foothills California, Inc. (as sucessor in interest to Brasada Resources LLC),
as operator, and INNEX California, Inc., as non-operator.




          “Overadvance” has the meaning specified therefor in Section 2.5.




          “Participant” has the meaning specified therefor in Section 13.1(e).




          “PBGC” shall mean the Pension Benefit Guaranty Corporation or any successor thereto.




          “Pension Plan” shall mean, at any time, an employee benefit plan, as defined in
Section 3(2) of ERISA, which Parent or any of its Subsidiaries maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed by any Loan Party
(or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be
an employee benefit plan of such Loan Party).




          “Permitted Discretion” means a determination made in the exercise of reasonable (from
the perspective of a secured lender) business judgment.




          “Permitted Dispositions” means (a) sales or other dispositions of Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business; (b) sales of Inventory
to buyers in the ordinary course of business; (c) the use or transfer of money or Cash Equivalents
in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents; (d)
the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business; (e) the sale of Hydrocarbons in the ordinary
course of business; (f) farmouts of undeveloped acreage and assignments in connection with such
farmouts; and (g) sales or other dispositions (including Casualty Events) of Oil and Gas Properties
or any interest therein; provided, that (i) 100% of the consideration received in respect of such
sale or other disposition shall be cash or like-kind exchange, (ii) the consideration received in
respect of such sale or other disposition shall be equal to or greater than the fair market value
of such Oil and Gas Property or interest therein (as reasonably determined by Administrative
Borrower and, if requested by Agent, Administrative Borrower shall deliver a certificate of a
Responsible Officer of Administrative Borrower certifying to that effect), (iii) if such sale or
other disposition of Oil and Gas Property included in the most recently delivered Reserve Report
during any period between two successive Scheduled Redetermination Dates has a Total Reserve Value
(as determined by Agent), individually or in the aggregate, in excess of $2,500,000, the Borrowing
Base shall be reduced, effective immediately upon such sale or disposition, by an amount equal to
the Total Reserve Value, if any, assigned to such Property as determined by the Required Lenders in
the most recently delivered Reserve Report and (iv) in no event shall the fair market value of the
Oil and Gas Properties and interests sold or disposed of pursuant to this subclause (g) hereof
exceed, in the aggregate, $2,500,000 during the term of this Agreement.




          “Permitted Holder” means the Person identified on Schedule P-1.




          “Permitted Investments” means (a) Investments in cash and Cash Equivalents, (b)
Investments in negotiable instruments for collection, (c) advances made in connection with
purchases of goods or services in the ordinary course of business, (d) Investments received in
settlement of amounts due to Parent or any of its Subsidiaries effected in the ordinary course of
business or owing to Parent or any of its Subsidiaries as a result of Insolvency Proceedings



18









 






involving an Account Debtor or upon the foreclosure or enforcement of any Lien in favor of
Parent or its Subsidiaries, (e) subject to the limits in Section 6.6, 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 provided that for purposes of this clause (e), an
investment in capital Stock, partnership interests, joint venture interests, limited liability
company interests or other similar equity interests in a Person shall not constitute a Permitted
Investment, (f) commission, travel and similar advances and loans to employees, officers or
directors in the ordinary course of business of the Parent or any of its Subsidiaries, in each case
only as permitted by applicable law, including Section 402 of the Sarbanes Oxley Act of 2002, as
amended, but in any event not to exceed $25,000 in the aggregate at any time, (g) any guarantee
permitted under Section 6.1, (h) any Swap Agreement permitted under Section 6.23
and (i) Investments (1) made by Borrowers in or to the Guarantors, (2) made by any Subsidiary in or
to the Borrowers or any Guarantor, and (3) made by the Borrowers or any Guarantor in Subsidiaries
that are not Guarantors, provided that the aggregate of all Investments made by the
Borrowers and the Guarantors in or to all Subsidiaries that are not Guarantors shall not exceed
$500,000 at any time. In determining the amount of any Investment permitted under this definition,
the amount of any Investment or outstanding at any time shall be the aggregate cash investment
less all cash returns, cash dividends and cash distributions (or the fair market value of
any non-cash returns, dividends and distributions) received by such Person in respect of the
capital thereof, and shall be calculated without regard to any write down or write-off.




          “Permitted Liens” means (a) Liens held by Agent and/or the Lenders and/or the Bank
Product Provider to secure the Obligations, (b) Liens for unpaid taxes, assessments, or other
governmental charges or levies that either (i) are not yet delinquent, or (ii) (A) either (I) do
not have priority over Agent’s Liens, or (II) secure taxes, assessments, charges or levies in an
aggregate amount not in excess of $250,000 and after the Agent establishes reserves against the
then-existing Borrowing Base or the Maximum Revolver Amount in such aggregate amount at least one
dollar of Availability exists, and (B) the underlying taxes, assessments, or charges or levies are
the subject of Permitted Protests, (c) judgment Liens that do not constitute an Event of Default
under Section 7.7 of the Agreement, (d) Liens set forth on Schedule P-2, provided
that any such Lien only (i) secures the Indebtedness that it secures on the Closing Date and any
Refinancing Indebtedness in respect thereof or (ii) with respect to the ORRI Conveyance, the
Farmout Agreement or the Operating Agreement, relates to the Oil and Gas Properties subject to the
ORRI Conveyance, Farmout Agreement or the Operating Agreement, as applicable, (e) the interests of
lessors under operating leases, (f) purchase money Liens or the interests of lessors under Capital
Leases permitted under Section 6.1(d) to the extent that such Liens or interests secure
Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset
purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness
that was incurred to acquire the asset purchased or acquired or any Refinancing Indebtedness in
respect thereof, (g) Liens arising by operation of law in favor of warehousemen, landlords,
carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of
business and not in connection with the borrowing of money, and which Liens either (i) are for sums
not yet delinquent, or (ii) are the subject of Permitted Protests, (h) Liens on amounts deposited
in connection with obtaining worker’s compensation or other unemployment insurance, (i) Liens on
amounts deposited in connection with the making or entering into of bids, tenders, or leases in the
ordinary course of business and not in connection with the borrowing of money, (j) Liens on amounts
deposited as security for surety or appeal bonds in connection with obtaining such bonds in the
ordinary course of business, (k) with respect to any Real Property, easements,



19









 






rights of way, and zoning restrictions and other similar encumbrances that do not materially
interfere with or impair the use or operation thereof, (l) 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, (m) 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 sale, transportation or exchange of oil
and natural gas, unitization and pooling declarations and 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 subject of
Permitted Protests, 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 of which such Property is held
by the Parent or any of its Subsidiaries or materially impair the value of material Property
subject thereto, and (n) Liens on cash, cash equivalents or letters of credit securing obligations
of the Borrowers under Swap Agreements between the Borrowers and any Approved Counterparty.




          “Permitted Protest” means the right of Parent or any of its Subsidiaries to protest
any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or
taxes that are the subject of a United States federal tax lien), or rental payment, provided that
(a) a reserve with respect to such obligation is established on Parent’s or its Subsidiaries’ books
and records in such amount as is required under GAAP, (b) any such protest is instituted promptly
and prosecuted diligently by Parent or its Subsidiary, as applicable, in good faith, and (c) Agent
is satisfied that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of Agent’s Liens.




          “Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount
outstanding at any one time not in excess of $2,500,000.




          “Person” means natural persons, corporations, limited liability companies, limited
partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of whether they are legal entities,
and governments and agencies and political subdivisions thereof.




          “Petroleum Engineers” means, initially, Cawley, Gillespie & Associates, Inc. or such
other petroleum engineers of recognized national standing as may be selected by Loan Parties with
the prior consent of Agent.




          “Pro Rata Share” means, as of any date of determination:




          (a) with respect to a Lender’s obligation to make Advances and right to receive payments of
principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Revolver
Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such
Lender’s Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii)
from and after the time that the Revolver Commitments have been terminated or reduced to zero, the
percentage obtained by dividing (y) the aggregate outstanding principal amount of such Lender’s
Advances by (z) the aggregate outstanding principal amount of all Advances,




20









 








          (b) with respect to a Lender’s obligation to participate in Letters of Credit, to reimburse
the Issuing Lender, and right to receive payments of fees with respect thereto, (i) prior to the
Revolver Commitments being terminated or reduced to zero, the percentage obtained by dividing (y)
such Lender’s Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and
(ii) from and after the time that the Revolver Commitments have been terminated or reduced to zero,
the percentage obtained by dividing (y) the aggregate outstanding principal amount of such Lender’s
Advances by (z) the aggregate outstanding principal amount of all Advances,




          (c) with respect to a Lender’s obligation to make the Term Loan and right to receive payments
of interest, fees, and principal with respect thereto, (i) prior to the making of the Term Loan,
the percentage obtained by dividing (y) such Lender’s Term Loan Commitment, by (z) the aggregate
amount of all Lenders’ Term Loan Commitments, and (ii) from and after the making of the Term Loan,
the percentage obtained by dividing (y) the principal amount of such Lender’s portion of the Term
Loan by (z) the principal amount of the Term Loan, and




          (d) with respect to all other matters as to a particular Lender (including the indemnification
obligations arising under Section 15.7), the percentage obtained by dividing (i) such
Lender’s Revolver Commitment plus the outstanding principal amount of such Lender’s portion of the
Term Loan, by (ii) the aggregate amount of Revolver Commitments of all Lenders plus the outstanding
principal amount of the Term Loan; provided, however, that in the event the
Revolver Commitments have been terminated or reduced to zero, Pro Rata Share under this clause
shall be the percentage obtained by dividing (A) the outstanding principal amount of such Lender’s
Advances plus such Lender’s ratable portion of the Risk Participation Liability with respect to
outstanding Letters of Credit plus the outstanding principal amount of such Lender’s portion of the
Term Loan, by (B) the outstanding principal amount of all Advances plus the aggregate amount of the
Risk Participation Liability with respect to outstanding Letters of Credit plus the outstanding
principal amount of the Term Loan.




          “Projections” means Parent’s forecasted (a) balance sheets, (b) profit and loss
statements, and (c) cash flow statements, all prepared on a basis consistent with Parent’s
historical financial statements, together with appropriate supporting details and a statement of
underlying assumptions. The Projections shall also contain a forecast of Capital Expenditures for
the period covered thereby.




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




          “Proposed Borrowing Base” has the meaning specified therefor in Section
2.1(e)(i).




          “Proposed Borrowing Base Notice” has the meaning specified therefor in Section
2.1(e)(ii).




          “Protective Advances” has the meaning specified therefor in Section 2.3(d)(i).




          “Proved Oil and Gas Properties” means Oil and Gas Properties that are Proved Reserves.




21









 








          “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.




          “Purchase Money Indebtedness” means Indebtedness (other than the Obligations, but
including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the
acquisition of any fixed assets for the purpose of financing all or any part of the acquisition
cost thereof.




          “Real Property” means any estates or interests in real property now owned, leased or
operated or hereafter acquired, leased or operated by Parent or its Subsidiaries and the
improvements thereto.




          “Real Property Collateral” means the Real Property identified on Schedule R-1
and any Real Property hereafter acquired by Parent or its Subsidiaries.




          “Record” means information that is inscribed on a tangible medium or that is stored in
an electronic or other medium and is retrievable in perceivable form.




          “Redetermination Date” means, with respect to any Scheduled Redetermination or any
Interim Redetermination, the date that the redetermined Borrowing Base related thereto becomes
effective pursuant to Section 2.1(e)(iii)(A).




          “Refinancing Indebtedness” means refinancings, renewals, or extensions of Indebtedness
so long as: (a) the terms and conditions of such refinancings, renewals, or extensions do not, in
Agent’s reasonable judgment, materially impair the prospects of repayment of the Obligations by
Borrowers or materially impair Borrowers’ creditworthiness, (b) such refinancings, renewals, or
extensions do not result in an increase in the principal amount of the Indebtedness so refinanced,
renewed, or extended, (c) such refinancings, renewals, or extensions do not result in an increase
in the interest rate with respect to the Indebtedness so refinanced, renewed, or extended, (d) such
refinancings, renewals, or extensions do not result in a shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions that, taken as a whole, are materially more burdensome or restrictive to Borrowers, (e)
if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment
to the Obligations, then the terms and conditions of the refinancing, renewal, or extension must
include subordination terms and conditions that are at least as favorable to the Lender Group as
those that were applicable to the refinanced, renewed, or extended Indebtedness, and (f) the
Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable
on account of the Obligations other than those Persons which were obligated with respect to the
Indebtedness that was refinanced, renewed, or extended.




          “Regiment” means Regiment Capital Special Situations Fund III, L.P. together with its
permitted successors and assigns.




          “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing,



22









 






emanating or migrating of any Hazardous Materials in, into, onto, from or through the
environment or any Real Property.




          “Replacement Lender” has the meaning specified therefor in Section 14.2(a).




          “Report” has the meaning specified therefor in Section 15.16.




          “Required Availability” means Availability of not less than $17,500,000, less the
amount of reserves established in the last sentence of Section 2.1(b).




          “Required Lenders” means, at any date of determination thereof, collectively, (i)
Regiment, for so long as it holds at least 25% of the Term Loan, (ii) WFF, for so long as it holds
at least 25% of the Revolver Commitment and (iii) such other Lenders whose aggregate Pro Rata
Shares (calculated under clause (d) of the definition of Pro Rata Shares) together with those of
Regiment and/or WFF (to the extent that each such entity is deemed a Required Lender) exceed 50%.




          “Reserve Percentage” means, on any day, for any Lender, the maximum percentage
prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental
Authority) for determining the reserve requirements (including any basic, supplemental, marginal,
or emergency reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as “eurocurrency liabilities”) of that Lender, but so long as such Lender is
not required or directed under applicable regulations to maintain such reserves, the Reserve
Percentage shall be zero.




          “Reserve Report” means a report, in form and substance reasonably satisfactory to
Agent, setting forth, as of each January 1st or July 1st (or such other date in the event of an
Interim Redetermination) (a) the volumetric quantity and the Total Reserve Value (including
itemization of the Proved Developed Producing Reserves, the Proved Developed Nonproducing Reserves
and Proved Undeveloped Reserves) of the oil and gas reserves attributable to the Oil and Gas
Properties of Parent and its 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, and (b) such other information as Agent may reasonably request.




          “Response Action” means all actions taken to (a) clean up, remove, remediate, contain,
treat, monitor, assess, investigate, evaluate, correct or in any way address any violation of or
non-compliance with Environmental Law, any Environmental Liability, any Release or any Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened
release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment, (c) restore or reclaim natural resources or
the environment, (d) perform any pre-remedial studies, investigations, or post-remedial operation
and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials
authorized by Environmental Laws.




          “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 Administrative
Borrower.




          “Revolver Commitment” means, with respect to each Lender, its Revolver Commitment,
and, with respect to all Lenders, their Revolver Commitments, in each case as such



23









 






Dollar amounts are set forth beside such Lender’s name under the applicable heading on
Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder, as such amounts may be reduced or increased from time to time pursuant to
assignments made in accordance with the provisions of Section 13.1.




          “Revolver Usage” means, as of any date of determination, the sum of (a) the amount of
outstanding Advances, plus (b) the amount of the Letter of Credit Usage.




          “Revolving Loan Lender” means a Lender with a Revolver Commitment or that holds an
Advance.




          “Risk Participation Liability” means, as to each Letter of Credit, all reimbursement
obligations of Borrowers to the Issuing Lender with respect to an L/C Undertaking, consisting of
(a) the amount available to be drawn or which may become available to be drawn, (b) all amounts
that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by
Borrowers, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.




          “Scheduled Redetermination” has the meaning specified therefor in Section
2.1(d).




          “SEC” means the United States Securities and Exchange Commission and any successor
thereto.




          “Securities Account” means a securities account (as that term is defined in the Code).




          “Security Agreement” means a security agreement, in form and substance satisfactory to
Agent, executed and delivered by Borrowers and Guarantors to Agent.




          “Settlement” has the meaning specified therefor in Section 2.3(e)(i).




          “Settlement Date” has the meaning specified therefor in Section 2.3(e)(i).




          “Solvent” means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such Person’s debts.




          “S&P” has the meaning specified therefor in the definition of Cash Equivalents.




          “Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).




          “Subsidiary” of a Person means a corporation, partnership, limited liability company,
or other entity in which that Person directly or indirectly owns or controls the shares of Stock
having ordinary voting power to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited liability company, or other entity.




24









 








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




          “Swing Lender” means WFF or any other Lender that, at the request of Administrative
Borrower and with the consent of Agent agrees, in such Lender’s sole discretion, to become the
Swing Lender under Section 2.3(b).




          “Swing Loan” has the meaning specified therefor in Section 2.3(b).




          “Taxes” means shall mean, any taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments (but excluding any
tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or
therein measured by or based on the net income or net profits of any Lender) and all interest,
penalties or similar liabilities with respect thereto.




          “Term Loan” has the meaning specified therefor in Section 2.2.




          “Term Loan Amount” means $50,000,000.




          “Term Loan Commitment” means, with respect to each Lender, its Term Loan Commitment,
and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts
are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in
the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder, as such
amounts may be reduced or increased from time to time pursuant to assignments made in accordance
with the provisions of Section 13.1.




          “Term Loan Lender” means a Lender with a Term Loan Commitment or that holds any of the
Term Loan.




          “Total Commitment” means, with respect to each Lender, its Total Commitment, and, with
respect to all Lenders, their Total Commitments, in each case as such Dollar amounts are set forth
beside such Lender’s name under the applicable heading on Schedule C-1 attached hereto or
on the signature page of the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder, as such amounts may be reduced or increased from time to time pursuant to
assignments made in accordance with the provisions of Section 13.1.




          “Total Debt” means, at any date, all Indebtedness, except for Letters of Credit, of
the Parent and its Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under
FAS 133 or 143, (ii) all obligations owing under Swap Agreements, and (iii) other accrued
liabilities (for the deferred purchase price of property or services) from time to time incurred in
the ordinary course of business and repayable in accordance with customary trade practices,
provided that such obligations are not more than ninety (90) days past due or delinquent or are the
subject of Permitted Protests.




25









 








          “Total Reserve Value” 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 Parent’s and its Subsidiaries’ collective interests
in such reserves during the remaining expected economic lives of such reserves, as evaluated in the
most recently delivered Reserve Report with respect to such Oil and Gas Properties. Total Reserve
Value means, with respect to Parent’s and its 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, marketing, capital and capital
expenditure costs required for the production and sale of such reserves, (b) appropriate
adjustments shall be made for 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 Parent or any of its Subsidiaries, (c) the pricing
assumptions used in determining Total Reserve Value for any particular reserves shall be based upon
the following price decks: (i) for natural gas, the lesser of (A) 85% of the quotation for
deliveries of natural gas for each such year from the New York Mercantile Exchange for Henry Hub
and (B) $7.00/MMBtu, and (ii) for crude oil, the lesser of (A) 85% of the quotation for deliveries
of West Texas Intermediate crude oil for each such calendar year from the New York Mercantile
Exchange for Cushing, Oklahoma, and (B) $65.00/Bbl and (d) the cash-flows derived from the pricing
assumptions set forth in clauses (b) and (c) above shall be further adjusted to account for heat
content, gas shrinkage, transportation costs and basis differentials, in each case, in a manner
acceptable to Agent; provided that for purposes of this calculation, Proved Developed
Reserves (including hedging operations) shall constitute not less than 60% of the Total Reserve
Value.




          “Triggering Event” means, as of any date of determination, the occurrence of an Event
of Default.




          “Underlying Issuer” means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the
benefit of Borrowers.




          “Underlying Letter of Credit” means a letter of credit that has been issued by an
Underlying Issuer.




          “Unfunded Pension Liability” shall mean, at any time, the aggregate amount, if any, of
the sum of (a) the amount by which the present value of all accrued benefits under each Title IV
Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits
in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each
such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title
IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be
expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that
could be avoided by any Loan Party or any ERISA Affiliate as a result of such transaction.




          “United States” means the United States of America.




          “Voidable Transfer” has the meaning specified therefor in Section 17.8.




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          “Warrant” means the warrant to purchase the Warrant Shares, dated as of the date
hereof, among Parent and Regiment, as the same may be amended, restated or otherwise modified.




          “Warrant Shares” means the Common Stock issuable or issued upon exercise of the
Warrant, and shall also include any securities issued in replacement thereof, as a dividend or
distribution thereon, or any equity interest or assets issued in the case of any reorganization,
reclassification, consolidation, merger or sale of assets as provided under the Warrants.




          “Wells Fargo” means Wells Fargo Bank, National Association, a national banking
association.




          “WFF” means Wells Fargo Foothill, LLC, a Delaware limited liability company.




          “Zehil Matter” means any action or proceeding against Louis W. Zehil, Strong Branch
Ventures IV LP or any affiliate, or McGuireWoods LLP, in connection with the matters described in
the civil action entitled Securities and Exchange Commission against Louis W. Zehil, Strong Branch
Ventures IV LP, and Chestnut Capital Partners II, LLC (Case No. 07-CV-01439-LAP), and in the
criminal complaint entitled United States of America v. Louis W. Zehil (Case No.07-MJ-00305-UA),
and in the Information entitled United States of America v. Louis W. Zehil (Case No.
07-CR-00659-DAB).





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