Exhibit 10.2


 


Execution Version


 




 





SECOND LIEN CREDIT AGREEMENT


 


dated as of November 30, 2010


 


among


 


KODIAK OIL & GAS (USA) INC.,

as Borrower,


 


WELLS FARGO ENERGY CAPITAL, INC.,

as Administrative Agent,


 


and


 


The Lenders Party Hereto








 




 




















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  Definitions
  and Accounting Matters

  	
  1

  
	
   

  	
   

  
	
  Section 1.01

  	
  Terms
  Defined Above

  	
  1

  
	
  Section 1.02

  	
  Certain
  Defined Terms

  	
  1

  
	
  Section 1.03

  	
  Types
  of Loans

  	
  19

  
	
  Section 1.04

  	
  Terms
  Generally; Rules of Construction

  	
  19

  
	
  Section 1.05

  	
  Accounting
  Terms and Determinations; GAAP

  	
  19

  
	
   

  	
   

  
	
  ARTICLE 2

  	
  The
  Credits

  	
  19

  
	
   

  	
   

  
	
  Section 2.01

  	
  Term
  Loan

  	
  19

  
	
  Section 2.02

  	
  Loans

  	
  20

  
	
  Section 2.03

  	
  Requests
  for the Loans

  	
  20

  
	
  Section 2.04

  	
  Interest
  Elections

  	
  21

  
	
  Section 2.05

  	
  Funding
  of Loans

  	
  22

  
	
  Section 2.06

  	
  Termination
  of Commitments

  	
  23

  
	
   

  	
   

  
	
  ARTICLE 3

  	
  Payments
  of Principal and Interest; Prepayments; Fees

  	
  23

  
	
   

  	
   

  
	
  Section 3.01

  	
  Repayment
  of Loans

  	
  23

  
	
  Section 3.02

  	
  Interest

  	
  23

  
	
  Section 3.03

  	
  Alternate
  Rate of Interest

  	
  24

  
	
  Section 3.04

  	
  Prepayments

  	
  24

  
	
  Section 3.05

  	
  Fees

  	
  25

  
	
   

  	
   

  
	
  ARTICLE 4

  	
  Payments;
  Pro Rata Treatment; Sharing of Set-offs

  	
  25

  
	
   

  	
   

  
	
  Section 4.01

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

  	
  25

  
	
  Section 4.02

  	
  Presumption
  of Payment by the Borrower

  	
  26

  
	
  Section 4.03

  	
  Certain
  Deductions by the Administrative Agent

  	
  27

  
	
  Section 4.04

  	
  Disposition
  of Proceeds

  	
  27

  
	
   

  	
   

  
	
  ARTICLE 5

  	
  Increased
  Costs; Break Funding Payments; Taxes; Illegality

  	
  27

  
	
   

  	
   

  
	
  Section 5.01

  	
  Increased
  Costs

  	
  27

  
	
  Section 5.02

  	
  Break
  Funding Payments

  	
  28

  
	
  Section 5.03

  	
  Taxes

  	
  29

  
	
  Section 5.04

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
  30

  
	
  Section 5.05

  	
  Illegality

  	
  31

  
	
   

  	
   

  
	
  ARTICLE 6

  	
  Conditions
  Precedent

  	
  31

  
	
   

  	
   

  
	
  Section 6.01

  	
  Effective
  Date

  	
  31

  
	
  Section 6.02

  	
  Additional
  Conditions

  	
  34

  
	
   

  	
   

  
	
  ARTICLE 7

  	
  Representations
  and Warranties

  	
  35

  
	
   

  	
   

  
	
  Section 7.01

  	
  Organization;
  Powers

  	
  35

  
	
  Section 7.02

  	
  Authority;
  Enforceability

  	
  35

  
	
  Section 7.03

  	
  Approvals;
  No Conflicts

  	
  35

  
				



 


i

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 7.04

  	
  Financial
  Condition; No Material Adverse Change

  	
  36

  
	
  Section 7.05

  	
  Litigation

  	
  36

  
	
  Section 7.06

  	
  Environmental
  Matters

  	
  36

  
	
  Section 7.07

  	
  Compliance
  with the Laws and Agreements; No Defaults

  	
  38

  
	
  Section 7.08

  	
  Investment
  Company Act

  	
  38

  
	
  Section 7.09

  	
  Taxes

  	
  38

  
	
  Section 7.10

  	
  ERISA

  	
  38

  
	
  Section 7.11

  	
  Disclosure;
  No Material Misstatements

  	
  39

  
	
  Section 7.12

  	
  Insurance

  	
  39

  
	
  Section 7.13

  	
  Restriction
  on Liens

  	
  40

  
	
  Section 7.14

  	
  Subsidiaries

  	
  40

  
	
  Section 7.15

  	
  Location
  of Business and Offices

  	
  40

  
	
  Section 7.16

  	
  Properties;
  Titles, Etc.

  	
  40

  
	
  Section 7.17

  	
  Maintenance
  of Properties

  	
  41

  
	
  Section 7.18

  	
  Gas
  Imbalances, Prepayments

  	
  42

  
	
  Section 7.19

  	
  Marketing
  of Production

  	
  42

  
	
  Section 7.20

  	
  Swap
  Agreements

  	
  42

  
	
  Section 7.21

  	
  Use
  of Loans

  	
  42

  
	
  Section 7.22

  	
  Solvency

  	
  42

  
	
  Section 7.23

  	
  Foreign
  Corrupt Practices

  	
  43

  
	
  Section 7.24

  	
  Money
  Laundering

  	
  43

  
	
  Section 7.25

  	
  OFAC

  	
  43

  
	
   

  	
   

  
	
  ARTICLE 8

  	
  Affirmative
  Covenants

  	
  43

  
	
   

  	
   

  
	
  Section 8.01

  	
  Financial
  Statements; Ratings Change; Other Information

  	
  44

  
	
  Section 8.02

  	
  Notices
  of Material Events

  	
  46

  
	
  Section 8.03

  	
  Existence;
  Conduct of Business

  	
  47

  
	
  Section 8.04

  	
  Payment
  of Obligations

  	
  47

  
	
  Section 8.05

  	
  Performance
  of Obligations under Loan Documents

  	
  47

  
	
  Section 8.06

  	
  Operation
  and Maintenance of Properties

  	
  47

  
	
  Section 8.07

  	
  Insurance

  	
  48

  
	
  Section 8.08

  	
  Books
  and Records; Inspection Rights

  	
  48

  
	
  Section 8.09

  	
  Compliance
  with Laws

  	
  49

  
	
  Section 8.10

  	
  Environmental
  Matters

  	
  49

  
	
  Section 8.11

  	
  Further
  Assurances

  	
  50

  
	
  Section 8.12

  	
  Reserve
  Reports

  	
  50

  
	
  Section 8.13

  	
  Title
  Information

  	
  51

  
	
  Section 8.14

  	
  Additional
  Collateral; Additional Guarantors

  	
  52

  
	
  Section 8.15

  	
  ERISA
  Compliance

  	
  53

  
	
  Section 8.16

  	
  Marketing
  Activities

  	
  53

  
	
   

  	
   

  
	
  ARTICLE 9

  	
  Negative
  Covenants

  	
  54

  
	
   

  	
   

  
	
  Section 9.01

  	
  Financial
  Covenants

  	
  54

  
				



 


ii

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 9.02

  	
  Debt

  	
  55

  
	
  Section 9.03

  	
  Liens

  	
  56

  
	
  Section 9.04

  	
  Dividends,
  Distributions, Redemptions and Restricted Payments

  	
  56

  
	
  Section 9.05

  	
  Investments,
  Loans and Advances

  	
  56

  
	
  Section 9.06

  	
  Nature
  of Business; International Operations

  	
  58

  
	
  Section 9.07

  	
  Limitation
  on Leases

  	
  58

  
	
  Section 9.08

  	
  Proceeds
  of Notes

  	
  58

  
	
  Section 9.09

  	
  ERISA
  Compliance

  	
  58

  
	
  Section 9.10

  	
  Sale
  or Discount of Receivables

  	
  59

  
	
  Section 9.11

  	
  Mergers,
  Etc.

  	
  59

  
	
  Section 9.12

  	
  Sale
  of Properties

  	
  59

  
	
  Section 9.13

  	
  Environmental
  Matters

  	
  60

  
	
  Section 9.14

  	
  Transactions
  with Affiliates

  	
  60

  
	
  Section 9.15

  	
  Subsidiaries

  	
  60

  
	
  Section 9.16

  	
  Negative
  Pledge Agreements; Dividend Restrictions

  	
  60

  
	
  Section 9.17

  	
  Gas
  Imbalances, Take-or-Pay or Other Prepayments

  	
  60

  
	
  Section 9.18

  	
  Swap
  Agreements

  	
  60

  
	
   

  	
   

  
	
  ARTICLE 10

  	
  Events
  of Default; Remedies

  	
  62

  
	
   

  	
   

  
	
  Section 10.01

  	
  Events
  of Default

  	
  62

  
	
  Section 10.02

  	
  Remedies

  	
  64

  
	
   

  	
   

  
	
  ARTICLE 11

  	
  The
  Agents

  	
  65

  
	
   

  	
   

  
	
  Section 11.01

  	
  Appointment;
  Powers

  	
  65

  
	
  Section 11.02

  	
  Duties
  and Obligations of Administrative Agent

  	
  65

  
	
  Section 11.03

  	
  Action
  by Administrative Agent

  	
  66

  
	
  Section 11.04

  	
  Reliance
  by Administrative Agent

  	
  67

  
	
  Section 11.05

  	
  Subagents

  	
  67

  
	
  Section 11.06

  	
  Resignation
  or Removal of Administrative Agent

  	
  67

  
	
  Section 11.07

  	
  Agents
  as Lenders

  	
  68

  
	
  Section 11.08

  	
  No
  Reliance

  	
  68

  
	
  Section 11.09

  	
  Administrative
  Agent May File Proofs of Claim

  	
  69

  
	
  Section 11.10

  	
  Authority
  of Administrative Agent to Release Collateral and Liens

  	
  69

  
	
  Section 11.11

  	
  The
  Syndication Agent and the Documentation Agent

  	
  70

  
	
   

  	
   

  
	
  ARTICLE 12

  	
  Miscellaneous

  	
  70

  
	
   

  	
   

  
	
  Section 12.01

  	
  Notices

  	
  70

  
	
  Section 12.02

  	
  Waivers;
  Amendments

  	
  71

  
	
  Section 12.03

  	
  Expenses, Indemnity;
  Damage Waiver

  	
  72

  
	
  Section 12.04

  	
  Successors
  and Assigns

  	
  74

  
	
  Section 12.05

  	
  Survival;
  Revival; Reinstatement

  	
  77

  
				



 


iii

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 12.06

  	
  Counterparts;
  Integration; Effectiveness

  	
  78

  
	
  Section 12.07

  	
  Severability

  	
  78

  
	
  Section 12.08

  	
  Right
  of Setoff

  	
  78

  
	
  Section 12.09

  	
  GOVERNING
  LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS

  	
  79

  
	
  Section 12.10

  	
  Headings

  	
  80

  
	
  Section 12.11

  	
  Confidentiality

  	
  80

  
	
  Section 12.12

  	
  Interest
  Rate Limitation

  	
  80

  
	
  Section 12.13

  	
  EXCULPATION
  PROVISIONS

  	
  81

  
	
  Section 12.14

  	
  Collateral
  Matters; Swap Agreements

  	
  82

  
	
  Section 12.15

  	
  No
  Third Party Beneficiaries

  	
  82

  
	
  Section 12.16

  	
  USA
  Patriot Act Notice

  	
  82

  
	
  Section 12.17

  	
  Intercreditor
  Agreement

  	
  82

  



 


iv

















 


ANNEXES,
EXHIBITS AND SCHEDULES


 


	
  Annex
  I

  	
  List
  of Commitments

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of
  Note

  	
   

  
	
  Exhibit B

  	
  Form of
  Borrowing Request

  	
   

  
	
  Exhibit C

  	
  Form of
  Interest Election Request

  	
   

  
	
  Exhibit D

  	
  Form of
  Compliance Certificate

  	
   

  
	
  Exhibit E

  	
  Form of
  Assignment and Assumption

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  7.05

  	
  Litigation

  	
   

  
	
  Schedule
  7.14

  	
  Subsidiaries
  and Partnerships

  	
   

  
	
  Schedule
  7.18

  	
  Gas
  Imbalances

  	
   

  
	
  Schedule
  7.19

  	
  Marketing
  Contracts

  	
   

  
	
  Schedule
  7.20

  	
  Swap
  Agreements

  	
   

  
	
  Schedule
  9.05

  	
  Investments

  	
   

  



 


v
















 


THIS SECOND LIEN CREDIT AGREEMENT dated as of November 30,
2010, is among: Kodiak Oil & Gas (USA) Inc., a corporation duly formed
and existing under the laws of the State of Colorado (the “Borrower”);
each of the Lenders from time to time party hereto; and Wells Fargo Energy
Capital, Inc., as administrative agent for the Lenders (in such capacity,
together with its successors in such capacity, the “Administrative Agent”).


 


R E C I T A L S


 


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


 


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


 


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


 


ARTICLE 1

DEFINITIONS AND ACCOUNTING MATTERS


 


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


 


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


 


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


 


“Acquisition”
means the acquisition by the Borrower of certain real and personal property
assets of Peak Grasslands, LLC as described in and pursuant to the Acquisition
Agreement.


 


“Acquisition
Agreement” means that certain Asset Purchase Agreement dated as of October 19,
2010 among Peak Grasslands, LLC, as seller, the Borrower, as buyer, and Parent,
as parent, as amended by any amendments thereto effected prior to the Effective
Date which are not materially adverse to the Lenders (unless otherwise approved
by the Administrative Agent), together with the assignments and other documents
related thereto.


 


“Acquisition
Related Costs” means all purchase price payments, earn-out payments,
adjustments of purchase price, payments in respect of non-competition
agreements, working capital adjustments, and other contingent payments required
under the Acquisition Agreement; provided that, solely for purposes of this
definition, “Acquisition Agreement” shall mean such agreement without giving
effect to any amendments other than any amendment approved by the
Administrative Agent.


 

















 


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


 


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


 


“Affected
Loans” has the meaning assigned such term in Section 5.05.


 


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


 


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


 


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


 


“Alternate
Base Rate” means, for any day, a rate per annum equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Federal Funds
Effective Rate in effect on such day plus 0.5% and (c) the Adjusted LIBO
Rate for a one month Interest Period on such day (or if such day is not a
Business Day, the immediately preceding Business Day) plus 1%.  Any change in the Alternate Base Rate due to
a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted
LIBO Rate shall be effective from and including the effective date of such
change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO
Rate, respectively.


 


“Applicable
Margin” means (a) with respect to each Eurodollar Loan, a rate per
annum equal to 8.000%; and (b) with respect to each ABR Loan, a rate per
annum equal to 7.000%.


 


“Approved
Counterparty” means (a) any Lender or any Affiliate of a Lender and (b) any
other Person reasonably acceptable to the Administrative Agent including BP
Corporation North America Inc. and its Affiliates with respect to Swap
Agreements in effect prior to the date hereof (it being understood that no such
Swap Agreement shall be renewed or extended).


 


“Approved
Fund” means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.


 


“Approved
Petroleum Engineers” means (a) Netherland, Sewell &
Associates, Inc., (b) Ryder Scott Company Petroleum Consultants, L.P.
and (c) any other independent petroleum engineers reasonably acceptable to
the Administrative Agent.


 


“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an assignee (with the consent of any party whose consent is required by Section 


 


2

















 


12.04(a)),
and accepted by the Administrative Agent, in the form of Exhibit E or any
other form approved by the Administrative Agent.


 


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


 


“Borrowing
Base” has the meaning given to it in the Senior Revolving Credit Agreement.


 


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


 


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


 


“Capital
Expenditures” means, in respect of any Person, for any period, the
aggregate (determined without duplication) of all exploration and development
expenditures and costs that are capital in nature and any other expenditures
that are capitalized on the balance sheet of such Person in accordance with
GAAP.


 


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


 


“Casualty
Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries.


 


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


 


“Change
in Law” means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender
(or, for purposes of Section 5.01(b)), by any lending office of such
Lender or by such Lender’s holding company, if any) with any request, guideline
or directive 


 


3

















 


(whether
or not having the force of law) of any Governmental Authority made or issued
after the date of this Agreement.


 


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


 


“Commitment”
means, with respect to each Lender, the commitment of such Lender to make its
Loans on the Effective Date hereunder and “Commitments” means the aggregate
amount of the Commitments of all Lenders. 
The amount of each Lender’s Commitment is set forth on Annex I.


 


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


 


“Consolidated
Subsidiaries” means (a) with respect to the Parent, each Subsidiary of
the Parent and (b) with respect to the Borrower, each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated with the
financial statements of the Parent or the Borrower, as applicable, in
accordance with GAAP.


 


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


 


4

















 


“Debt”
means, for any Person, the sum of the following (without duplication): (a) all
obligations of such Person for borrowed money or evidenced by bonds, bankers’
acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic
Leases; (f) all Debt (as defined in the other clauses of this definition)
of others secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) a Lien on any Property of
such Person, whether or not such Debt is assumed by such Person; (g) all
Debt (as defined in the other clauses of this definition) of others guaranteed
by such Person or in which such Person otherwise assures a creditor against
loss of the Debt (howsoever such assurance shall be made) to the extent of the
lesser of the amount of such Debt and the maximum stated amount of such
guarantee or assurance against loss; (h) all obligations or undertakings
of such Person to maintain or cause to be maintained the financial position or
covenants of others or to purchase the Debt or Property of others;
(i) obligations to deliver commodities, goods or services, including,
without limitation, Hydrocarbons, in consideration of one or more advance
payments, other than gas balancing arrangements in the ordinary course of
business; (j) obligations to pay for goods or services even if such goods
or services are not actually received or utilized by such Person; (k) any
Debt (as defined in the other clauses of this definition) of a partnership for
which such Person is liable either by agreement, by operation of law or by a
Governmental Requirement but only to the extent of such liability; (l) obligations
of such Person with respect to Disqualified Capital Stock; and (m) the
undischarged balance of any production payment created by such Person or for
the creation of which such Person directly or indirectly received payment.  The Debt of any Person shall include all
obligations of such Person of the character described above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is not included as a liability of such Person under GAAP.


 


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


 


“Defaulting
Lender” means a Lender (a) that fails to fund a requested Loan
required to be funded by such Lender and such default continues for one (1) Business
Day, or (b) who (or whose bank holding company) is placed into
receivership, conservatorship or bankruptcy.


 


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


 


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


 


5

















 


“EBITDAX”
means, for any period, the sum of Consolidated Net Income for such period plus
the following expenses or charges to the extent deducted from Consolidated Net
Income in such period: interest, income taxes, depreciation, depletion,
amortization, exploration expenses and other similar noncash charges including
non-cash compensation payments made pursuant to and in accordance with stock
option plans or other benefit plans for management of the Borrower and
unrealized losses incurred in connection with Swap Agreements, minus all noncash
income, including unrealized gains incurred in connection with Swap Agreements,
added to Consolidated Net Income.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


6

















 


“Excepted
Liens” means:  (a) Liens for
Taxes, assessments or other governmental charges or levies which are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP; (b) Liens
in connection with workers’ compensation, unemployment insurance or other
social security, old age pension or public liability obligations which are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP; (c) statutory
landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s,
mechanics’, suppliers’, workers’, materialmen’s, construction or other like
Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are not delinquent
or which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP; (d) contractual
Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements, oil
and gas leases, farm-out agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements, overriding
royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production
agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or agreements,
and other agreements which are usual and customary in the oil and gas business
and are for claims which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP, provided that any such Lien referred to in
this clause does not materially impair the use of the Property covered by such
Lien for the purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject thereto; (e) Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
and no such deposit account is intended by Borrower or any of its Subsidiaries
to provide collateral to the depository institution; (f) easements,
restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property of the Borrower or any Subsidiary for the purpose
of roads, pipelines, transmission lines, transportation lines, distribution
lines for the removal of gas, oil, coal or other minerals or timber, and other
like purposes, or for the joint or common use of real estate, rights of way,
facilities and equipment, that do not secure any monetary obligations and which
in the aggregate do not materially impair the use of such Property for the
purposes of which such Property is held by the Borrower or any Subsidiary or
materially impair the value of such Property subject thereto; (g) Liens on
cash or securities pledged to secure performance of tenders, surety and appeal
bonds, government contracts, performance and return of money bonds, bids, trade
contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and (h) judgment
and attachment Liens not giving rise to an Event of Default, provided that any
appropriate legal proceedings which may have been duly initiated for the review
of such judgment shall not have been finally terminated or the period within
which such proceeding may be initiated shall not have expired and no action 


 


7

















 


to
enforce such Lien has been commenced; provided, further that Liens described in
clauses (a) through (e) shall remain “Excepted Liens” only for so
long as no action to enforce such Lien has been commenced and no intention to
subordinate the second priority Lien granted in favor of the Administrative
Agent and the Lenders is to be hereby implied or expressed by the permitted
existence of such Excepted Liens.


 


“Excluded
Taxes” means, with respect to the Administrative Agent, any Lender or any
other recipient of any payment to be made by or on account of any obligation of
the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income
or franchise taxes imposed on (or measured by) its net income by the United
States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower or any Guarantor is
located and (c) in the case of a Foreign Lender (other than an assignee
pursuant to a request by the Borrower under Section 5.04(a)), (i) any
withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with Section 5.03(d), except to the extent that such Foreign Lender
(or its assignor, if any) was entitled, at the time of designation of a new
lending office (or assignment), to receive additional amounts with respect to
such withholding tax pursuant to Section 5.03(a) or Section 5.03(b) and
(ii) any Taxes imposed on any “withholdable payment” payable to such
recipient as a result of the failure of such recipient to satisfy the
requirements set forth in FATCA after December 31, 2012.


 


“FATCA”
means Sections 1471 through 1474 of the Code and any regulations promulgated
thereunder or official interpretations thereof.


 


“FCPA”
means the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq.


 


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


 


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


 


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


 


“Foreign
Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located.  For purposes of this definition, the United 


 


8

















 


States
of America, each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.


 


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


 


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


 


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


 


“Guarantors”
means


 


(a)                                 the Parent; and


 


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


 


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


 


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


 


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


 


“Hydrocarbon
Interests” means all rights, titles, interests and estates now or hereafter
acquired in and to oil and gas leases, oil, gas and mineral leases, or other
liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
and royalty interests, net profit 


 


9

















 


interests
and production payment interests, including any reserved or residual interests
of whatever nature.


 


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


 


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


 


“Indemnified
Taxes” means Taxes other than Excluded Taxes.


 


“Initial
Reserve Report” means the internal report of the Borrower as audited and
certified by Netherland, Sewell & Associates, Inc. as of October 29,
2010, with respect to certain Oil and Gas Properties of the Borrower and its
Subsidiaries as of September 30, 2010.


 


“Intercreditor
Agreement” means that certain Intercreditor Agreement, dated as of November 30,
2010, among the Administrative Agent, Wells Fargo Bank, N.A., as the
administrative agent under the Senior Revolving Credit Agreement, and the
Borrower, substantially in the form attached hereto as Exhibit F,
as the same may from time to time be amended, modified, supplemented or
restated as permitted therein.


 


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


 


“Interest
Expense” means, for any period, the sum (determined without duplication) of
the aggregate gross interest expense of the Borrower and the Consolidated
Subsidiaries for such period, including to the extent included in interest
expense under GAAP:  (a) amortization
of debt discount, (b) capitalized interest and (c) the portion of any
payments or accruals under Capital Leases allocable to interest expense, plus
the portion of any payments or accruals under Synthetic Leases allocable to
interest expense whether or not the same constitutes interest expense under
GAAP.


 


“Interest
Payment Date” means (a) with respect to any ABR Loan, the last day of
each month and (b) with respect to any Eurodollar Loan, the last day of
the Interest Period applicable to the Loan and, in the case of a Eurodollar
Loan with an Interest Period of more than three months’ duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months’ duration after the first day of such Interest Period; provided that
with respect to ABR Loans, if such day is not a Business Day, the Interest
Payment Date shall be on the next succeeding Business Day.


 


10






 












 


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


 


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


 


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


 


“LIBO
Rate” means, with respect to any Eurodollar Loan for any Interest Period,
the rate appearing on Reuters Screen LIBOR01 Page (or on any successor or
substitute page of such service, or any successor to or substitute for
such service, providing rate quotations comparable to those currently provided
on such page of such service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period, as the rate for dollar deposits with a maturity
comparable to such Interest Period; in any case, the LIBO Rate shall not be
less than 2.50% per annum.  In the event
that such rate is not available at such time for any reason, then the “LIBO
Rate” with respect to such Eurodollar Loan for such Interest Period shall be
the rate (rounded upwards, if necessary, to the next 1/100 of 1%) at which
dollar deposits of an amount comparable to such Eurodollar Loan and for a
maturity comparable to such Interest Period are offered by the principal London
office of the Administrative Agent in immediately 


 


11

















 


available
funds in the London interbank market at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period.


 


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


 


“Loan
Documents” means this Agreement, the Notes, the Security Instruments and
the Intercreditor Agreement.


 


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


 


“Majority
Lenders” means, (a) if there are two or more Lenders, Lenders holding
more than fifty percent (50%) of the outstanding aggregate principal amount of
the Loans (without regard to any sale by a Lender of a participation in any
Loan under Section 12.04(c)), or (b) if there is only one Lender,
such Lender; provided that in each case the principal amount of the Loans of
the Defaulting Lenders (if any) shall be excluded from the determination of
Majority Lenders.


 


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


 


“Material
Indebtedness” means Debt (other than the Loans), or obligations in respect
of one or more Swap Agreements, of any one or more of the Borrower and its
Subsidiaries in an aggregate principal amount exceeding $1,000,000.  For purposes of determining Material
Indebtedness, the “principal amount” of the obligations of the Borrower or any
Subsidiary in respect of any Swap Agreement at any time shall be the Swap
Termination Value.


 


“Maturity
Date” means November 24, 2014.


 


“Money
Laundering Laws” means any Governmental Requirement related to terrorism
financing or money laundering including the USA PATRIOT Act, The Currency and Foreign
Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§
5311-5330 


 


12

















 


and
12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy
Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective September 24,
2001).


 


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


 


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


 


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


 


“NYMEX
Pricing” shall mean, as of any date of determination with respect to any
month (i) for crude oil, the closing settlement price for the Light, Sweet
Crude Oil futures contract for each month, and (ii) for natural gas, the
closing settlement price for the Henry Hub Natural Gas futures contract for
such month, in each case as published by New York Mercantile Exchange (NYMEX)
on its website currently located at www.nymex.com, or any successor thereto (as
such price may be corrected or revised from time to time by the NYMEX in
accordance with its rules and regulations).


 


“OFAC”
means the U.S. Treasury Department’s Office of Foreign Assets Control.


 


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


 


13

















 


easements
and servitudes together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing.


 


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


 


“Parent”
means Kodiak Oil & Gas Corp., a corporation continued under the laws
of Yukon Territories, Canada.


 


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


 


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


 


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


 


“Prime
Rate” means the rate of interest per annum publicly announced from time to
time by Wells Fargo Bank, N.A. as its prime rate in effect at its principal
office in San Francisco, California; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.  Such rate is set by
Wells Fargo Bank, N.A. as a general reference rate of interest, taking into
account such factors as Wells Fargo Bank, N.A. may deem appropriate; it being
understood that many of Wells Fargo Bank, N.A.’s commercial or other loans are
priced in relation to such rate, that it is not necessarily the lowest or best
rate actually charged to any customer and that Wells Fargo Bank, N.A. may make
various commercial or other loans at rates of interest having no relationship
to such rate.


 


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


 


“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.


 


“Redemption”
means with respect to any Debt, the repurchase, redemption, prepayment,
repayment, defeasance or any other acquisition or retirement for value (or the
segregation of 


 


14

















 


funds
with respect to any of the foregoing) of such Debt.  “Redeem” has the correlative meaning
thereto.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Restructuring”
has the meaning assigned such term in Section 9.18(b).


 


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


 


“Second
Lien Secured Debt” means all Indebtedness arising under the Loan Documents.


 


“Security
Instruments” means the Guaranty Agreement, mortgages, deeds of trust, and
any and all other agreements, instruments, consents or certificates now or
hereafter executed and 


 


15

















 


delivered
by the Borrower or any other Person (other than Swap Agreements with the
Lenders or any Affiliate of a Lender or participation or similar agreements
between any Lender and any other lender or creditor with respect to any
Indebtedness pursuant to this Agreement) in connection with, or as security for
the payment or performance of the Indebtedness, the Notes, or this Agreement,
as such agreements may be amended, modified, supplemented or restated from time
to time.


 


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


 


“Senior
Administrative Agent” means Wells Fargo Bank, National Association, in its
capacity as administrative agent under the Senior Revolving Credit Agreement.


 


“Senior
Lender” means each “Lender” as defined in the Senior Revolving Credit
Agreement (or such corresponding term in the event the Senior Revolving Credit
Agreement is refinanced as permitted by the Intercreditor Agreement).


 


“Senior
Revolving Credit Agreement” means that certain Credit Agreement dated as of
May 24, 2010 among the Borrower, the Senior Administrative Agent and the
Senior Lenders from time to time parties thereto, as hereafter amended,
supplemented, modified, restated, refinanced or replaced from time to time as
permitted by the Intercreditor Agreement.


 


“Senior
Revolving Credit Documents” means the Senior Revolving Credit Agreement,
the Senior Revolving Credit Notes and any “Loan Documents” (as defined in the
Senior Revolving Credit Agreement), in each case, together with all amendments,
modifications and supplements thereto.


 


“Senior
Revolving Credit Notes” means the Notes from time to time issued under the
Senior Revolving Credit Agreement.


 


“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus
the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established
by the Board to which the Administrative Agent is subject (a) with respect to
the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of
over $100,000 with maturities approximately equal to three months and (b) with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those
imposed pursuant to such Regulation D. 
Eurodollar Loans shall be deemed to constitute eurocurrency funding and
to be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.


 


“Strip
Price” shall mean, at any time, (a) for the remainder of the current
calendar year, the average NYMEX Pricing for the remaining contracts in the
current calendar year, (b) for each of the succeeding three complete
calendar years, the average NYMEX Pricing for the 


 


16

















 


twelve
months in each such calendar year, and (c) for the succeeding fourth
complete calendar year, and for each calendar year thereafter, the average
NYMEX Pricing for the twelve months in such fourth calendar year.


 


“Subordinated
Parent Debt” means intercompany Debt between the Borrower and the Parent
that by its terms does not allow the Parent to ask for, sue for, take, demand
or accept from the Borrower by set-off or in any other manner any payment of
principal or interest until the payment in full of all Second Lien Secured Debt
and all Swap Agreements secured by the Loan Documents shall be terminated and
which is subject to a subordination agreement among the Parent, the Borrower,
the Administrative Agent and the Senior Administrative Agent.


 


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


 


“Subsidiary”
means any subsidiary of the Borrower.


 


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


 


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


 


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


 


17

















 


value
of the Property subject to such operating lease upon expiration or early
termination of such lease.


 


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


 


“Test
Date” has the meaning set forth in Section 9.01(d).


 


“Total
Debt” means, at any date, all Debt of the Borrower and the Consolidated
Subsidiaries on a consolidated basis, excluding (i) non-cash obligations
under FAS 133 and (ii) accounts payable and other accrued liabilities (for
the deferred purchase price of Property or services) from time to time incurred
in the ordinary course of business which are not greater than ninety (90) days
past the date of invoice or delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP.


 


“Total
Proved PW10%” shall mean, with respect to any Proved Reserves reasonably
expected to be produced from any Oil and Gas Properties, the net present value,
discounted at ten percent (10%) per annum, of the future net revenues expected
to accrue to each of the Borrower’s and its respective Subsidiaries’ collective
interests in such Proved 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 (i) appropriate deductions
shall be made for severance and ad valorem taxes, and for operating, gathering,
transportation and marketing costs required for the production and sale of such
reserves, (ii) appropriate adjustments shall be made for commodity and
basis hedging activities reasonably acceptable to the Administrative Agent,
(iii) the pricing assumptions used in determining Total Proved PW10% for any
particular reserves shall be based upon the Strip Price and (d) the
cash-flows derived from the pricing assumptions set forth in clauses (ii) and
(iii) above shall be further adjusted to account for the historical basis
differential in a manner reasonably acceptable to the Administrative Agent;
provided, however, that for purposes of this calculation, Proved Developed
Producing Reserves shall constitute not less than 60% of the Total Proved
PW10%.


 


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


 


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


 


18

















 


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


 


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


 


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


 


ARTICLE 2


THE CREDITS


 


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


 


19

















 


Commitments not drawn by the Borrower on or before
4:00 p.m. Houston, Texas time on the Effective Date shall be permanently
cancelled.


 


Section 2.02          Loans.


 


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


 


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


 


(c)           Minimum Amounts.  At the commencement of each Interest Period
for any Loan, such Loan shall be in an aggregate amount that is an integral
multiple of $500,000 and not less than $1,000,000.  Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to elect to convert or continue,
any Loan if the Interest Period requested with respect thereto would end after
the Maturity Date.


 


(d)           Notes.  The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A, dated, in the case of (i) any Lender party hereto as of
the date of this Agreement, as of the date of this Agreement or (ii) any
Lender that becomes a party hereto pursuant to an Assignment and Assumption, as
of the effective date of the Assignment and Assumption, payable to the order of
such Lender in a principal amount equal to such Lender’s Loan as in effect on
such date, and otherwise duly completed. 
The date, amount, Type, interest rate and, if applicable, Interest
Period of each Loan made by each Lender, and all payments made on account of
the principal thereof, shall be recorded by such Lender on its books for its
Note, and, prior to any transfer, may be endorsed by such Lender on a schedule
attached to such Note or any continuation thereof or on any separate record
maintained by such Lender.  Failure to
make any such notation or to attach a schedule shall not affect any Lender’s or
the Borrower’s rights or obligations in respect of its Loans or affect the
validity of such transfer by any Lender of its Note.


 


Section 2.03          Requests for
the Loans.  The
Borrower shall notify the Administrative Agent of its request for Loans by
telephone, in writing or by e-mail (a) in the case of a Eurodollar Loan,
not later than 12:00 noon, Denver, Colorado time, three Business Days before
the Effective Date or (b) in the case of an ABR Loan, not later than 12:00
noon, Denver, Colorado time, one Business Day before the Effective Date.  Such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in substantially the form
of Exhibit B and signed by the Borrower. 
Such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:


 


20

















 


(i)            the aggregate
amount of the requested Loan;


 


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


 


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


 


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


 


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


 


If
no election as to the Type of Loan is specified, then the requested Loan shall
be an ABR Loan.  If no Interest Period is
specified with respect to any requested Eurodollar Loan, then the Borrower
shall be deemed to have selected an Interest Period of one month’s duration.


 


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


 


Section 2.04          Interest
Elections.


 


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


 


(b)           Interest
Election Requests.  To make an
election pursuant to this Section 2.04, the Borrower shall notify the
Administrative Agent of such election by telephone, (i) in the case of a
Eurodollar Loan or a continuation of, or a conversion of an ABR Loan to, a
Eurodollar Loan, not later than 12:00 noon, Denver, Colorado time, three
Business Days before the date of the proposed election or (ii) in the case
of an ABR Loan or a conversion of a Eurodollar Loan to an ABR Loan, not later
than 12:00 noon, Denver, Colorado time, one Business Day before the date of the
proposed election.  Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy to the Administrative Agent of a written Interest
Election Request in substantially the form of Exhibit C and signed by the
Borrower.


 


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


 


21
















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


Section 2.05          Funding of
Loans.


 


(a)           Funding by
Lenders.  Each Lender shall make its
Loan on the Effective Date by wire transfer of immediately available funds by
1:00 p.m., Denver, Colorado time, to the account of the Administrative
Agent most recently designated by it for such purpose by notice to the
Lenders.  The Administrative Agent will
make such Loans available to the Borrower by promptly crediting the amounts so
received, in like funds, to an account of the Borrower maintained with the
Administrative Agent in Denver, Colorado and designated by the Borrower in the
Borrowing Request.  Nothing herein shall
be deemed to obligate any Lender to obtain the funds for its Loan in any particular
place or manner or to constitute a representation by any Lender that it has
obtained or will obtain the funds for its Loan in any particular place or
manner.


 


(b)           Presumption of
Funding by the Lenders. 
Unless the Administrative Agent shall have received notice from a Lender
prior to the Effective Date that such Lender will not make 


 


22

















 


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


 


Section 2.06          Termination of
Commitments.  The Commitments
shall terminate at 4:00 p.m. Denver, Colorado time on the Effective Date.


 


ARTICLE 3


PAYMENTS OF PRINCIPAL AND
INTEREST; PREPAYMENTS; FEES


 


Section 3.01          Repayment of
Loans.  On the Maturity Date, the
Borrower shall repay the outstanding principal balance of the Loans in full.


 


Section 3.02          Interest.


 


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


 


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


 


(c)           Post-Default
and Borrowing Base Deficiency Rate.  Notwithstanding the foregoing, (i) if an
Event of Default has occurred and is continuing, or if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower or any
Guarantor hereunder or under any other Loan Document is not paid when due,
whether at stated maturity, upon acceleration or otherwise, then at the
election of the Administrative Agent, all Loans outstanding, in the case of an
Event of Default, and such overdue amount, in the case of a failure to pay
amounts when due, shall bear interest, after as well as before judgment, at a
rate per annum equal to two and one-half percent (2.5%) plus the rate
applicable to ABR Loans as provided in Section 3.02(a), but in no event to
exceed the Highest Lawful Rate, and (ii)  during any “Borrowing Base
Deficiency” under the Senior Revolving Credit Facility, upon the election by
the Administrative Agent, all Loans outstanding at such time shall bear
interest, after as well as before judgment, at the rate then applicable to such
Loans, plus the Applicable Margin, if any, plus an additional two and one-half
percent (2.5%), but in no event to exceed the Highest Lawful Rate.


 


23

















 


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


 


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


 


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


 


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


 


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


 


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


 


Section 3.04          Prepayments.


 


(a)           Optional
Prepayments.  Subject to
any break funding costs payable pursuant to Section 5.02 and prior notice
in accordance with Section 3.04(b) and subject to the Intercreditor
Agreement, the Borrower shall have the right to prepay the Loans at any time
and from time to time in whole or in part commencing on the first anniversary
of the Effective Date, as follows:


 


(i)            at any time
during the period commencing on the first anniversary of the Effective Date but
prior to the second anniversary of the Effective Date, the Loans may 


 


24

















 


be prepaid in whole or in
part so long as the principal amount prepaid is accompanied by a premium equal
to 2.0% of such amount prepaid;


 


(ii)           at any time
during the period commencing on the second anniversary of the Effective Date to
and including the day prior to the Maturity Date, the Loans may be prepaid in
whole or in part so long as the principal amount prepaid is accompanied by a
premium equal to 1.0% of such amount prepaid;


 


provided
that, in any event each prepayment pursuant to this Section 3.04 shall be
in an aggregate principal amount of $500,000 or any whole multiple of $500,000
in excess thereof.


 


(b)           Notice and
Terms of Optional Prepayment.  The Borrower shall notify the Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a Eurodollar Loan, not later than 11:00 a.m.,
Denver, Colorado time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Loan, not later than 11:00 a.m., Denver,
Colorado time, one Business Day before the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Loan or
portion thereof to be prepaid.  Promptly
following receipt of any such notice, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
partial prepayment of a Loan shall be applied ratably to the Loans included in
the prepaid Borrowing.  Prepayments shall
be accompanied by accrued interest to the extent required by Section 3.02(d).


 


Section 3.05          Fees.


 


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


 


(b)           Other Fees.  The Borrower agrees to pay to the
Administrative Agent fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.


 


ARTICLE 4


PAYMENTS; PRO RATA
TREATMENT; SHARING OF SET-OFFS


 


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


 


(a)           Payments by the
Borrower.  The
Borrower shall make each payment required to be made by it hereunder (whether
of principal, interest or fees, or of amounts payable under Section 5.01, Section 5.02,
Section 5.03 or otherwise) prior to 12:00 noon, New York City time, on the
date when due, in immediately available funds, without defense, deduction,
recoupment, set-off or counterclaim. 
Fees, once paid, shall be fully earned and shall not be refundable under
any circumstances.  Any amounts received
after such time on any date may, in the discretion of the Administrative Agent,
be deemed to have been received on the next succeeding Business Day for
purposes of calculating interest thereon. 
All such payments shall be made to the Administrative Agent at its
offices specified in Section 12.01, except that payments pursuant to Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 shall be made
directly to the Persons 


 


25

















 


entitled thereto. 
The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly following
receipt thereof.  If any payment
hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension.  All payments
hereunder shall be made in dollars.


 


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


 


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


 


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


 


26

















 


by the Administrative Agent in accordance with
banking industry rules on interbank compensation.


 


Section 4.03          Certain
Deductions by the Administrative Agent.  If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.05(a) or Section 4.02
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are
fully paid.  If at any time prior to the
acceleration or maturity of the Loans, the Administrative Agent shall receive
any payment in respect of principal of a Loan while one or more Defaulting
Lenders shall be party to this Agreement, the Administrative Agent shall apply
such payment first to the Loan(s) for which such Defaulting Lender(s) shall
have failed to fund its pro rata share until such time as such Loan(s) are
paid in full or each Lender (including each Defaulting Lender) is owed its
Applicable Percentage of all Loans then outstanding.  After acceleration or maturity of the Loans,
all principal will be paid ratably as provided in Section 10.02(c).


 


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


 


ARTICLE 5


INCREASED COSTS; BREAK
FUNDING PAYMENTS; TAXES; ILLEGALITY


 


Section 5.01          Increased Costs.


 


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


 


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


 


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


 


and
the result of any of the foregoing shall be to increase the cost to such Lender
of making or maintaining any Eurodollar Loan (or of maintaining its obligation
to make any such Loan) or to 


 


27

















 


reduce
the amount of any sum received or receivable by such Lender (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.


 


(b)           Capital
Requirements.  If any
Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on such Lender’s capital
or on the capital of such Lender’s holding company, if any, as a consequence of
this Agreement or the Loan made by such Lender, to a level below that which
such Lender or such Lender’s holding company could have achieved but for such
Change in Law (taking into consideration such Lender’s policies and the
policies of such Lender’s holding company with respect to capital adequacy),
then from time to time the Borrower will pay to such Lender such additional
amount or amounts as will compensate such Lender or such Lender’s holding
company for any such reduction suffered.


 


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


 


(d)           Effect of
Failure or Delay in Requesting Compensation.  Failure or delay on the part of any Lender to
demand compensation pursuant to this Section 5.01 shall not constitute a
waiver of such Lender’s right to demand such compensation; provided that the
Borrower shall not be required to compensate a Lender pursuant to this Section 5.01(d) for
any increased costs or reductions incurred more than 180 days prior to the date
that such Lender notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s intention to claim
compensation therefor; provided
further that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof.


 


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


 


28

















 


such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the Eurodollar market.


 


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


 


Section 5.03          Taxes.


 


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


 


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


 


(c)           Indemnification
by the Borrower.  The
Borrower shall indemnify the Administrative Agent and each Lender, within 10
days after written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the
case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this Section 5.03)
and any penalties, interest and reasonable expenses arising therefrom or with
respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority; provided that the Borrower shall not be required to indemnify the
Administrative Agent or such Lender pursuant to this Section 5.03(c) for
any Indemnified Taxes or Other Taxes paid more than 180 days prior to the date
that the Administrative Agent or such Lender, as the case may be, notifies the
Borrower of such payment.  A certificate
of the Administrative Agent or a Lender as to the amount of such payment or
liability under this Section 5.03 shall be delivered to the Borrower and
shall be conclusive absent manifest error.


 


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


 


29

















 


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


 


(f)            FATCA.  If a payment made to a Lender under any Loan
Document would be subject to federal withholding Tax imposed by FATCA if such
Lender failed to comply with the applicable reporting requirements of FATCA
(including those in § 1471(b) or 1472(b) of the Code, as applicable),
such Lender shall deliver to the Administrative Agent and the Borrower (i) a
certification signed by the chief financial officer, principal accounting
officer, treasurer, or controller, and (ii) other documentation reasonably
requested by the Administrative Agent or the Borrower, in each case sufficient
for the Administrative Agent and the Borrower to comply with their obligations
under FATCA and to determine that such Lender has complied with such applicable
reporting requirements.


 


Section 5.04          Mitigation
Obligations; Replacement of Lenders.


 


(a)           Designation of Different
Lending Office.  If any
Lender requests compensation under Section 5.01, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 5.03, then such Lender shall use reasonable efforts
to designate a different lending office for funding or booking its Loan
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable
pursuant to Section 5.01 or Section 5.03,
as the case may be, in the future and (ii) would not subject such Lender
to any unreimbursed cost or expense and would not otherwise be disadvantageous
to such Lender.  The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.


 


(b)           Replacement of Lenders.  If any Lender requests compensation under Section 5.01,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 5.03,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in Section 12.04(a)),
all its interests, rights and obligations under this Agreement to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided that (i) the Borrower shall have
received the prior written consent of the Administrative Agent, which consent
shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and
(iii) in the case of any such assignment resulting from a claim for
compensation under Section 5.01 or payments required to be made pursuant
to Section 5.03, 


 


30

















 


such assignment will result in a reduction in such
compensation or payments.  A Lender shall
not be required to make any such assignment and delegation if, prior thereto,
as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to
apply.


 


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


 


ARTICLE 6


CONDITIONS PRECEDENT


 


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


 


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


 


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


 


31
















 


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


 


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


 


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


 


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


 


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


 


(i)            be reasonably satisfied that the Security Instruments
create second priority, perfected Liens (subject only to the Liens in favor of the
Senior Administrative Agent and the Senior Lenders and Excepted Liens
identified in clauses (a) to (d) and (f) of the definition
thereof, but subject to the provisos at the end of such definition) on at least
80% of the total value of the Oil and Gas Properties evaluated in the Initial
Reserve Report; and


 


(ii)           have received evidence that the Borrower has delivered to
the Senior Administrative Agent, as bailee for the Administrative Agent,
certificates, together with undated, blank stock powers for each such
certificate, representing all of the issued and outstanding Equity Interests of
the Borrower owned by the Guarantor.


 


(h)           The Administrative Agent shall have received an opinion of
(i) Dorsey & Whitney, LLP, special counsel to the Borrower and (ii) local
counsel in North Dakota and any other jurisdictions requested by the
Administrative Agent, each in form and substance acceptable to the
Administrative Agent.  The opinion of
Lathrop & Gage, LLP with regard to the Oil and Gas Properties of the
Borrower shall, among other things, conclude that (A) at least 90% of the
total value of the Borrower’s Oil and Gas Properties evaluated by the Initial
Reserve Report and after taking into effect the Acquisition and including the
Oil and Gas Properties acquired pursuant to the Acquisition, are on Federal
leases, State leases, allotted lands or fee simple, (B) the Credit
Agreement, the Loan Documents, the Acquisition Agreement and the Transactions
and the performance of the Borrower and its Subsidiaries of their obligations
thereunder do not violate the provisions of any Governmental Requirement or
tribal law, rule, regulation , or order, (C) all consents and approvals
have been received by the Borrower and its Subsidiaries by applicable
Governmental Authorities and tribal authorities, (D) the proposed
mortgages and/or deeds of trust are in proper form and create a valid Lien and
security interest in the Property mortgaged thereunder and (E) it is most
probable that proper venue for any suit regarding any of 


 


32

















 


the Borrower’s Oil and Gas Properties (including the
properties acquired pursuant to the Acquisition) thereon would be the Federal
Courts and not any tribal court.


 


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


 


(j)            The Administrative Agent shall have received title
information as the Administrative Agent may reasonably require satisfactory to
the Administrative Agent setting forth the status of title to at least 80% of
the total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report.


 


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


 


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


 


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


 


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


 


(o)           The Administrative Agent shall have received from the
Borrower a written policy regarding its and its Subsidiaries’ marketing
activities for Hydrocarbons and furnish a copy thereof to the Administrative
Agent and the Lenders, such policy to be in form and substance reasonably
satisfactory to the Administrative Agent.


 


(p)           The Administrative Agent shall have received and reviewed
all material contracts of the Borrower and its Subsidiaries and such material
contracts shall be in form and substance reasonably satisfactory to the
Administrative Agent.


 


(q)           The Administrative Agent shall have received certified
copies of the Senior Revolving Credit Agreement and the Senior Revolving Credit
Documents, including as amended by the First Amendment to Credit Agreement (“First
Lien Amendment”) which amends certain provisions therein and which provides
for, among other things, the entering into this Agreement and the borrowing of
the Loans hereunder, fully executed by all parties thereto, each of which shall
be in form and substance reasonably satisfactory to the Administrative Agent,
in the principal amount of not less than $50,000,000, with a maturity date no
greater than 6 months before the maturity date of the Second Lien Credit
Facility.


 


33

















 


(r)            Schedule 7.20 shall have set forth therein a complete
list of all Swap Agreements in effect on the Effective Date unless otherwise
agreed to by the Administrative Agent in its sole discretion.


 


(s)           The Administrative Agent shall have received (i) a
true and complete copy of the Acquisition Agreement, certified as such by the
Borrower, and (ii) evidence of all consents and approvals received
pursuant to the Acquisition Agreement.


 


(t)            The Acquisition shall have been, or shall
contemporaneously with the Effective Date be, consummated substantially
pursuant to the terms of the Acquisition Agreement.


 


(u)           Evidence that the Borrower has maintained the Swap
Agreements which were in place when the Administrative Agent conducted its due
diligence with respect to the Peak Acquisition.


 


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


 


The
Administrative Agent shall notify the Borrower and the Lenders of the Effective
Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of the Lenders to make Loans hereunder shall not become effective
unless each of the foregoing conditions is satisfied (or waived pursuant to Section 12.02)
at or prior to 12:00 noon, Denver, Colorado time, on December 31, 2010
(and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).


 


Section 6.02           Additional Conditions.  The obligation of each Lender to fund its
Loan (including the initial funding), is subject to the satisfaction of the
following additional conditions:


 


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


 


(b)           At the time of and immediately after giving effect to the
funding of the Loans, no event, development or circumstance has occurred or
shall then exist that has resulted in, or could reasonably be expected to have,
a Material Adverse Effect.


 


(c)           The representations and warranties of the Borrower and the
Guarantors set forth in this Agreement and in the other Loan Documents shall be
true and correct on and as of the date of the funding of the Loans, except to
the extent any such representations and warranties are expressly limited to an
earlier date, in which case, on and as of the date of the funding of the Loans,
such representations and warranties shall continue to be true and correct as of
such specified earlier date.


 


(d)           The making of the Loans would not conflict with, or cause
any Lender to violate or exceed, any applicable Governmental Requirement, and
no Change in Law shall have occurred, and no litigation shall be pending or
threatened, which does or, with respect to any threatened litigation, seeks to,
enjoin, prohibit or restrain, the making or repayment of the Loans 


 


34

















 


or the consummation of the transactions contemplated
by this Agreement or any other Loan Document.


 


(e)           The receipt by the Administrative Agent of a Borrowing
Request in accordance with Section 2.03.


 


The
Borrowing Request shall be deemed to constitute a representation and warranty
by the Borrower on the date thereof as to the matters specified in Section 6.02(a) through
(e).


 


ARTICLE 7


REPRESENTATIONS AND
WARRANTIES


 


The
Borrower represents and warrants to the Lenders that:


 


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


 


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


 


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


 


35

















 


order of any Governmental Authority, (c) will
not violate or result in a default under any material indenture, agreement or
other instrument binding upon the Borrower or any Subsidiary or its Properties,
or give rise to a right thereunder to require any payment to be made by the
Borrower or such Subsidiary and (d) will not result in the creation or
imposition of any Lien on any Property of the Borrower or any Subsidiary (other
than the Liens created by the Loan Documents).


 


Section 7.04           Financial Condition; No Material
Adverse Change.


 


(a)           The Borrower has heretofore furnished to the Lenders the
consolidated balance sheet and statements of income, stockholders equity and
cash flows of the Parent as of the fiscal year ended December 31, 2009,
certified by Hein & Associates, independent public accountants.  Such financial statements present fairly, in
all material respects, the financial position and results of operations and
cash flows of the Parent, the Borrower and its Consolidated Subsidiaries as of
such date in accordance with GAAP.


 


(b)           Since December 31, 2009, (i) there has been no
event, development or circumstance that has had or could reasonably be expected
to have a Material Adverse Effect and (ii) the business of the Borrower
and its Subsidiaries has been conducted only in the ordinary course consistent
with past business practices.


 


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


 


Section 7.05           Litigation.


 


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


 


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


 


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


 


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


 


36

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


37

















 


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


 


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


 


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


 


(c)           No Default has occurred and is continuing.


 


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


 


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


 


Section 7.10           ERISA.


 


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


 


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


 


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


 


38

















 


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


 


(e)           Neither the Borrower, the Subsidiaries nor any ERISA
Affiliate sponsors, maintains, or contributes to an employee welfare benefit
plan, as defined in section 3(1) of ERISA, including, without limitation,
any such plan maintained to provide benefits to former employees of such
entities, that may not be terminated by the Borrower, a Subsidiary or any ERISA
Affiliate in its sole discretion at any time without any material liability.


 


(f)            Neither the Borrower, the Subsidiaries nor any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in the
six-year period preceding the date hereof sponsored, maintained or contributed
to, any employee pension benefit plan, as defined in section 3(2) of
ERISA, that is subject to Title IV of ERISA, section 302 of ERISA or section
412 of the Code.


 


Section 7.11           Disclosure; No Material Misstatements.  The Borrower has disclosed to the
Administrative Agent and the Lenders all agreements, instruments and corporate
or other restrictions to which it or any of its Subsidiaries is subject, and
all other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.  None of the other reports, financial
statements, certificates or other information furnished by or on behalf of the
Borrower or any Subsidiary to the Administrative Agent or any Lender or any of
their Affiliates in connection with the negotiation of this Agreement or any
other Loan Document or delivered hereunder or under any other Loan Document (as
modified or supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.  There is no fact peculiar to the Borrower or
any Subsidiary which could reasonably be expected to have a Material Adverse Effect
or in the future is reasonably likely to have a Material Adverse Effect and
which has not been set forth in this Agreement or the Loan Documents or the
other documents, certificates and statements furnished to the Administrative
Agent or the Lenders by or on behalf of the Borrower or any Subsidiary prior
to, or on, the date hereof in connection with the transactions contemplated
hereby.  There are no statements or
conclusions in any Reserve Report which are based upon or include misleading
information or fail to take into account material information regarding the
matters reported therein, it being understood that projections concerning
volumes attributable to the Oil and Gas Properties of the Borrower and the
Subsidiaries and production and cost estimates contained in each Reserve Report
are necessarily based upon professional opinions, estimates and projections and
that the Borrower and the Subsidiaries do not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate.


 


Section 7.12           Insurance.  The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the
compliance by each of them with all material Governmental Requirements and all
material agreements and (b) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are
usually 


 


39

















 


insured against by companies similarly situated and
engaged in the same or a similar business for the assets and operations of the
Borrower and its Subsidiaries.  The
Administrative Agent and the Lenders have been named as additional insureds in
respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to Property loss insurance.


 


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


 


Section 7.14           Subsidiaries.  Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish
a copy to the Lenders), which shall be a supplement to Schedule 7.14, the
Borrower has no Subsidiaries, and the Borrower has no Foreign Subsidiaries.


 


Section 7.15           Location of Business and Offices.  The Borrower’s jurisdiction of organization
is Colorado; the name of the Borrower as listed in the public records of its
jurisdiction of organization is Kodiak Oil & Gas (USA) Inc.; and the
entity identification number of the Borrower in its jurisdiction of
organization is 20031303362 (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(m) in
accordance with Section 12.01).  The
Borrower’s principal place of business and chief executive offices are located
at the address specified in Section 12.01 (or as set forth in a notice
delivered pursuant to Section 8.01(m) and Section 12.01(c)).  Each Subsidiary’s jurisdiction of
organization, name as listed in the public records of its jurisdiction of
organization, organizational identification number in its jurisdiction of
organization, and the location of its principal place of business and chief
executive office is stated on Schedule 7.14 (or as set forth in a notice
delivered pursuant to Section 8.01(m)).


 


Section 7.16           Properties; Titles, Etc.


 


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


 


40

















 


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


 


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


 


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


 


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


 


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


 


41

















 


conduct normal operations are being maintained in a
state adequate to conduct normal operations, and with respect to such of the foregoing
which are operated by the Borrower or any of its Subsidiaries or other third
party operators, in a manner consistent with the Borrower’s or its Subsidiaries’
past practices, or, if operated by a third party, consistent with other oil and
gas operators in the area of the respective Oil and Gas Properties (other than
those the failure of which to maintain in accordance with this Section 7.17
could not reasonably be expected to have a Material Adverse Effect).


 


Section 7.18           Gas Imbalances, Prepayments.  Except as set forth on Schedule 7.18 or on
the most recent certificate delivered pursuant to Section 8.12(c), on a
net basis there are no gas imbalances, take or pay or other prepayments which
would require the Borrower or any of its Subsidiaries to deliver Hydrocarbons
produced from their Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor exceeding 1.5 bcf of gas (on an mcf
equivalent basis) in the aggregate.


 


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


 


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


 


Section 7.21           Use of Loans.  The proceeds of the Loans shall be used to (a) finance
acquisitions, including, without limitation, the Acquisition, (b) finance
exploration and production operations of the Borrower and its Subsidiaries and (c) provide
for working capital for and for general corporate purposes of the Borrower and
its Subsidiaries.  The Borrower and its
Subsidiaries are not engaged principally, or as one of its or their important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulation T, U or X of the Board).  No part of the proceeds of any Loan will be
used for any purpose which violates the provisions of Regulations T, U or X of
the Board.


 


Section 7.22           Solvency.  After giving effect to the transactions
contemplated hereby, (a) the aggregate assets (after giving effect to
amounts that could reasonably be received by reason 


 


42

















 


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


 


Section 7.23           Foreign Corrupt Practices.  Neither the Borrower nor any of its
Subsidiaries, nor any director, officer, agent, employee or Affiliate of the
Borrower or any of its Subsidiaries is aware of or has taken any action,
directly or indirectly, that would result in a material violation by such
Persons of the FCPA, including without limitation, making use of the mails or
any means or instrumentality of interstate commerce corruptly in furtherance of
an offer, payment, promise to pay or authorization of the payment of any money,
or other property, gift, promise to give, or authorization of the giving of
anything of value to any “foreign official” (as such term is defined in the
FCPA) or any foreign political party or official thereof or any candidate for
foreign political office, in contravention of the FCPA; and, the Borrower, its
Subsidiaries and its and their Affiliates have conducted their business in
material compliance with the FCPA and have instituted and maintain policies and
procedures designed to ensure, and which are reasonably expected to continue to
ensure, continued compliance therewith.


 


Section 7.24           Money Laundering.  The operations of the Borrower and its
Subsidiaries are and have been conducted at all times in material compliance
with applicable financial recordkeeping and reporting requirements of the Money
Laundering Laws, and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Borrower
or any of its Subsidiaries with respect to the Money Laundering Laws is pending
or, to the best knowledge of the Borrower, threatened.


 


Section 7.25           OFAC.  Neither the Borrower nor any of its
Subsidiaries, nor any director, officer, agent, employee or Affiliate of the
Borrower or any of its Subsidiaries is currently subject to any material U.S.
sanctions administered by OFAC, and the Borrower will not directly or
indirectly use the proceeds from the Loans or lend, contribute or otherwise
make available such proceeds to any Subsidiary, joint venture partner or other
Person, for the purpose of financing the activities of any Person currently
subject to any U.S. sanctions administered by OFAC.


 


ARTICLE 8


AFFIRMATIVE COVENANTS


 


Until
the principal of and interest on each Loan and all fees payable hereunder and
all other amounts payable under the Loan Documents shall have been paid in
full, the Borrower covenants and agrees with the Lenders that:


 


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


 


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


 


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


 


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


 


(d)           Certificate of Accounting Firm — Defaults.  Concurrently with any delivery of financial
statements under Section 8.01(a), a certificate of the accounting firm
that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements
of any Default (which certificate may be limited to the extent required by
accounting rules or guidelines).


 


(e)           Certificate of Financial Officer — Swap Agreements.  Concurrently with the delivery of each
Reserve Report hereunder, a certificate of a Financial Officer, in form and
substance satisfactory to the Administrative Agent, setting forth as of such
date, a true and complete list of all Swap Agreements of the Borrower and each
Subsidiary, the material terms 


 


44

















 


thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark-to-market value
therefor, any new credit support agreements relating thereto not listed on
Schedule 7.20, any margin required or supplied under any credit support
document, and the counterparty to each such agreement.


 


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


 


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


 


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


 


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


 


(j)            Lists of Purchasers.  Concurrently with the delivery of any Reserve
Report to the Administrative Agent pursuant to Section 8.12, a list of all
Persons purchasing Hydrocarbons from the Borrower or any Subsidiary.


 


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


 


(l)            Notice of Casualty Events.  Prompt written notice, and in any event
within three Business Days, of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Casualty Event, in each case, with respect to the Property of the
Borrower or any of its Subsidiaries having a fair market value in excess of
$1,000,000.


 


(m)          Information Regarding Borrower and Guarantors.  Prompt written notice (and in any event
within thirty (30) days prior thereto) of any change (i) in the Borrower
or any Guarantor’s corporate name or in any trade name used to identify such
Person in the conduct of 


 


45

















 


its business or in the ownership of its Properties,
(ii) in the location of the Borrower or any Guarantor’s chief executive
office or principal place of business, (iii) in the Borrower or any
Guarantor’s identity or corporate structure or in the jurisdiction in which
such Person is incorporated or formed, (iv) in the Borrower or any
Guarantor’s jurisdiction of organization or such Person’s organizational
identification number in such jurisdiction of organization, and (v) in the
Borrower or any Guarantor’s federal taxpayer identification number or foreign
equivalent.


 


(n)           Production Report and Lease Operating Statements.  Within forty-five (45) days after the end of
each fiscal quarter, a report setting forth, for each calendar month during the
then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and
the revenues derived from such sales) for each such calendar month from the Oil
and Gas Properties, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month.


 


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


 


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


 


Any
financial statement required to be furnished pursuant to Section 8.01(a) or
Section 8.01(b) shall be deemed to have been furnished on the date on
which the Borrower has notified the Administrative Agent that the Parent or the
Borrower has filed such financial statement with the Securities and Exchange
Commission and such financial statement is available on the EDGAR website at www.sec.gov
or any successor government website that is freely and readily available to the
Administrative Agent and the Lenders without charge.  Notwithstanding the foregoing, if the
Administrative Agent requests the Borrower to furnish paper copies of any such
financial statement, the Borrower shall deliver such paper copies to the
Administrative Agent until the Administrative Agent gives written notice to
cease delivering such paper copies.


 


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


 


(a)           the occurrence of any Default;


 


(b)           the filing or commencement of, or the threat in writing
of, any action, suit, proceeding, investigation or arbitration by or before any
arbitrator or Governmental Authority against or affecting the Borrower or any
Affiliate thereof not previously disclosed in writing to the Lenders or any
material adverse development in any action, suit, proceeding, investigation or 


 


46

















 


arbitration (whether or not previously disclosed to
the Lenders) that, in either case, if adversely determined, could reasonably be
expected to result in liability in excess of $250,000, not fully covered by
insurance, subject to normal deductibles; and


 


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


 


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


 


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


 


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


 


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


 


Section 8.06           Operation and Maintenance of
Properties.  The Borrower, at its own
expense, will, and will cause each Subsidiary to:


 


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


 


47

















 


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


 


(c)           promptly pay and discharge, or make reasonable and
customary efforts to cause to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other agreements
affecting or pertaining to its Oil and Gas Properties and will take such
reasonable further actions necessary to keep unimpaired their rights with
respect thereto and prevent any forfeiture thereof or default thereunder.


 


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


 


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


 


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


 


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


 


Section 8.08           Books and Records; Inspection
Rights.  The Borrower will, and will
cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. 
The Borrower will, and will cause each Subsidiary to, permit any
representatives designated by the Administrative Agent, upon reasonable prior
notice, to visit and inspect its Properties, to examine and make extracts from
its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as
often as reasonably requested; provided, that so long as no Event of Default
has occurred and is continuing, the Borrower shall only be responsible to
reimburse the fees and expenses of the Administrative Agent for two visits per
calendar year, notwithstanding anything to the contrary in this Agreement.


 


48

















 


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


 


Section 8.10           Environmental Matters.


 


(a)           The Borrower shall at its sole expense: (i) comply,
and shall cause its Properties and operations and each Subsidiary and each
Subsidiary’s Properties and operations to comply, with all applicable
Environmental Laws, the breach of which could be reasonably expected to have a
Material Adverse Effect; (ii) not Release or threaten to Release, and
shall cause each Subsidiary not to Release or threaten to Release, any
Hazardous Material on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties or any other property offsite the Property to the
extent caused by the Borrower’s or any of its Subsidiaries’ operations except
in compliance with applicable Environmental Laws, the Release or threatened
Release of which could reasonably be expected to have a Material Adverse
Effect; (iii) timely obtain or file, and shall cause each Subsidiary to
timely obtain or file, all Environmental Permits, if any, required under
applicable Environmental Laws to be obtained or filed in connection with the
operation or use of the Borrower’s or its Subsidiaries’ Properties, which
failure to obtain or file could reasonably be expected to have a Material
Adverse Effect; (iv) promptly commence and diligently prosecute to
completion, and shall cause each Subsidiary to promptly commence and diligently
prosecute to completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or other
remedial obligations (collectively, the “Remedial Work”) in the event
any Remedial Work is required or reasonably necessary under applicable
Environmental Laws because of or in connection with the actual or suspected
past, present or future Release or threatened Release of any Hazardous Material
on, under, about or from any of the Borrower’s or its Subsidiaries’ Properties,
which failure to commence and diligently prosecute to completion could
reasonably be expected to have a Material Adverse Effect; (v) conduct, and
cause its Subsidiaries to conduct, their respective operations and businesses
in a manner that will not expose any Property or Person to Hazardous Materials
that could reasonably be expected to form the basis for a claim for damages or
compensation; and (vi) establish and implement, and shall cause each
Subsidiary to establish and implement, such procedures as may be necessary to
continuously determine and assure that the Borrower’s and its Subsidiaries’
obligations under this Section 8.10(a) are timely and fully
satisfied, which failure to establish and implement could reasonably be
expected to have a Material Adverse Effect.


 


(b)           The Borrower will promptly, but in no event later than
five days of the occurrence of a triggering event, notify the Administrative
Agent and the Lenders in writing of any threatened action, investigation or
inquiry by any Governmental Authority or any threatened demand or lawsuit by
any Person against the Borrower or its Subsidiaries or their Properties of
which the Borrower has knowledge in connection with any Environmental Laws if
the Borrower could reasonably anticipate that such action will result in
liability (whether individually or in the aggregate) in excess of $250,000, not
fully covered by insurance, subject to normal deductibles.


 


(c)           The Borrower will, and will cause each Subsidiary to,
provide environmental assessments, audits and tests in accordance with the most
current version of the American 


 


49

















 


Society of Testing Materials standards upon request
by the Administrative Agent and the Lenders and no more than once per year in
the absence of any Event of Default (or as otherwise required to be obtained by
the Administrative Agent or the Lenders by any Governmental Authority), in
connection with any future acquisitions of Oil and Gas Properties or other
Properties.


 


Section 8.11           Further Assurances.


 


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


 


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


 


Section 8.12           Reserve Reports.


 


(a)           On or before March 1st and September 1st of each
year, commencing March 1, 2011, the Borrower shall furnish to the
Administrative Agent and the Lenders a Reserve Report evaluating the Oil and
Gas Properties of the Borrower and its Subsidiaries as of the immediately
preceding January 1st and July 1st. 
The Reserve Report as of January 1 of each year shall be prepared
by one or more Approved Petroleum Engineers, and the July 1 Reserve Report
of each year shall be prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used in
the immediately preceding January 1 Reserve Report.


 


(b)           In the event of an Interim Redetermination of the
Borrowing Base under the Senior Revolving Credit Agreement, the Borrower shall
furnish to the Administrative Agent and the Lenders a copy of the Reserve
Report provided to the Senior Administrative Agent in connection with such
Interim Redetermination, which shall be prepared by or under the supervision of
the chief engineer of the Borrower who shall certify such Reserve Report to be
true and accurate and to have been prepared in accordance with the procedures
used in the immediately preceding January 1 Reserve Report.


 


50

















 


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


 


Section 8.13           Title Information.


 


(a)           On or before the delivery to the Administrative Agent and
the Lenders of each Reserve Report required by Section 8.12(a), the
Borrower will deliver title information in form and substance acceptable to the
Administrative Agent covering enough of the Oil and Gas Properties evaluated by
such Reserve Report that were not included in the immediately preceding Reserve
Report, so that the Administrative Agent shall have received together with
title information previously delivered to the Administrative Agent,
satisfactory title information on at least 80% of the total value of the Oil
and Gas Properties evaluated by such Reserve Report, including evidence that (i) at
least 90% of the total value of the Borrower’s Oil and Gas Properties evaluated
by the Initial Reserve Report and (ii) 95% of the total value of the Borrower’s
Oil and Gas Properties evaluated by each such Reserve Report delivered on or
after March 1, 2011, in each case, are on Federal leases, State leases,
allotted lands or fee simple.


 


(b)           If the Borrower has provided title information for
additional Properties under Section 8.13(a), the Borrower shall, within 60
days of notice from the Administrative Agent that material title defects or
exceptions exist with respect to such additional Properties, either (i) cure
any such title defects or exceptions (including defects or exceptions as to
priority) which are not permitted by Section 9.03 raised by such
information, (ii) substitute acceptable Mortgaged Properties with no
material title defects or exceptions except for Excepted Liens (other than
Excepted Liens described in clauses (e), (g) and (h) of such
definition) having an equivalent value or (iii) deliver title information
in form and substance acceptable to the Administrative Agent so that the
Administrative Agent shall have received, together with title information 


 


51

















 


previously delivered to the Administrative Agent,
satisfactory title information on at least 80% of the value of the Oil and Gas
Properties evaluated by such Reserve Report.


 


(c)           If the Borrower is unable to cure any material title
defect requested by the Administrative Agent or the Lenders to be cured within
the 60-day period or the Borrower does not comply with the requirements to
provide acceptable title information covering 80% of the value of the Oil and
Gas Properties evaluated in the most recent Reserve Report, such default shall
not be a Default, but instead the Administrative Agent and/or the Majority
Lenders shall have the right to exercise the following remedy in their sole
discretion from time to time, and any failure to so exercise this remedy at any
time shall not be a waiver as to future exercise of the remedy by the
Administrative Agent or the Lenders.  To
the extent that the Administrative Agent or the Majority Lenders are not satisfied
with title to any Mortgaged Property after the 60-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 80% requirement,
and the Administrative Agent may send a notice to the Borrower and the Lenders
that the amount of Total Proved PW10% used in connection with Section 9.01(d) shall
be reduced by an amount as determined by the Majority Lenders to reasonably
account for the value of such unacceptable Mortgaged Property with respect to
the total value of the Oil and Gas Properties evaluated in the most recent
Reserve Report.  This new Total Proved
PW10% amount shall become effective immediately after receipt of such notice;
provided that, if the Borrower subsequently provides the Administrative Agent
with title information reasonably acceptable to the Administrative Agent
covering any such unacceptable Mortgaged Property, the Total Proved PW10%
amount shall be increased by an amount as determined by the Administrative
Agent.


 


Section 8.14           Additional Collateral; Additional
Guarantors.


 


(a)           In connection with each redetermination of the Borrowing
Base pursuant to the terms of the Senior Revolving Credit Agreement, the
Borrower shall review the Reserve Report and the list of current Mortgaged
Properties (as described in Section 8.12(c)(vi)) to ascertain whether the
Mortgaged Properties represent at least 80% of the total value of the Oil and
Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,
dispositions and production.  In the
event that the Mortgaged Properties do not represent at least 80% of such total
value, then the Borrower shall, and shall cause its Subsidiaries to, grant,
within thirty (30) days of delivery of the certificate required under Section 8.12(c),
to the Administrative Agent as security for the Indebtedness a second-priority
Lien interest (provided that Excepted Liens of the type described in clauses (a) to
(d) and (f) of the definition thereof may exist, but subject to the
provisos at the end of such definition) on additional Oil and Gas Properties
not already subject to a Lien of the Security Instruments such that after
giving effect thereto, the Mortgaged Properties will represent at least 80% of
such total value.  All such Liens will be
created and perfected by and in accordance with the provisions of deeds of
trust, security agreements and financing statements or other Security
Instruments, all in form and substance reasonably satisfactory to the
Administrative Agent and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.  In order to comply with the foregoing, if any
Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is
not a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b).


 


52

















 


(b)           In the event that the Borrower or any Subsidiary acquires
or forms any Subsidiary, the Borrower shall promptly cause such Subsidiary to
guarantee the Indebtedness pursuant to the Guaranty Agreement.  In connection with any such guaranty, the
Borrower shall, or shall cause such Subsidiary to, (i) execute and deliver
a supplement to the Guaranty Agreement executed by such Subsidiary, (ii) pledge
all of the Equity Interests of such new Subsidiary (including, without
limitation, delivery of original stock certificates evidencing the Equity
Interests of such Subsidiary, together with an appropriate undated stock powers
for each certificate duly executed in blank by the registered owner thereof to
the Senior Administrative Agent) and (iii) execute and deliver such other
additional closing documents, certificates and legal opinions as shall
reasonably be requested by the Administrative Agent, in each case subject to
the rights and interests of the Senior Administrative Agent.


 


(c)           The Borrower will at all times cause the other material
tangible and intangible assets of the Borrower and each Subsidiary to be
subject to a Lien of the Security Instruments in accordance with the terms
thereof.


 


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


 


Section 8.16           Marketing Activities.


 


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


 


(b)           The Borrower will not, and will not permit any Subsidiary
to, amend in any material respect the written Hydrocarbon Marketing Policy
delivered to the Lenders pursuant to 


 


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Section 6.01(o) without the prior written
consent of the Administrative Agent and the Majority Lenders.


 


ARTICLE 9

NEGATIVE COVENANTS


 


Until
the principal of and interest on each Loan and all fees payable hereunder and
all other amounts payable under the Loan Documents have been paid in full, the
Borrower covenants and agrees with the Lenders that:


 


Section 9.01           Financial Covenants.


 


(a)           Ratio of Total Debt to EBITDAX.  The Borrower will not, at any time, permit
its ratio of Total Debt as of such time to EBITDAX for the four fiscal quarters
ending on the last day of the fiscal quarter immediately preceding the date of
determination for which financial statements are available (i) to be
greater than 4.50 to 1.00 for the fiscal quarter ending December 31, 2010,
and (ii) to be greater than 4.25 to 1.00 on the last day of any fiscal
quarter ending on or after March 31, 2011. 
Notwithstanding the foregoing, for the purpose of determining EBITDAX of
the Borrower and its Subsidiaries for this Section 9.01(a) for the
four fiscal quarters ending (i) December 31, 2010, EBITDAX shall be
equal to the EBITDAX of the Borrower and its Subsidiaries for the fiscal
quarter ending on such date multiplied by 4, (ii) March 31, 2011,
EBITDAX shall be equal to the EBITDAX of the Borrower and its Subsidiaries for
the two fiscal quarters ending on such date multiplied by 2 and (ii) June 30,
2011, EBITDAX shall be equal to the EBITDAX of the Borrower and its
Subsidiaries for the three fiscal quarters ending on such date multiplied by
4/3.


 


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


 


(c)           Interest Coverage Ratio.  The Borrower will not permit, as of the last
day of any fiscal quarter, the ratio of (i) EBITDAX for the period of four
consecutive fiscal quarters then ending on such date to (ii) Interest
Expense for the period of four consecutive fiscal quarters then ending on such
date, commencing with the fiscal quarter ending March 31, 2011, to be less
than 2.50 to 1.00. Notwithstanding the foregoing, for the purpose of
determining EBITDAX and Interest Expense of the Borrower and its Subsidiaries
for this Section 9.01(c) for the four fiscal quarters ending (i) March 31,
2011, EBITDAX and Interest Expense shall be equal to the EBITDAX and Interest
Expense of the Borrower and its Subsidiaries for the fiscal quarter ending on
such date multiplied by 4, (ii) June 30, 2011, EBITDAX and Interest
Expense shall be equal to the EBITDAX and Interest Expense of the Borrower and
its Subsidiaries for the two fiscal quarters ending on such date multiplied by
2 and (iii) September 30, 2011, EBITDAX and Interest Expense shall be
equal to the EBITDAX and Interest Expense of the Borrower and its Subsidiaries
for the three fiscal quarters ending on such date multiplied by 4/3.


 


54
















 


(d)           Total Proved PW10% to Total Debt.  The Borrower will not, as of any Test Date,
permit the ratio of (i) Total Proved PW10% as in effect on such Test Date
to (ii) Total Debt as of such Test Date to be less than 1.50 to 1.00. For
purposes hereof, “Test Date” means (A) the date of any scheduled
redetermination of the Borrowing Base under the Senior Revolving Credit
Agreement, beginning as of April 1, 2011, (B) the date of any interim
redetermination of the Borrowing Base under the Senior Revolving Credit Agreement,
(C) the date of any material acquisition or material disposition, or (D) such
other date during each calendar year, if any, as selected by the Administrative
Agent at the request of any Lender and notified to the Borrower at least 10
Business Days in advance, provided that the Administrative Agent shall select
no more than one additional testing date during any calendar year.


 


Section 9.02           Debt.  The Borrower will not, and will not permit
any Subsidiary to, incur, create, assume or suffer to exist any Debt, except:


 


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


 


(b)           Debt of the Borrower and its Subsidiaries existing on the
date hereof that is reflected in the Financial Statements.


 


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


 


(d)           Debt under Capital Leases not to exceed $500,000.


 


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


 


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


 


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


 


(h)           Subordinated Parent Debt.


 


(i)            Debt now or hereafter outstanding under the Senior
Revolving Credit Agreement, provided that (i) the aggregate principal
amount of such Debt shall not exceed the applicable amount set forth in the
Intercreditor Agreement, and (ii) such Debt is comprised of a single 


 


55

















 


facility with no differentiation among lenders in
the revolving character, pricing or maturity thereof.


 


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


 


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


 


(a)           Liens securing the payment of any Indebtedness.


 


(b)           Excepted Liens.


 


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


 


(d)           Liens in connection with the deferred purchase price of
Property, as permitted by Section 9.02(c), but only with respect to the
Property being purchased therunder.


 


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


 


(f)            Liens created pursuant to the Senior Revolving Credit
Documents.


 


Section 9.04           Dividends, Distributions,
Redemptions and Restricted Payments. 
The Borrower will not, and will not permit any of its Subsidiaries to,
declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, return any capital to its stockholders or make any
distribution of its Property to its Equity Interest holders, except (a) the
Borrower may declare and pay dividends with respect to its Equity Interests
payable solely in additional shares of its Equity Interests (other than
Disqualified Capital Stock), (b) Subsidiaries may declare and pay
dividends ratably with respect to their Equity Interests, (c) the Borrower
may make cash distributions to the Parent with respect to the payment of
reasonable fees and expenses incurred in the ordinary course of business in
connection with the maintenance of its corporate existence, reporting
obligations, tax and accounting preparation and other similar fees and expenses
and (d) the Borrower may make Restricted Payments, in an aggregate amount
per fiscal year not to exceed $5,000,000, pursuant to and in accordance with
stock option plans or other benefit plans for management or employees of the
Borrower and its Subsidiaries.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(g)           Investments (i) made by the Borrower in or to the
Guarantors or (ii) made by any Subsidiary in or to the Borrower or any
Guarantor.


 


(h)           Subject to Section 9.06, Investments (including,
without limitation, capital contributions) in general or limited partnerships
or other types of entities (each a “venture”) entered into by the
Borrower or a Subsidiary with others in the ordinary course of business;
provided that (i) any such venture is engaged exclusively in oil and gas
exploration, development, production, processing and related activities,
including transportation, (ii) the interest in such venture is acquired in
the ordinary course of business and on fair and reasonable terms and (iii) such
venture interests acquired and capital contributions made (valued as of the
date such interest was acquired or the contribution made) do not exceed, in the
aggregate at any time outstanding an amount equal to $1,000,000.


 


(i)            Subject to Section 9.06, Investments in direct
ownership interests in additional Oil and Gas Properties and gas gathering
systems related thereto or related to farm-out, farm-in, joint operating, joint
venture or area of mutual interest agreements, gathering systems, pipelines or
other similar arrangements which are usual and customary in the oil and gas
exploration and production business located within the geographic boundaries of
the United States of America.


 


(j)            Loans or advances to employees, officers or directors in
the ordinary course of business of the Borrower or any of its Subsidiaries, in
each case only as permitted by applicable law, including Section 402 of
the Sarbanes Oxley Act of 2002, but in any event not to exceed $100,000 in the
aggregate at any time.


 


(k)           Investments in stock, obligations or securities received
in settlement of debts arising from Investments permitted under this Section 9.05
owing to the Borrower or any Subsidiary as a result of a bankruptcy or other
insolvency proceeding of the obligor in respect of such debts or upon the
enforcement of any Lien in favor of the Borrower or any of its Subsidiaries;
provided that the Borrower shall give the Administrative Agent prompt written 


 


57

















 


notice in the event that the aggregate amount of all
Investments held at any one time under this Section 9.05(k) exceeds
$100,000.


 


(l)            Other Investments not to exceed $1,000,000 in the
aggregate at any time.


 


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


 


Section 9.07           Limitation on Leases.  The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or
personal but excluding Capital Leases, leases of Hydrocarbon Interests and
drilling contracts), under leases or lease agreements which would cause the
aggregate amount of all payments made by the Borrower and the Subsidiaries
pursuant to all such leases or lease agreements, including, without limitation,
any residual payments at the end of any lease, to exceed $1,000,000 in any
period of twelve consecutive calendar months during the life of such leases.


 


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


 


Section 9.09           ERISA Compliance.  The Borrower will not, and will not permit
any Subsidiary to, at any time:


 


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


 


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


 


(c)           contribute to or assume an obligation to contribute to, or
permit any ERISA Affiliate to contribute to or assume an obligation to
contribute to (i) any employee welfare benefit plan, as defined in section
3(1) of ERISA, including, without limitation, any such plan 


 


58

















 


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


 


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


 


Section 9.11           Mergers, Etc.  The Borrower will not, and will not permit
any Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its Property to any other
Person (whether now owned or hereafter acquired) (any such transaction, a “consolidation”),
or liquidate or dissolve; provided that any Subsidiary may participate in a
consolidation with any other Subsidiary and the Borrower may consolidate with
any Subsidiary so long as the Borrower is the survivor.


 


Section 9.12           Sale of Properties.  The Borrower will not, and will not permit
any Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any
Property except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in
connection with such farmouts; (c) the sale or transfer of equipment that
is no longer necessary for the business of the Borrower or such Subsidiary or
is replaced by equipment of at least comparable value and use; (d) the
sale or other disposition (including Casualty Events) of any Oil and Gas
Property or any interest therein or any Subsidiary owning Oil and Gas
Properties; provided that (i) 100% of the consideration received in
respect of such sale or other disposition shall be cash, (ii) the
consideration received in respect of such sale or other disposition shall be
equal to or greater than the fair market value of the Oil and Gas Property,
interest therein or Subsidiary subject of such sale or other disposition (as reasonably
determined by the board of directors of the Borrower and, if requested by the
Administrative Agent, the Borrower shall deliver a certificate of a Responsible
Officer of the Borrower certifying to that effect), (iii) the Borrower is
in pro forma compliance with Section 9.01(d) after giving
effect to such sale or disposition, and (iv) if any such sale or other
disposition is of a Subsidiary owning Oil and Gas Properties, such sale or
other disposition shall include all the Equity Interests of such Subsidiary; (e) the
sale or other disposition of Oil and Gas Properties for other Oil and Gas
Properties held by third parties to the extent such exchanged Oil and Gas
Property is not currently included in the then applicable Borrowing Base under
the Senior Revolving Credit Agreement and where the consideration therefore is
solely other Oil and Gas Properties of materially equivalent fair market value;
and (f) sales and other transfers of Oil and Gas Properties not regulated
by Section 9.12(a) to (e) and not currently included in the then
applicable Borrowing Base under the Senior Revolving Credit Agreement having a
fair market value not to exceed $2,000,000 during any 12-month period.


 


59

















 


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


 


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


 


Section 9.15           Subsidiaries.  The Borrower will not, and will not permit
any Subsidiary to, create or acquire any additional Subsidiary unless the
Borrower gives written notice to the Administrative Agent of such creation or
acquisition and complies with Section 8.14(b).  The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.12(d).  Neither the Borrower nor any Subsidiary shall
have any Subsidiaries that are organized under the laws of a jurisdiction other
than the United States of America, any state thereof or the District of
Columbia.


 


Section 9.16           Negative Pledge Agreements;
Dividend Restrictions.  The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or
suffer to exist any contract, agreement or understanding (other than this
Agreement, the Security Instruments or Capital Leases creating Liens permitted
by Section 9.03(c)) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property in favor
of the Administrative Agent and the Lenders or restricts any Subsidiary from
paying dividends or making distributions to the Borrower or any Guarantor, or
which requires the consent of or notice to other Persons in connection
therewith.


 


Section 9.17           Gas Imbalances, Take-or-Pay or
Other Prepayments.  The Borrower will
not, and will not permit any Subsidiary to, allow gas imbalances, take-or-pay
or other prepayments with respect to the Oil and Gas Properties of the Borrower
or any Subsidiary that would require the Borrower or such Subsidiary to deliver
Hydrocarbons at some future time without then or thereafter receiving full
payment therefor to exceed 1.5 bcf of gas (on an mcf equivalent basis) in the
aggregate.


 


Section 9.18           Swap Agreements.


 


(a)           The Borrower will not, and will not permit any Subsidiary
to, enter into any Swap Agreements with any Person other than (i) Swap
Agreements in respect of commodities (A) with an Approved Counterparty, (B) the
tenor of which is not more than 60 months from the date such 


 


60

















 


Swap Agreement is executed, and (C) the
notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Swap Agreements) do not exceed, as of the date
such Swap Agreement is executed, 85% of the reasonably anticipated projected
production from proved, developed, producing Oil and Gas Properties for each
month during the period during which such Swap Agreement is in effect for each
of crude oil, natural gas and natural gas liquids, calculated separately, and (ii) Swap
Agreements in respect of interest rates with an Approved Counterparty, as follows:  (A) Swap Agreements effectively
converting interest rates from fixed to floating, the notional amounts of which
(when aggregated with all other Swap Agreements of the Borrower and its
Subsidiaries then in effect effectively converting interest rates from fixed to
floating) do not exceed 75% of the then anticipated principal amount of the
Borrower’s Debt for borrowed money which bears interest at a fixed rate and (B) Swap
Agreements effectively converting interest rates from floating to fixed, the notional
amounts of which (when aggregated with all other Swap Agreements of the
Borrower and its Subsidiaries then in effect effectively converting interest
rates from floating to fixed) do not exceed 75% of the then outstanding
principal amount of the Borrower’s Debt for borrowed money which bears interest
at a floating rate.  Except as provided
herein, in no event shall any Swap Agreement contain any requirement, agreement
or covenant for the Borrower or any Subsidiary to post collateral or margin to
secure their obligations under such Swap Agreement or to cover market exposures
and such Swap Agreements shall not be for speculative purposes.  Notwithstanding the foregoing, the Borrower
and any Subsidiary may enter into Swap Agreements in respect of crude oil or
natural gas that are puts or floors, provided that such puts and floors are
independent and are not matched with a ceiling or call (i.e., costless collars
or participating structures).


 


Notwithstanding
the foregoing Section 9.18(a), on or prior to the date of the consummation
of the Acquisition, the Borrower has entered into Swap Agreements with an
Approved Counterparty the notional volumes that do not exceed 115% of the
reasonably anticipated production from the Borrower’s existing Proved Developed
Producing Oil and Gas Properties for each month during the period during which
such Swap Agreements are in effect for each of crude oil, natural gas and
natural gas liquids, calculated separately and the Borrower shall be permitted
to maintain such Swap Agreements in such notional volumes pursuant to the terms
thereof; provided that (i) the notional volumes for all such Swap
Agreements shall not exceed 115% of the reasonably anticipated production from
the Borrower’s existing Proved Developed Producing Oil and Gas Properties for
each month during the period during which such Swap Agreements are in effect
for each of crude oil, natural gas and natural gas liquids, calculated
separately on or after January 31, 2011 and (ii) the Borrower
complies with Section 9.18(a) no later than January 31,
2011.  For the avoidance of doubt, the
Borrower will not be required to unwind any Swap Agreements entered into during
the foregoing periods, but will not be allowed to enter into additional Swap
Agreements until such addition can be accomplished within the limits
established by Section 9.18(a).


 


(b)           The Borrower or any Subsidiary will not unwind, sell,
terminate, restructure, modify or otherwise affect (each a “Restructuring”)
any Swap Agreement in respect of commodities that was in effect at the time of
the most recent Borrowing Base determination under the Senior Revolving Credit
Agreement if the aggregate net marked to market economic effect of all such
Restructurings between any two successive Scheduled Redetermination Dates under
the Senior Revolving Credit Agreement on the date of each such Restructure is
negative 


 


61

















 


(which amount, if such Restructuring is settled for
cash only, shall equal the net amount of cash paid by the Borrower or its
Subsidiary to the counterparty) unless the aggregate negative net marked to
market effect of such Restructuring or Restructurings (between any two
successive Scheduled Redetermination Dates under the Senior Revolving Credit
Agreement) is less than or equal to five percent (5%) of the then current
Borrowing Base in effect under the Senior Revolving Credit Agreement.  Notwithstanding the foregoing, the Borrower
or any Subsidiary may complete a Restructuring or Restructurings with an aggregate
negative net marked to market economic effect between any two successive
Scheduled Redetermination Dates under the Senior Revolving Credit Agreement
greater than five percent (5%) of the then current Borrowing Base in effect
under the Senior Revolving Credit Agreement if the Borrower provides 10 days
prior written notice of such Restructuring or Restructurings to the
Administrative Agent.


 


ARTICLE 10

EVENTS OF DEFAULT; REMEDIES


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(g)           any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its
or their behalf to cause any Material Indebtedness to become due, or to require
the Redemption thereof or any offer to Redeem to be made in respect thereof,
prior to its scheduled maturity or require the Borrower or any Subsidiary to
make an offer in respect thereof; provided that the cure of an occurrence of
the aforementioned shall be deemed a cure of the event giving rise to an Event
of Default under this Section 10.01(g).


 


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


 


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


 


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


 


(k)           (i) one or more judgments for the payment of money in
an aggregate amount in excess of $1,000,000 (to the extent not covered by
independent third party insurance provided by insurers of the highest claims
paying rating or financial strength as to which the insurer does not dispute
coverage and is not subject to an insolvency proceeding) or (ii) any one
or more non-monetary judgments that have, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect, shall be
rendered against the Borrower, any Subsidiary or any combination thereof and
the same shall remain undischarged for a period of 30 consecutive days during
which execution shall not be effectively stayed, or any action shall be legally
taken 


 


63

















 


by a judgment creditor to attach or levy upon any
assets of the Borrower or any Subsidiary to enforce any such judgment.


 


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


 


(m)          a Change in Control shall occur.


 


(n)           an Event of Default under the Senior Revolving Credit
Agreement (as such term is defined therein).


 


(o)           the Intercreditor Agreement, after delivery thereof shall
for any reason, except (i) to the extent permitted by the terms thereof or
(ii) solely attributable to the actions (or failure to act) of the
Administrative Agent, cease to be in full force and effect and valid, binding
and enforceable in accordance with its terms against the Borrower or any party
thereto or holder of the Debt subject thereto or shall be repudiated by any of
them, or any payment by the Borrower or any Guarantor in violation of the terms
of the Intercreditor Agreement.


 


Section 10.02         Remedies.


 


(a)           In each case subject to the terms and conditions of the
Intercreditor Agreement, in the case of an Event of Default other than one
described in Section 10.01(g), Section 10.01(h) or Section 10.01(i),
at any time thereafter during the continuance of such Event of Default, the
Administrative Agent may, and at the request of the Majority Lenders, shall, by
notice to the Borrower, declare the Notes and the Loans then outstanding to be
due and payable in whole (or in part, in which case any principal not so
declared to be due and payable may thereafter be declared to be due and
payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other
obligations of the Borrower and the Guarantors accrued hereunder and under the
Notes and the other Loan Documents shall become due and payable immediately,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(g),
Section 10.01(h) or Section 10.01(i), the Notes and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and the other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower and
each Guarantor.


 


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


 


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


 


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


 


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


 


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


 


(iv)          fourth, pro rata to
payment of principal outstanding on the Loans and Indebtedness referred to in
Clause (b) of the definition of Indebtedness owing to a Lender or an
Affiliate of a Lender;


 


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


 


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


 


ARTICLE 11

THE AGENTS


 


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


 


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


 


65

















 


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


 


Section 11.03         Action by Administrative
Agent.  The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall
be fully justified in failing or refusing to act hereunder or under any other
Loan Documents unless it shall (a) receive written instructions from the
Majority Lenders or the Lenders, as applicable, (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be
indemnified to its satisfaction by the Lenders against any and all liability
and expenses which may be incurred by it by reason of taking or continuing to
take any such action.  The instructions
as aforesaid and any action taken or failure to act pursuant thereto by the
Administrative Agent shall be binding on all of the Lenders.  If a Default has occurred and is continuing,
then the Administrative Agent shall take such action with respect to such
Default as shall be directed by the requisite Lenders in the written
instructions (with indemnities) described in this Section 11.03, provided
that, unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
as it shall deem advisable in the best interests of the Lenders.  In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this Agreement,
the Loan Documents or applicable law. If a Default has occurred and is
continuing, neither the Syndication Agent nor the Documentation Agent shall
have any obligation to perform any act in respect thereof.  The Administrative Agent shall not be liable for
any action taken or not taken by it with the consent or at the request of the
Majority Lenders or the Lenders (or such other number 


 


66

















 


or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 12.02), and otherwise the
Administrative Agent shall not be liable for any action taken or not taken by
it hereunder or under any other Loan Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own
gross negligence or willful misconduct. 
Each Lender further (i) acknowledges that it has received a copy of
the Intercreditor Agreement, (ii) acknowledges and agrees that the
Administrative Agent is and was authorized to enter into the same, and (iii) agrees
that it is bound by its terms.


 


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


 


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


 


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


 


67

















 


payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor.  After the Administrative Agent’s resignation
hereunder, the provisions of this Article XI and Section 12.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.


 


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


 


Section 11.08         No Reliance.


 


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


 


(b)           The Lenders acknowledge that
the Administrative Agent is acting solely in administrative capacities with
respect to structuring and syndication of this facility and has no duties,
responsibilities or liabilities under this Agreement and the other Loan
Documents other than their administrative duties, responsibilities and
liabilities specifically as set forth in the Loan Documents and in its capacity
as a Lender hereunder.  In structuring,
arranging or syndicating this Agreement, each Lender acknowledges that the
Administrative Agent and may be an agent or lender under these Notes, the
Senior Revolving Credit Notes, other loans or other securities and waives any
existing or future conflicts of interest associated with their role in such
other debt instruments.  If in the
administration of this facility or any other debt instrument, the
Administrative Agent determines (or is given written notice by any Lender that
a conflict exists), 


 


68

















 


then it shall eliminate such conflict within ninety
(90) days or resign pursuant to Section 11.06 and shall have no liability
for action taken or not taken while such conflict existed.


 


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


 


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


 


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


 


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


 


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


 


Section 11.10         Authority of Administrative
Agent to Release Collateral and Liens.


 


(a)           Each Lender hereby
authorizes the Administrative Agent to release any collateral that is permitted
to be sold or released pursuant to the terms of the Loan Documents.  Each Lender hereby authorizes the
Administrative Agent to execute and deliver to the Borrower, at the Borrower’s
sole cost and expense, any and all releases of Liens, termination statements,
assignments or other documents reasonably requested by the Borrower in connection
with any sale or other disposition of Property to the extent such sale or other
disposition is permitted by the terms of Section 9.12 or is otherwise
authorized by the terms of the Loan Documents. Upon the request of the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent’s authority to release particular types or items of
Collateral pursuant to this Section 11.10.


 


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(b)           Notwithstanding anything
contained in any of the Loan Documents to the contrary, the Borrower and its
Subsidiaries, the Administrative Agent, and each Lender hereby agree that no
Lender shall have any right individually to realize upon any of the Collateral
or to enforce the Guaranties, it being understood and agreed that all powers,
rights and remedies hereunder and under the Security Instruments may be
exercised solely by Administrative Agent on behalf of the Lenders in accordance
with the terms hereof and the other Loan Documents.  By accepting the benefit of the Liens granted
pursuant to the Security Instruments, each Lender not party hereto hereby
agrees to the terms of this paragraph (b).


 


Section 11.11         The Syndication Agent and
the Documentation Agent.  Any
Syndication Agent and any Documentation Agent, if named from time to time,
shall have no duties, responsibilities or liabilities under this Agreement and
the other Loan Documents other than their duties, responsibilities and
liabilities in their capacity as Lenders hereunder.


 


Section 11.12         The Intercreditor Agreement.  Each of the Lenders hereby acknowledges that
it has received and reviewed the Intercreditor Agreement and agrees to be bound
by the terms thereof as if such Lender was a signatory thereto.  Each Lender (and each person that becomes a
Lender hereunder pursuant to Section 12.04(b)) hereby (i) acknowledges
that the Administrative Agent is acting under the Intercreditor Agreement as
the Second Lien Administrative Agent, and that the First Lien Administrative
Agent is acting under the Intercreditor Agreement as the First Lien
Administrative Agent and that the Administrative Agent and the First Lien
Administrative Agent are Affiliates and (ii) waives any conflict of
interest, now contemplated or arising hereafter, in connection therewith and
agrees not to assert against the Administrative Agent or the First Lien
Administrative Agent any claims, cause of action, damages or liabilities of
whatever kind or nature relating thereto. 
Each Lender (and each Person that becomes a Lender hereunder pursuant to
Section 12.04(b)) hereby authorizes and directs the Administrative Agent
to enter into the Intercreditor Agreement on behalf of such Lender and agrees
that each of the Administrative Agent and the First Lien Administrative Agent,
in its various capacities thereunder, may take such actions on its behalf as is
contemplated by the terms of the Intercreditor Agreement.


 


ARTICLE 12

MISCELLANEOUS


 


Section 12.01         Notices.


 


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


 


(i)            if to the Borrower, to it at
Kodiak Oil & Gas (USA) Inc., 1625 Broadway, Suite 250, Denver,
Colorado 80202 , Attention of James P. Henderson (Telecopy No. 303.592.8071);


 


70

















 


(ii)           if to the Administrative
Agent, to it at Wells Fargo Energy Capital, Inc., 1000 Louisiana, Ninth
Floor, Houston, Texas 77002, Attention of Bryan M. McDavid (Telecopy No. 713.652.5874);
and


 


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


 


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


 


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


 


Section 12.02         Waivers; Amendments.


 


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


 


(b)           Neither this Agreement nor
any provision hereof nor any Security Instrument nor any provision thereof may
be waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Majority Lenders or by the
Borrower and the Administrative Agent with the consent of the Majority Lenders;
provided that no such agreement shall (i) increase the Commitment of any
Lender without the written consent of such Lender, (ii) modify the
definition of “Total Proved PW10% without the consent of each Lender (other
than any Defaulting Lender), (iii) reduce the principal amount of any Loan
or reduce the rate of interest thereon, or reduce any fees payable hereunder,
or reduce any other Indebtedness 


 


71

















 


hereunder or under any other Loan Document, without
the written consent of each Lender affected thereby, (iv) postpone the
scheduled date of payment or prepayment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or any other Indebtedness
hereunder or under any other Loan Document, or reduce the amount of, waive or
excuse any such payment, or postpone or extend the Maturity Date without the
written consent of each Lender affected thereby, (v) change Section 4.01(b) or
Section 4.01(c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender, (vi) waive
or amend Section 3.04(b), Section 6.01, Section 8.14, Section 10.02(c) or
Section 12.14 or change the definition of the term “Subsidiary”, without
the written consent of each Lender (other than any Defaulting Lender), (vii) release
any Guarantor (except as set forth in the Guaranty Agreement), release any of
the collateral (other than as provided in Section 11.10), or reduce the
percentage set forth in Section 8.14(a) to less than 80%, without the
written consent of each Lender (other than any Defaulting Lender), or (viii) change
any of the provisions of this Section 12.02(b) or the definitions of “Majority
Lenders” or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or under any
other Loan Documents or make any determination or grant any consent hereunder
or any other Loan Documents, without the written consent of each Lender (other
than any Defaulting Lender); provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent or any other Agent hereunder or under any other Loan Document without the
prior written consent of the Administrative Agent or such other Agent, as the
case may be.  Notwithstanding the
foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective
simply by delivering to the Administrative Agent a supplemental schedule
clearly marked as such and, upon receipt, the Administrative Agent will
promptly deliver a copy thereof to the Lenders.


 


Section 12.03         Expenses, Indemnity;
Damage Waiver.


 


(a)           The Borrower shall pay (i) all
reasonable and documented out-of-pocket expenses incurred by the Administrative
Agent and its Affiliates, including, without limitation, the reasonable fees,
charges and disbursements of counsel and other outside consultants for the
Administrative Agent, the reasonable travel, photocopy, mailing, courier,
telephone and other similar expenses, and the cost of environmental invasive
and non-invasive assessments and audits and surveys and appraisals, in
connection with the syndication of the credit facilities provided for herein,
the preparation, negotiation, execution, delivery and administration (both
before and after the execution hereof and including advice of counsel to the
Administrative Agent as to the rights and duties of the Administrative Agent
and the Lenders with respect thereto) of this Agreement and the other Loan
Documents and any amendments, modifications or waivers of or consents related
to the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all reasonable
costs, expenses, Taxes, assessments and other charges incurred by any Agent or
any Lender in connection with any filing, registration, recording or perfection
of any security interest contemplated by this Agreement or any Security
Instrument or any other document referred to therein, (iii) all reasonable
out-of-pocket expenses incurred by any Agent or any Lender, including the fees,
charges and disbursements of any counsel for any Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Loan Document, including its rights under this Section 12.03,
or in connection with the Loans made 


 


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hereunder, including, without limitation, all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.


 


(b)           THE BORROWER SHALL INDEMNIFY
EACH AGENT AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING
PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND
DEFEND AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, PENALTIES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES,
CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY
OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR
AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN
DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY
WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY
GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR
ANY BREACH OF ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET
FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR
CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR THE USE
OF THE PROCEEDS THEREFROM, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE
OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER
AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT
ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS,
(viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY
OR ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE PRESENCE,
GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL,
ARRANGEMENT OF DISPOSAL OR TREATMENT OF HAZARDOUS MATERIALS ON OR AT ANY OF
THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF
ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH,
THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL,
GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR
ARRANGEMENT FOR DISPOSAL OF HAZARDOUS MATERIALS ON OR AT ANY OF THE PROPERTIES
OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED
PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR
OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY 


 


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CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING
RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH
INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION,
ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS
OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED
WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH
LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A
COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.


 


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


 


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


 


(e)           All amounts due under this Section 12.03
shall be payable not later than 30 days after written demand therefor.


 


Section 12.04         Successors and Assigns.


 


(a)           The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that (i) the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and void)
and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section 12.04.  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby, Participants
(to the extent provided in Section 12.04(c)) and, to the extent expressly


 


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contemplated hereby, the Related Parties of each of
the Administrative Agent and the Lenders) any legal or equitable right, remedy
or claim under or by reason of this Agreement.


 


(b)                                 Assignments:


 


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


 


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


 


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


 


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


 


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


 


(B)                                each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender’s rights and obligations under this Agreement;


 


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


 


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


 


(iii)                               Subject to Section 12.04(b)(iv) and
the acceptance and recording thereof, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this 


 


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Agreement (and, in the case
of an Assignment and Assumption covering all of the assigning Lender’s rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Section 5.01, Section 5.02,
Section 5.03 and Section 12.03). 
Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this Section 12.04 shall be
treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with Section 12.04(c).


 


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


 


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


 


(c)                                  Participations.


 


(i)                                     Any Lender may,
without the consent of the Borrower, the Administrative Agent, sell
participations to one or more banks or other entities (a “Participant”)
in all or a portion of such Lender’s rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided that (A) such Lender’s obligations under this Agreement
shall remain unchanged, (B) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations and
(C) the Borrower, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the proviso to Section 12.02 that affects 


 


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such Participant.  In addition such agreement must provide that
the Participant be bound by the provisions of Section 12.03.  Subject to Section 12.04(c)(ii), the
Borrower agrees that each Participant shall be entitled to the benefits of Section 5.01,
Section 5.02 and Section 5.03 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to Section 12.04(a).  To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 12.08 as
though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as
though it were a Lender.


 


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


 


(d)                                 Any Lender may
at any time pledge or assign a security interest in all or any portion of its
rights under this Agreement to secure obligations of such Lender, including,
without limitation, any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section 12.04(d) shall not apply to any such
pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.


 


Section 12.05                          Survival;
Revival; Reinstatement.


 


(a)                                  All covenants,
agreements, representations and warranties made by the Borrower herein and in
the certificates or other instruments delivered in connection with or pursuant
to this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, any other Agent or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and
unpaid.  The provisions of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 and Article XI
shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans or the termination of this Agreement, any other Loan Document or any
provision hereof or thereof.


 


(b)                                 To the extent
that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the 


 


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Administrative Agent’s and the Lenders’ Liens,
security interests, rights, powers and remedies under this Agreement and each
Loan Document shall continue in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.


 


Section 12.06                          Counterparts;
Integration; Effectiveness.


 


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


 


(b)                                 This Agreement,
the other Loan Documents and any separate letter agreements with respect to
fees payable to the Administrative Agent constitute the entire contract among
the parties relating to the subject matter hereof and thereof and supersede any
and all previous agreements and understandings, oral or written, relating to
the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.


 


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


 


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


 


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


 


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under this Section 12.08 are in addition to
other rights and remedies (including other rights of setoff) which such Lender
or its Affiliates may have.


 


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


 


(a)                                  THIS AGREEMENT
AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF COLORADO EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS
ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE
RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.


 


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


 


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


 


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


 


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


 


Section 12.12                          Interest Rate
Limitation.  It is the
intention of the parties hereto that each Lender shall conform strictly to
usury laws applicable to it. 
Accordingly, if the transactions 


 


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contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with
or as security for the Notes, it is agreed as follows:  (i) the aggregate of all consideration
which constitutes interest under law applicable to any Lender that is
contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to
the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated by reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower).  All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law applicable to such
Lender, be amortized, prorated, allocated and spread throughout the stated term
of the Loans evidenced by the Notes until payment in full so that the rate or
amount of interest on account of any Loans hereunder does not exceed the
maximum amount allowed by such applicable law. 
If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.12 and (ii) in
respect of any subsequent interest computation period the amount of interest
otherwise payable to such Lender would be less than the amount of interest
payable to such Lender computed at the Highest Lawful Rate applicable to such
Lender, then the amount of interest payable to such Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of
interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been
computed without giving effect to this Section 12.12.


 


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


 


81

















 


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


 


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


 


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


 


Section 12.16                          USA Patriot Act
Notice.  Each Lender hereby notifies
the Borrower that pursuant to the requirements of the USA Patriot Act (Title
III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”),
it is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in
accordance with the Act.


 


Section 12.17                          Intercreditor
Agreement.  Reference
is made to the Intercreditor Agreement dated as of November 30, 2010 (as
amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor
Agreement”), among the Company, Wells Fargo Bank, N.A., as First Lien
Administrative Agent (as defined therein), and the Administrative Agent, as
Second Lien Administrative Agent (as defined therein).  Each Lender hereunder (a) acknowledges
that it has received a copy of the Intercreditor Agreement, (b) consents
to the subordination of Liens provided for in the Intercreditor Agreement, (c) agrees
that it will be bound by and will take no actions contrary to the provisions of
the Intercreditor Agreement and (d) authorizes and instructs the
Administrative Agent to enter into the Intercreditor Agreement as
Administrative Agent and on behalf of such Lender. The foregoing provisions are
intended as an 


 


82

















 


inducement to the lenders under the Senior Revolving
Credit Agreement to permit the incurrence of Indebtedness under this Agreement
and to extend credit to the Company and such lenders are intended third party
beneficiaries of such provisions.


 


[SIGNATURES BEGIN NEXT PAGE]


 


83

















 


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


 


	
  BORROWER:

  	
  KODIAK
  OIL & GAS (USA) INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James P. Henderson

  
	
   

  	
   

  	
  James P. Henderson

  
	
   

  	
   

  	
  Chief Financial Officer

  



 


[Signature Page – Credit Agreement]


 


1






 












 


	
  ADMINISTRATIVE
  AGENT:

  	
  WELLS
  FARGO ENERGY CAPITAL, INC.,

  
	
   

  	
  as
  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bryan McDavid

  
	
   

  	
   

  	
  Bryan McDavid

  
	
   

  	
   

  	
  Vice President

  



 


[Signature Page –
Credit Agreement]


 


2

















 


	
  LENDERS:

  	
  WELLS
  FARGO BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bryan McDavid

  
	
   

  	
   

  	
  Bryan McDavid

  
	
   

  	
   

  	
  Vice President

  



 


[Signature Page –
Credit Agreement]


 


3

















 


ANNEX I

LIST OF COMMITMENTS


 


Commitments


 


	
  Name of Lender

  	
   

  	
  Applicable Percentage

  	
   

  	
  Commitment

  	
   

  
	
  Wells Fargo Bank, N.A.

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  40,000,000

  	
   

  
	
  TOTAL

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  40,000,000

  	
   

  



 


Annex I - 1

















 


EXHIBIT A

FORM OF NOTE


 


	
  $[          ]

  	
   

  	
  [          ],
  201[     ]

  



 


FOR
VALUE RECEIVED, KODIAK OIL & GAS (USA) INC., a Colorado corporation
(the “Borrower”) hereby promises to pay to the order of
[          ] (the “Lender”),
at the principal office of WELLS FARGO ENERGY CAPITAL, INC. (the “Administrative
Agent”),  the principal sum of
[          ] Dollars ($[          ])
(or such lesser amount as shall equal the aggregate unpaid principal amount of
the Loans made by the Lender to the Borrower under the Credit Agreement, as
hereinafter defined), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such office, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.


 


The
date, amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the Borrower, and each payment made on account of
the principal thereof, shall be recorded by the Lender on its books and, prior
to any transfer of this Note, may be endorsed by the Lender on the schedules
attached hereto or any continuation thereof or on any separate record
maintained by the Lender.  Failure to
make any such notation or to attach a schedule shall not affect any Lender’s or
the Borrower’s rights or obligations in respect of such Loans or affect the
validity of such transfer by any Lender of this Note.


 


This
Note is one of the Notes referred to in the Second Lien Credit Agreement dated
as of
[                    ],
2010 among the Borrower, the Administrative Agent, and the other agents and
lenders signatory thereto (including the Lender), and evidences Loans made by
the Lender thereunder (such Credit Agreement as the same may be amended,
supplemented or restated from time to time, the “Credit Agreement”).  Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement.


 


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


 


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


 


	
   

  	
  KODIAK
  OIL & GAS (USA) INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


Exhibit A - 1

















 


EXHIBIT B

FORM OF BORROWING REQUEST


 


[                   ],
201[   ]


 


KODIAK
OIL & GAS (USA) INC., a Colorado corporation (the “Borrower”),
pursuant to Section 2.03 of the Second Lien Credit Agreement dated as of
[                ],
2010 (together with all amendments, restatements, supplements or other
modifications thereto, the “Credit Agreement”) among the Borrower, Wells
Fargo Energy Capital, Inc., as Administrative Agent and the other agents
and lenders (the “Lenders”) which are or become parties thereto (unless
otherwise defined herein, each capitalized term used herein is defined in the
Credit Agreement), hereby requests a Loan as follows:


 


(i)            Aggregate amount of the requested
Loan is
$[                   ];


 


(ii)           The Business Day of such Loan is
[                   ],
201[   ];


 


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


 


[(iv)       The initial Interest Period applicable to
the requested Loan is [                  
];]


 


(v)           Location and number of the Borrower’s
account to which funds are to be disbursed, which shall comply with the
requirements of Section 2.05 of the Credit Agreement, is as follows:


 


[                                                       ]


[                                                       ]


[                                                       ]


[                                                       ]


[                                                       ]


 


Exhibit B - 1

















 


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


 


	
   

  	
  KODIAK
  OIL & GAS (USA) INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


Exhibit B - 2

















 


EXHIBIT C

FORM OF INTEREST ELECTION REQUEST


 


[                ],
201[   ]


 


KODIAK
OIL & GAS (USA) INC., a Colorado corporation (the “Borrower”),
pursuant to Section 2.04 of the Second Lien Credit Agreement dated as of
[                      ],
2010 (together with all amendments, restatements, supplements or other
modifications thereto, the “Credit Agreement”) among the Borrower, Wells
Fargo Energy Capital, Inc., as Administrative Agent and the other agents
and lenders (the “Lenders”) which are or become parties thereto (unless
otherwise defined herein, each capitalized term used herein is defined in the
Credit Agreement), hereby makes an Interest Election Request as follows:


 


(i)            This Interest Election Request
applies to $[           ]
of [the ABR Loan] [the Eurodollar Loan] made on [    ],
[  ], [           ];


 


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


 


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


 


[(iv)         The Interest Period applicable to the
resulting Loan after giving effect to such election is [                ]](1).


 


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


 


	
   

  	
  KODIAK
  OIL & GAS (USA) INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 






(1)  If the resulting Loan is to be a Eurodollar Loan.


 


Exhibit C - 1

















 


EXHIBIT D

FORM OF

COMPLIANCE CERTIFICATE


 


The
undersigned hereby certifies that he/she is the
[          ] of KODIAK OIL &
GAS (USA) INC., a Colorado corporation (the “Borrower”), and that as
such he/she is authorized to execute this certificate on behalf of the
Borrower.  With reference to the Second
Lien Credit Agreement dated as of November 30, 2010 (together with all
amendments, restatements, supplements or other modifications thereto being the “Agreement”)
among the Borrower, Wells Fargo Energy Capital, Inc., as Administrative
Agent, and the other agents and lenders (the “Lenders”) which are or
become a party thereto, and such Lenders, the undersigned represents and
warrants as follows (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):


 


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


 


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


 


(c)           Since [same date as audited financials in Section 7.04(a)],
no change has occurred, either in any case or in the aggregate, in the
condition, financial or otherwise, of the Borrower or any Subsidiary which
could reasonably be expected to have a Material Adverse Effect [or specify
event].


 


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


 


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


 


(f)            Attached hereto are the filings, if any, since the
delivery of the most recent Compliance Certificate, made by the Borrower or any
Subsidiary of the Borrower, or through any agent, employee, licensee or
designee of the foregoing, for the registration of any Patent or Trademark (as
such terms are defined in the Guaranty Agreement) with the United States Patent
and Trademark Office or any similar office or agency in any other country or
any political subdivision thereof.


 


Exhibit D - 1

















 


EXECUTED
AND DELIVERED this
[          ] day of
[          ].


 


	
   

  	
  KODIAK
  OIL & GAS (USA) INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


Exhibit D - 2






 












 


EXHIBIT E

FORM OF ASSIGNMENT AND ASSUMPTION


 


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


 


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


 


	
  1.

  	
  Assignor:

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee:

  	
   

  
	
   

  	
   

  	
  [and is an Affiliate/Approved
  Fund of [identify Lender](2)]

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Borrower:

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Administrative Agent:

  	
  Wells Fargo Energy
  Capital, Inc., as the administrative agent under the Credit Agreement

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Credit Agreement:

  	
  The Second Lien Credit
  Agreement dated as of November 30, 2010 among Kodiak Oil & Gas
  (USA) Inc., the Lenders parties

  



 






(2) 
Select as applicable.


 


Exhibit E - 1

















 


	
   

  	
   

  	
  thereto, Wells Fargo
  Energy Capital, inc., as Administrative Agent, and the other agents parties
  thereto]

  



 


6.                                       Assigned
Interest:


 


	
  Commitment Assigned

  	
   

  	
  Aggregate Amount of

  Commitment/Loans for

  all Lenders

  	
   

  	
  Amount of

  Commitment/Loans

  Assigned

  	
   

  	
  Percentage Assigned of

  Commitment/Loans(3)

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  



 


Effective
Date:                             
      , 201      
[TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE
OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]


 


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


 


	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNOR]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNEE]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  



 






(3) 
Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of
all Lenders thereunder.


 


Exhibit E - 2

















 


	
  Consented to and Accepted:

  	
   

  
	
   

  	
   

  
	
  WELLS FARGO ENERGY CAPITAL, INC.,

  	
   

  
	
  as Administrative Agent

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Consented to:

  	
   

  
	
   

  	
   

  
	
  KODIAK OIL & GAS (USA) INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  



 


Exhibit E - 3

















 


ANNEX 1


 


STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION


 


1.             Representations and Warranties.


 


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


 


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


 


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


 


Exhibit E - 4

















 


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


 


Exhibit E - 5

















 


SCHEDULE 7.05

LITIGATION


 


None.


 


Schedule 7.05 - 1

















 


SCHEDULE 7.14

SUBSIDIARIES AND PARTNERSHIPS


 


None.


 


Schedule 7.14 - 1

















 


SCHEDULE 7.18


GAS IMBALANCES


 


None.


 


Schedule 7.18 - 1

















 


SCHEDULE 7.19


MARKETING CONTRACTS


 


None.


 


Schedule 7.19 - 1

















 


SCHEDULE 7.20

SWAP AGREEMENTS


 


1.             Crude Oil Commodity Option
Transaction between BP Corporation North America Inc. and the Borrower dated as
of February 19, 2010, pursuant to that certain ISDA Master Agreement dated
as of February 11, 2010.


 


Effective
Date: March 1, 2010


Termination
Date: December 31, 2010


Notional
Quantity per Month (BBL):


 


	
  November 2010

  	
   

  	
  6,000

  	
   

  
	
  December 2010

  	
   

  	
  6,200

  	
   

  



 


Net
Mark to Market Value: $1,038


 


2.             Crude Oil Commodity Option
Transaction between Wells Fargo Bank, National Association, in the amounts set
forth on the following page, in each case pursuant to that certain ISDA Master
Agreement dated as of May 24, 2010.


 


Net
Mark to Market Value: $540,521


 


Schedule 7.20 - 1



















	
  

  	
  COLLARS SWAPS
  Trade ID 1738294 Trade ID 1439519 Trade ID 1599423 1599460 Trade ID 1558110
  Trade ID 1629395 Trade ID 1706877 STRUCTURE SWAP STRUCTURE COLLAR STRUCTURE
  CALL (COLLAR) Put (COLLAR) STRUCTURE SWAP STRUCTURE SWAP STRUCTURE SWAP TRADE
  DATE 11/23/2010 TRADE DATE 7/23/2010 TRADE DATE 9/28/2010 9/28/2010 TRADE
  DATE 9/1/2010 SWAP TRADE DATE 10/12/2010 SWAP TRADE DATE 11/9/2010 SWAP SWAP
  MONTH Volumes FLOOR CAP MONTH Volumes FLOOR CAP MONTH Volumes PRICE MONTH
  Volumes PRICE MONTH Volumes PRICE MONTH Volumes PRICE Oct-10 Oct-10 Oct-10
  18,600 $77.89 Oct-10 Oct-10 Oct-10 Nov-10 Nov-10 Nov-10 18,000 $77.89 Nov-10
  Nov-10 Nov-10 Dec-10 Dec-10 Dec-10 18,600 $77.89 Dec-10 Dec-10 Dec-10 Jan-11
  12,400 $75.00 $89.20 Jan-11 15,500 $70.00 $95.56 Jan-11 Jan-11 Jan-11 Jan-11
  1,550 $84.00 Feb-11 11,200 $75.00 $89.20 Feb-11 14,000 $70.00 $95.56 Feb-11
  Feb-11 Feb-11 Feb-11 1,400 $84.00 Mar-11 12,400 $75.00 $89.20 Mar-11 15,500
  $70.00 $95.56 Mar-11 Mar-11 Mar-11 Mar-11 1,550 $84.00 Apr-11 12,000 $75.00
  $89.20 Apr-11 12,000 $70.00 $95.56 Apr-11 Apr-11 Apr-11 Apr-11 4,500 $84.00
  May-11 12,400 $75.00 $89.20 May-11 12,400 $70.00 $95.56 May-11 May-11 May-11
  May-11 4,650 $84.00 Jun-11 12,000 $75.00 $89.20 Jun-11 12,000 $70.00 $95.56
  Jun-11 Jun-11 Jun-11 Jun-11 4,500 $84.00 Jul-11 12,400 $75.00 $89.20 Jul-11
  9,300 $70.00 $95.56 Jul-11 Jul-11 Jul-11 2,480 $90.28 Jul-11 5,270 $84.00
  Aug-11 12,400 $75.00 $89.20 Aug-11 9,300 $70.00 $95.56 Aug-11 Aug-11 Aug-11
  2,480 $90.28 Aug-11 5,270 $84.00 Sep-11 12,000 $75.00 $89.20 Sep-11 9,000 $70.00
  $95.56 Sep-11 Sep-11 Sep-11 2,400 $90.28 Sep-11 5,100 $84.00 Oct-11 12,400
  $75.00 $89.20 Oct-11 6,200 $70.00 $95.56 Oct-11 Oct-11 Oct-11 5,580 $90.28
  Oct-11 5,270 $84.00 Nov-11 12,000 $75.00 $89.20 Nov-11 6,000 $70.00 $95.56
  Nov-11 Nov-11 Nov-11 5,400 $90.28 Nov-11 5,100 $84.00 Dec-11 12,400 $75.00
  $89.20 Dec-11 6,200 $70.00 $95.56 Dec-11 Dec-11 Dec-11 5,580 $90.28 Dec-11
  5,270 $84.00 Jan-12 Jan-12 12,400 $70.00 $95.56 Jan-12 Jan-12 4,139 $88.30
  Jan-12 821 $90.28 Jan-12 3,100 $84.00 Feb-12 Feb-12 11,600 $70.00 $95.56
  Feb-12 Feb-12 4,139 $88.30 Feb-12 501 $90.28 Feb-12 2,900 $84.00 Mar-12
  Mar-12 12,400 $70.00 $95.56 Mar-12 Mar-12 4,139 $88.30 Mar-12 821 $90.28
  Mar-12 3,100 $84.00 Apr-12 Apr-12 12,000 $70.00 $95.56 Apr-12 Apr-12 4,139
  $88.30 Apr-12 661 $90.28 Apr-12 3,000 $84.00 May-12 May-12 12,400 $70.00
  $95.56 May-12 May-12 4,139 $88.30 May-12 821 $90.28 May-12 3,100 $84.00
  Jun-12 Jun-12 12,000 $70.00 $95.56 Jun-12 Jun-12 4,139 $88.30 Jun-12 661
  $90.28 Jun-12 3,000 $84.00 Jul-12 Jul-12 12,400 $70.00 $95.56 Jul-12 Jul-12
  4,139 $88.30 Jul-12 821 $90.28 Jul-12 3,100 $84.00 Aug-12 Aug-12 12,400
  $70.00 $95.56 Aug-12 Aug-12 4,139 $88.30 Aug-12 821 $90.28 Aug-12 3,100
  $84.00 Sep-12 Sep-12 12,000 $70.00 $95.56 Sep-12 Sep-12 4,139 $88.30 Sep-12
  661 $90.28 Sep-12 3,000 $84.00 Oct-12 Oct-12 12,400 $70.00 $95.56 Oct-12
  Oct-12 4,139 $88.30 Oct-12 821 $90.28 Oct-12 3,100 $84.00 Nov-12 Nov-12
  12,000 $70.00 $95.56 Nov-12 Nov-12 4,139 $88.30 Nov-12 661 $90.28 Nov-12
  3,000 $84.00 Dec-12 Dec-12 12,400 $70.00 $95.56 Dec-12 Dec-12 4,139 $88.30
  Dec-12 821 $90.28 Dec-12 3,100 $84.00 Jan-13 Jan-13 Jan-13 Jan-13 12,974
  $88.30 Jan-13 976 $90.28 Jan-13 2,480 $84.00 Feb-13 Feb-13 Feb-13 Feb-13
  12,974 $88.30 Feb-13 0 $90.28 Feb-13 1,866 $84.00 Mar-13 Mar-13 Mar-13 Mar-13
  12,974 $88.30 Mar-13 976 $90.28 Mar-13 2,480 $84.00 Apr-13 Apr-13 Apr-13
  Apr-13 12,974 $88.30 Apr-13 526 $90.28 Apr-13 2,400 $84.00 May-13 May-13
  May-13 May-13 12,974 $88.30 May-13 976 $90.28 May-13 2,480 $84.00 Jun-13
  Jun-13 Jun-13 Jun-13 12,974 $88.30 Jun-13 526 $90.28 Jun-13 2,400 $84.00
  Jul-13 Jul-13 Jul-13 Jul-13 12,974 $88.30 Jul-13 976 $90.28 Jul-13 2,480
  $84.00 Aug-13 Aug-13 Aug-13 Aug-13 12,974 $88.30 Aug-13 976 $90.28 Aug-13
  2,480 $84.00 Sep-13 Sep-13 Sep-13 Sep-13 12,974 $88.30 Sep-13 526 $90.28
  Sep-13 2,400 $84.00 Oct-13 Oct-13 Oct-13 Oct-13 12,974 $88.30 Oct-13 976
  $90.28 Oct-13 2,480 $84.00 Nov-13 Nov-13 Nov-13 Nov-13 12,974 $88.30 Nov-13
  526 $90.28 Nov-13 2,400 $84.00 Dec-13 Dec-13 Dec-13 Dec-13 12,974 $88.30
  Dec-13 976 $90.28 Dec-13 2,480 $84.00 Jan-14 Jan-14 Jan-14 Jan-14 10,957
  $88.30 Jan-14 823 $90.28 Jan-14 2,170 $84.00 Feb-14 Feb-14 Feb-14 Feb-14
  10,957 $88.30 Feb-14 0 $90.28 Feb-14 1,643 $84.00 Mar-14 Mar-14 Mar-14 Mar-14
  10,957 $88.30 Mar-14 823 $90.28 Mar-14 2,170 $84.00 Apr-14 Apr-14 Apr-14 Apr-14
  10,957 $88.30 Apr-14 443 $90.28 Apr-14 2,100 $84.00 May-14 May-14 May-14
  May-14 10,957 $88.30 May-14 823 $90.28 May-14 2,170 $84.00 Jun-14 Jun-14
  Jun-14 Jun-14 10,957 $88.30 Jun-14 443 $90.28 Jun-14 2,100 $84.00 Jul-14
  Jul-14 Jul-14 Jul-14 10,957 $88.30 Jul-14 823 $90.28 Jul-14 2,170 $84.00
  Aug-14 Aug-14 Aug-14 Aug-14 10,957 $88.30 Aug-14 823 $90.28 Aug-14 2,170
  $84.00 Sep-14 Sep-14 Sep-14 Sep-14 10,957 $88.30 Sep-14 443 $90.28 Sep-14
  2,100 $84.00 Oct-14 Oct-14 Oct-14 Oct-14 10,957 $88.30 Oct-14 823 $90.28
  Oct-14 2,170 $84.00 Nov-14 Nov-14 Nov-14 Nov-14 10,957 $88.30 Nov-14 443
  $90.28 Nov-14 2,100 $84.00 Dec-14 Dec-14 Dec-14 Dec-14 10,957 $88.30 Dec-14
  823 $90.28 Dec-14 2,170 $84.00 Jan-15 Jan-15 Jan-15 Jan-15 9,626 $88.30
  Jan-15 604 $90.28 Jan-15 1,860 $84.00 Feb-15 Feb-15 Feb-15 Feb-15 9,626
  $88.30 Feb-15 0 $90.28 Feb-15 1,294 $84.00 Mar-15 Mar-15 Mar-15 Mar-15 9,626
  $88.30 Mar-15 604 $90.28 Mar-15 1,860 $84.00 Apr-15 Apr-15 Apr-15 Apr-15
  9,626 $88.30 Apr-15 274 $90.28 Apr-15 1,800 $84.00 May-15 May-15 May-15
  May-15 9,626 $88.30 May-15 604 $90.28 May-15 1,860 $84.00 Jun-15 Jun-15
  Jun-15 Jun-15 9,626 $88.30 Jun-15 274 $90.28 Jun-15 1,800 $84.00 Jul-15
  Jul-15 Jul-15 Jul-15 9,626 $88.30 Jul-15 604 $90.28 Jul-15 1,860 $84.00
  Aug-15 Aug-15 Aug-15 Aug-15 9,626 $88.30 Aug-15 604 $90.28 Aug-15 1,860
  $84.00 Sep-15 Sep-15 Sep-15 Sep-15 9,626 $88.30 Sep-15 274 $90.28 Sep-15
  1,800 $84.00 Oct-15 Oct-15 Oct-15 Oct-15 Oct-15 10,230 $90.28 Oct-15 1,860
  $84.00 

  






 


 


Schedule 7.20 -2












 


SCHEDULE 9.05

INVESTMENTS


 


None.


 


Schedule 9.05 - 1