**Exhibit10.9**

 

 

AMENDED AND RESTATEDCREDIT AGREEMENT

 

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CARBON ENERGY CORPORATION(USA)

 

 

and

 

 

BANK OF OKLAHOMA,NATIONAL ASSOCIATION

 

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DECEMBER 31, 2002

 

 

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**AMENDED AND RESTATED CREDIT AGREEMENT**

 

THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as ofDecember 31, 2002, is by and between CARBON ENERGY CORPORATION (USA), aColorado corporation (“Borrower”), and BANK OF OKLAHOMA, NATIONAL ASSOCIATION,a national banking association (“BOK”).

 

**RECITALS**

 

A.  Borrowerand Wells Fargo Bank, N.A. (“Wells Fargo”) are parties to an Amended andRestated Credit Agreement dated as of August 14, 2002, as previously amended(as so amended, the “Prior Credit Agreement”).

 

B.  Borrowerand BOK desire that this Amended and Restated Credit Agreement be executed anddelivered in order to provide for the terms: (1) upon which BOK will purchasethe Wells Fargo Loan (as defined below) from Wells Fargo, (2) upon which BOKwill make advances to Borrower and issue letters of credit upon the request ofBorrower and by which such advances and letters of credit will be governed andrepaid, and (3) upon which BOK will extend credit to Borrower in connectionwith Borrower’s hedging activities through BOK in order to facilitate suchhedging activities and by which such extensions of credit will be governed andrepaid.

 

**AGREEMENT**

 

NOW, THEREFORE, in consideration of the premises andthe mutual covenants and agreements contained herein, the parties hereto agreeas follows:

 

ARTICLE I

 

Definitions andReferences

 

Section 1.1.  DefinedTerms.  As used in this Agreement,each of the following terms shall have the meaning given it in this Section 1.1or in the sections and subsections referred to below:

 

“Advance” means an advance of funds by BOK toor for the account of Borrower pursuant to Section 2.1 below.

 

“Affiliate” means, as to any Person, eachPerson that directly or indirectly (through one or more intermediaries orotherwise) controls, is controlled by, or is under common control with, thatPerson; provided that, for the purposes of this definition, a Person shall bedeemed to control another Person if the controlling Person possesses, directlyor indirectly, the power to direct or control the direction of the managementand policies of such entity, whether through the ownership of capital stock,partnership or membership interests or other interests therein, by contract orotherwise, and shall include without limitation any general partner or anycontrolling

 

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stockholder, controlling member or controlling owner thereof.

 

“Agreement” means this Amended and RestatedCredit Agreement.

 

“Borrower” means Carbon Energy Corporation(USA), a Colorado corporation.

 

“Borrower/BOK Hedging Assets” means HedgingAssets of Borrower in connection with any one or more hedging transactions ofBorrower arranged through BOK and as to which BOK is acting as thecounterparty.

 

“Borrower/BOK Hedging Obligations” meansHedging Obligations incurred by Borrower to BOK in connection with any one ormore hedging transactions of Borrower arranged through BOK and as to which BOKis acting as the counterparty.

 

“Borrowing Base” means, at any time prior tothe Maturity Date, the aggregate loan value of all Borrowing Base Properties,as determined by BOK in its sole and absolute discretion, using suchassumptions as to pricing, discount factors, discount rates, expenses and otherfactors as BOK customarily uses as to borrowing-base oil and gas loans at thetime such determination is made; provided that the Borrowing Base for theBorrowing Base Period from the date of this Agreement through the firstredetermination or reduction of the Borrowing Base pursuant to Section 2.9below shall be $19,000,000, unless Borrower and BOK hereafter mutually agreeupon a different amount.

 

“Borrowing Base Notice” means a written noticesent to Borrower by BOK notifying Borrower of the Borrowing Base determined byBOK for the upcoming Borrowing Base Period or other period.

 

“Borrowing Base Period” means: (a) the timeperiod from the date of this Agreement through May 31, 2003; (b) thereafter,each six-month period beginning on June 1 or December 1 of each year, until theJune 1 or December 1 most nearly preceding the Maturity Date; and (c)thereafter, the time period from the June 1 or December 1 most nearly precedingthe Maturity Date through the Maturity Date.

 

“Borrowing Base Properties” means any and allinterests of Borrower, whether now owned or hereafter acquired, in any and alloil and/or gas properties, wells, leases, gathering systems, processing plantsand other related rights and assets to which BOK now or hereafter gives valuein determining the Borrowing Base.

 

“Business Day” means: (a) with respect to themaking, prepaying, repaying or issuance of, or otherwise relating to, any LIBORTranche, any day which is not a Saturday, a Sunday or a legal holiday on whichcommercial banks are authorized or required to be closed in Denver, Colorado,in Tulsa, Oklahoma or in New York, New York and which is also a day on whichdealings are carried on in the London interbank eurocurrency market, and (b)for all other purposes hereof, any day which is not a Saturday, a Sunday or alegal holiday on which commercial banks are authorized or required to be closedin Denver, Colorado or in Tulsa, Oklahoma.

 

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“Capital Additions” means, as to any Person:(a) the net proceeds of any sale by or on behalf of such Person or anysubsidiary of such Person of any common stock, preferred stock, notes, debenturesor other securities issued by such Person or any subsidiary of such Person, netof reasonable brokerage, printing, accounting, engineering, legal and othercosts actually paid to third parties in connection therewith; plus (b) any andall capital contributions to such Person or other capital additions to suchPerson.

 

“Collateral” means all tangible or intangiblereal or personal property which, under the terms of any Security Document, isor is purported to be covered thereby or subject thereto.

 

“Commitment Amount” means, at any time, thelesser of:  (a)  the Maximum Loan Amount, or (b) theBorrowing Base at that time.

 

“Commitment Fee Rate” means, at any time duringa calendar quarter, the per annum rate set forth below corresponding to theapplicable Loan Usage Factor, which shall be determined as of the close ofbusiness on the last Business Day of the preceding calendar quarter:

 
| **Loan Usage Factor** |   | **Commitment  Fee Rate** |   |
|-----------------------|--------|--------------------------|--------|
| > 60%              |   | 0.375                    | %      |
| < 60%              |   | 0.500                    | %      |

 

“Consolidated” means, as to any Person, the combinedfinancial statements, financial position, financial condition, net income,assets, liabilities and other financial data of such Person and any and allAffiliates of such Person that would be considered consolidated Affiliatesunder GAAP.

 

“Cumulative Net Income” means, with respect toany Person, the sum of such Person’s net income, determined in accordance withGAAP or with another accounting system approved in writing by BOK, for eachcompleted Fiscal Quarter after the date from which such calculation is beingmade; provided that, if such Person’s net income is negative for any suchFiscal Quarter, in computing Cumulative Net Income, such Person’s net incomeshall be deemed to be zero for that Fiscal Quarter.

 

“Current Ratio” means, at any time and fromtime to time, the ratio of: (a) Borrower’s current assets (including as acurrent asset any unused availability of the Revolving Loan, excluding assetsresulting from any mark-to-market of unliquidated commodity or interest ratehedge contracts); to (b) the sum of Borrower’s current liabilities (excludingcurrent maturities of the Revolving Loan and liabilities resulting from anymark-to-market of unliquidated commodity or interest rate hedge contracts), alldetermined in accordance with GAAP or with another accounting system agreed toin writing by BOK.

 

“Debt” means, as to any Person, allindebtedness, liabilities and obligations of such Person, whether primary orsecondary, direct or indirect, absolute or contingent.

 

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“Default” means any Event of Default and anydefault, event or condition which would, with the giving of any requisitenotice and/or the passage of time, constitute an Event of Default.

 

“Distribution” means any distribution payable incash or property to any stockholder of Borrower, or any purchase, redemption orretirement of, or other payment with respect to, any capital stock of Borrower.

 

“ERISA” means the Employee Retirement IncomeSecurity Act of 1974, as amended from time to time, together with all rules andregulations promulgated with respect thereto.

 

“ERISA Plan” means any pension benefit plansubject to Title IV of ERISA maintained by Borrower or any Affiliate ofBorrower to which Borrower is required to contribute.

 

“Event of Default” has the meaning given suchterm in Section 7.1 below.

 

“Extended Hedging Repayment Date” means, withrespect to any Borrower/BOK Hedging Obligation payable on any particularHedging Settlement Date, such later date (if any such later date is agreed toby the parties in the relevant confirmation or other document deliveredpursuant to or in connection with the ISDA Agreement) to which Borrower’sobligation to make payment or delivery is extended.

 

“Fiscal Quarter” means a three-month periodending on the last day of March, June, September or December of any year.

 

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

 

“GAAP” means those generally acceptedaccounting principles and practices which are recognized as such by theFinancial Accounting Standards Board (or any generally recognized successor)and which, in the case of Borrower: (a) are applied for all periods in aconsistent manner, and (b) are consistently applied for all periods after thedate hereof so as to properly reflect the financial condition, and the resultsof operations and changes in financial position, of Borrower.

 

“Guarantor” means Carbon Energy Corporation, aColorado corporation.

 

“Guaranty” means the Guaranty executed anddelivered by Guarantor to BOK to guaranty the Obligations.

 

“Hedging Assets” means, with respect to anyPerson, all assets of such Person under commodity hedge, commodity swap,exchange, collar or cap agreements, fixed price agreements and all otheragreements and arrangements designed to protect such Person against changes ininterest rates or currency exchange rates or fluctuations in the price of oil,gas, hydrocarbons or other commodities.

 

 “HedgingL/C” means the standby letter of credit in the amount of $1,800,000, issuedby BOK pursuant to Section 2.2 below, naming Wells Fargo, as beneficiary, forthe purpose of

 

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providing security for amounts now or hereafter owed by Borrower toWells Fargo with respect to hedging positions initiated by Borrower prior tothe date hereof as to which Wells Fargo is the counterparty.

 

“Hedging Loan” has the meaning given such termin Section 2.2 below.

 

“Hedging Obligations” means, with respect toany Person, all liabilities of such Person under commodity hedge, commodityswap, exchange, collar or cap agreements, fixed price agreements and all otheragreements and arrangements designed to protect such Person against changes ininterest rates or currency exchange rates or fluctuations in the price of oil,gas, hydrocarbons or other commodities.

 

“Hedging Settlement Date” means, with respectto any Borrower/BOK Hedging Obligation, the first date upon which, under theISDA Agreement (and without consideration of any extensions granted thereunderor in connection therewith), payment or delivery is due from Borrower to BOKfor any amount payable in respect of such Borrower/BOK Hedging Obligation.

 

“Initial Advance” means the first Advance, tobe made within 30 days of the date hereof, in the amount necessary to repay infull Borrower’s existing indebtedness to Wells Fargo, up to, but not in excessof, the Commitment Amount.

 

“Initial Engineering Report” means the reportor reports covering the Borrowing Base Properties, dated effective as ofDecember 31, 2001, prepared by Ryder Scott Company, a true and correct copy ofwhich has been furnished by Borrower to BOK.

 

“Initial Financial Statements” means theaudited annual financial statements of Guarantor dated as of December 31, 2001,and the quarterly financial statements of Guarantor dated as of September 30,2002, copies of  which Initial FinancialStatements have heretofore been delivered by Guarantor to BOK.

 

“Interest Rate Election” means an electiondelivered by Borrower to BOK from time to time in the form of Exhibit Dattached hereto and made a part hereof.

 

“ISDA Agreement” means an ISDA Master Agreementhereafter entered into between Borrower and BOK governing hedging transactionsarranged by BOK on behalf of Borrower and as to which BOK is named as thecounterparty.

 

“Letter of Credit” means a standby letter ofcredit issued by BOK pursuant to Section 2.1 below, which shall not include theHedging L/C.

 

“LIBOR (Adjusted)” means, with respect to eachLIBOR Tranche and the related LIBOR Interest Period, the rate of interest perannum determined pursuant to the following formula:

 
|                |   | LIBOR (Unadjusted)               |   |
|---------------------|--------|----------------------------------|--------|
| LIBOR (Adjusted)  = |   | 1.00 - LIBOR Reserve  Percentage |   |

 

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“LIBOR Interest Period” means, with respect toeach LIBOR Tranche, a period of one, two, three, four or six months, asspecified in the Interest Rate Election submitted by Borrower pursuant toSection 2.3(b) below with respect thereto, beginning on and including the datespecified in such Interest Rate Election (which must be a Business Day) andending on (but not including, for the purpose of computing the number of daysin the LIBOR Interest Period) the date which corresponds numerically to suchbeginning date one, two, three, four or six months thereafter (or if such monthhas no numerically corresponding date, on the last Business Day of such month);provided that each LIBOR Interest Period which would otherwise end on a daywhich is not a Business Day shall end on the next succeeding Business Dayunless such next succeeding Business Day is the first Business Day of acalendar month, in which case such LIBOR Interest Period shall end on theBusiness Day next preceding such numerically corresponding day.  No LIBOR Interest Period may be elected whichwould end after the Maturity Date.

 

“LIBOR Reserve Percentage” means, with respectto any LIBOR Interest Period, the reserve percentage (expressed as a decimal)equal to the maximum aggregate reserve requirements (including all basic,emergency, supplemental, marginal and other reserves and taking into accountany transitional adjustments or other scheduled changes in reserverequirements) specified under regulations issued from time to time by the Boardof Governors of the Federal Reserve System and then applicable to assets orliabilities consisting of and including “Eurocurrency Liabilities”, ascurrently defined in Regulation D of the Board of Governors of the FederalReserve System, having a term approximately equal or comparable to such LIBORInterest Period.

 

“LIBOR Spread” means, at any time during acalendar quarter, with respect to any LIBOR Tranche (including withoutlimitation a LIBOR Tranche that was outstanding prior to the first day of suchcalendar quarter), the per annum rate set forth below corresponding to theapplicable Loan Usage Factor, which shall be determined as of the close ofbusiness on the last Business Day of the preceding calendar quarter:

 
| **Loan Usage  Factor** |   | **LIBOR  Spread** |   |
|------------------------|--------|-------------------|--------|
|                   |   |              |   |
| >  90%              |   | 2.700             | %      |
| >  80%, < 90%    |   | 2.500             | %      |
| >  60%, < 80%    |   | 2.250             | %      |
| >  40%, < 60%    |   | 2.000             | %      |
| < 40%               |   | 1.750             | %      |

 

“LIBOR Tranche” means a portion of theRevolving Loan outstanding for a specific LIBOR Interest Period and bearinginterest at a fixed rate based upon LIBOR (Adjusted).

 

“LIBOR (Unadjusted)” means, with respect toeach LIBOR Tranche and the related LIBOR Interest Period, the rate of interestper annum (expressed as a decimal) determined by BOK, in accordance with itscustomary practices, to be representative of the rates at which deposits ofU.S. dollars are being offered in the London interbank eurocurrency market for

 

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delivery on the first day of such LIBOR Interest Period in an amountequal or comparable to the amount of such LIBOR Tranche and for a period oftime equal or comparable to the length of such LIBOR Interest Period.  LIBOR (Unadjusted), as determined by BOKwith respect to a particular LIBOR Tranche, shall be fixed at such rate for theduration of the associated LIBOR Interest Period.  If BOK is unable to determine LIBOR (Unadjusted) as describedabove for any LIBOR Tranche, or if the associated LIBOR (Adjusted) would exceedthe maximum rate of interest, if any, then permitted to be charged on the Noteunder applicable law, Borrower shall be deemed to have elected to have includedin the Prime Rate Portion the portion of the Revolving Loan that wouldotherwise have been included in such LIBOR Tranche.

 

“Lien” means, with respect to any property orassets, any right or interest therein of a creditor to secure Debt owed to himor any other arrangement with such creditor which provides for the payment ofsuch Debt out of such property or assets or which allows him to have such Debtsatisfied out of such property or assets prior to the general creditors of anyowner thereof, including without limitation any lien, mortgage, securityinterest, pledge, deposit, production payment, rights of a vendor under anytitle retention or conditional sale agreement or lease substantially equivalentthereto, or any other charge or encumbrance for security purposes, whetherarising by law or agreement or otherwise, but excluding any right of offsetwhich arises without agreement in the ordinary course of business.

 

“Loan Documents” means this Agreement, the SecurityDocuments, the Note, the IDSA Agreement, the Guaranty, applications for Lettersof Credit, Advance requests and all other agreements, certificates, legalopinions and other documents, instruments and writings heretofore or hereafterdelivered in connection herewith or therewith.

 

‘‘Loan Usage Factor” means, as of the time ofany determination thereof (which shall be as of the close of business on thelast Business Day of any calendar quarter), the ratio of: (a) (1) the aggregateamount of all Advances outstanding hereunder, including any Advances made onthat Business Day, plus (2) the face amounts of all Letters of Creditoutstanding hereunder, including any Letters of Credit issued on that BusinessDay, to (b) the Commitment Amount in effect at that time; provided that the“Loan Usage Factor” shall be deemed to be 85% as of the close of business onthe last Business Day of the calendar quarter ended September 30, 2002.

 

“Loans” means the Revolving Loan and theHedging Loan.

 

“Maturity Date” means the earlier of: (a)October 31, 2005, or (b) such date on which the Revolving Loan is due andpayable in full by reason of the occurrence of an Event of Default, asestablished pursuant to section 7.1 below; provided that, upon the request ofBorrower, BOK may, in its sole discretion, extend said date to a date not laterthan December 31, 2008 by giving written notice of such extension to Borrower,but nothing contained in this Agreement, the Note or any other Loan Documentshall be deemed to commit or require BOK to grant any such extension.

 

“Maturity Date (Hedging)” means the earlier of:(a)  October 31, 2005, or (b) such date on which the Hedging Loan isdue and payable in full by reason of the occurrence of an Event of Default, asestablished pursuant to Section 7.1 below; provided that, upon the request of

 

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Borrower, BOK may, in its sole discretion, extend said date to a datenot later than December 31, 2008 by giving written notice of such extension toBorrower, but nothing contained in this Agreement, the ISDA Agreement or anyother Loan Document shall be deemed to commit or require BOK to grant any suchextension.

 

“Maximum Loan Amount” means $19,000,000;provided that, upon the request of Borrower, BOK may, in its sole discretionand upon such terms and conditions as BOK may determine, increase said amountto an amount not greater than $40,000,000 by giving written notice of suchincrease to Borrower, but nothing contained in this Agreement, the Note or anyother Loan Document shall be deemed to commit or require BOK to grant any suchincrease.

 

“Note” means a promissory note in the form ofExhibit A attached hereto and made a part hereof, duly executed and deliveredby Borrower, which promissory note shall evidence Borrower’s obligation torepay the Revolving Loan.

 

“Obligated Person” means Borrower or Guarantor.

 

“Obligations” means all Debt from time to timeowing by Borrower to BOK under or pursuant to any of the Loan Documents.  “Obligation” means any part of theObligations.

 

“Oil and Gas Interests” means any and all oiland/or gas properties, wells, leases, gas gathering systems, processing plantsand other related real and/or personal property and interests now or hereafterowned by Borrower.

 

“Payment Date” means the last Business Day ofeach calendar month, commencing December 31, 2002, and the Maturity Date.

 

“Person” means an individual, corporation,partnership, association, joint-stock company, trust or trustee thereof, estateor executor thereof, limited liability company, unincorporated organization orjoint venture, court or governmental unit or any agency or subdivision thereof,or any other legally recognizable entity.

 

“Prime Rate” means the fluctuating interestrate per annum announced from time to time by JPMorgan Chase Bank (or anysuccessor thereto) as its prime rate, adjusted effective as of the effectivedate of any change in the prime rate so announced by JPMorgan Chase Bank (orany successor thereto).

 

“Prime Rate Portion” means that portion of theRevolving Loan bearing interest based upon the Prime Rate.

 

“Prime Rate Spread” means, at any time during acalendar quarter, the per annum rate set forth below corresponding to theapplicable Loan Usage Factor, which shall be determined as of the close ofbusiness on the last Business Day of the preceding calendar quarter:

 

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| **Loan Usage Factor** |   | **Prime Rate  Spread** |   |
|-----------------------|--------|------------------------|--------|
| >  90%             |   | +0.250                 | %      |
| > 80%, < 90%    |   | 0.000                  | %      |
| > 60%, < 80%    |   | —0.500            | %      |
| > 40%, < 60%    |   | —0.750            | %      |
| < 40%              |   | —1.000            | %      |

 

“Prior Credit Agreement” has the meaning givensuch term in Recital A above.

 

“Revolving Loan” has the meaning given suchterm in Section 2.1 below.

 

“Security Documents” means all securityagreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,financing statements, continuation statements, extension agreements and otheragreements or instruments now, heretofore, or hereafter delivered by any or allof the Obligated Persons or any other Person to BOK in connection with thisAgreement, the Prior Credit Agreement or any transaction contemplated hereby orthereby, to secure or guaranty the payment of any part of the Obligations orthe performance of any other duties and obligations of any or all of the ObligatedPersons under the Loan Documents, whenever made or delivered.

 

“Subordinated Debt” means any indebtedness orother obligation of Borrower, to the extent that the rights of the holdersthereof to enforce the indebtedness or other obligation of Borrower thereunderhave been subordinated to the rights of BOK hereunder or in connection herewithby subordination agreements executed by the holders of the Subordinated Debtand satisfactory in form and substance to BOK.

 

“Tangible Net Worth” means, as to any Person:(a) the equity in such Person owned by the shareholders, partners, members orother owners of such Person, determined in accordance with GAAP or with anotheraccounting system approved in writing by BOK, less (b) goodwill and any and allother intangible assets of such Person, determined in accordance with GAAP orwith another accounting system approved in writing by BOK.

 

“Taxes” has the meaning given such term inSection 3.7 below.

 

“Termination Event” means: (a) the occurrencewith respect to any ERISA Plan of: (1) a reportable event described in Section4043(b) (5) of ERISA or (2) any other reportable event described in Section4043 of ERISA other than a reportable event not subject to the provision for30-day notice to the Pension Benefit Guaranty Corporation under suchregulations, or (b) the withdrawal of Borrower or of any Affiliate of Borrowerfrom an ERISA Plan during a plan year in which it was a “substantial employer”as defined in Section 4001(a) (2) of ERISA, or (c) the filing of a notice ofintent to terminate any ERISA Plan or the treatment of any ERISA Plan amendmentas a termination under Section 4041 of ERISA, or (d) the institution ofproceedings to terminate any ERISA Plan by the Pension Benefit GuarantyCorporation under Section 4042 of ERISA, or (e) any other event or conditionwhich might constitute grounds under Section 4042 of ERISA for the terminationof, or the appointment of a trustee to administer, any ERISA Plan.

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“Wells Fargo” has the meaning given such termin Recital A above.

 

“Wells Fargo Loan” means the loan made by WellsFargo to Borrower pursuant to the Prior Credit Agreement.

 

Section 1.2.            Incorporationof Exhibits.  All Exhibits attachedto this Agreement are a part hereof for all purposes.

 

Section 1.3.            Amendmentof Defined Instruments.  Unless thecontext otherwise requires or unless otherwise provided herein, the termsdefined in this Agreement which refer to a particular agreement, instrument ordocument also refer to and include all renewals, extensions and modificationsof such agreement, instrument or document; provided that nothing contained inthis section shall be construed to authorize any such renewal, extension ormodification.

 

Section 1.4.            Referencesand Titles.  All references in thisAgreement to Exhibits, Schedules, articles, sections, subsections and othersubdivisions refer to the Exhibits, Schedules, articles, sections, subsectionsand other subdivisions of this Agreement unless expressly providedotherwise.  Titles appearing at thebeginning of any subdivisions are for convenience only and do not constituteany part of such subdivisions and shall be disregarded in construing thelanguage contained in such subdivisions. The words “this Agreement”, “this instrument”, “herein”, “hereof”,“hereby”, “hereunder” and words of similar import refer to this Agreement as awhole and not to any particular subdivision unless expressly so limited.  The phrases “this section” and “thissubsection” and similar phrases refer only to the sections or subsectionshereof in which such phrases occur. Unless set off with asterisks in this Agreement (i.e., *or*), the word“or” has the inclusive meaning frequently identified by the phrase“and/or”.  Pronouns in masculine,feminine and neuter genders shall be construed to include any other gender, andwords in the singular form shall be construed to include the plural and viceversa, unless the context otherwise requires.

 

Section 1.5.            Calculationsand Determinations.  All interestaccruing under the Loan Documents shall be calculated on the basis of actualdays elapsed (including the first day but excluding the last) and a year of 360days.  Unless otherwise expresslyprovided herein or unless BOK otherwise consents, all financial statements andreports furnished to BOK hereunder shall be prepared and all financialcomputations and determinations pursuant hereto shall be made in accordancewith GAAP or with another accounting system agreed to in writing by BOK.

 

ARTICLE II

 

The Loans

 

Section 2.1.            TheRevolving Loan.  (a)  Subject to the other terms and conditions ofthis Agreement, BOK agrees to:  (1) makeAdvances to Borrower from time to time requested upon written notice to BOKfrom Borrower no later than noon, Denver time, at least one Business Day priorto any Advance, and (2) issue Letters of Credit from time to time requestedupon written

 

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notice to BOK from Borrower no later than five Business Days prior tothe date of issuance of such Letter of Credit.

 

(b)           Each request by Borrower for anAdvance shall be in the form of Exhibit B attached hereto and made a parthereof.  Each request by Borrower forthe issuance of a Letter of Credit shall be in the form of Exhibit C attachedhereto and made a part hereof, and shall be accompanied by an application forissuance of a letter of credit on BOK’s then-standard form, duly executed byBorrower.

 

(c)           BOK shall not have any obligation to:(1) make an Advance on or after the Maturity Date, (2) issue or renew a Letterof Credit which does not expire prior to the Maturity Date, (3) issue a LIBORTranche as to which the LIBOR Interest Period does not expire prior to theMaturity Date, (4) issue a LIBOR Tranche at any time when four or more priorLIBOR Tranches remain outstanding, (5) make an Advance in an amount less than$10,000, (6) issue a LIBOR Tranche in an amount less than $500,000, (7) issue aLIBOR Tranche in an amount which is not an integral multiple of $100,000,or (8)make an Advance or issue a Letter of Credit if, after such Advance is made orsuch Letter of Credit is issued, the aggregate amount of all Advancesoutstanding hereunder plus the sum of the face amounts of all Letters of Creditoutstanding hereunder would exceed the Commitment Amount.

 

(d)           Each payment by BOK under a Letter ofCredit shall be deemed to be an Advance included in the Prime Rate Portion,bearing interest from the date of such payment, shall be entitled to allbenefits of the Security Documents and shall be subject to all terms of thisAgreement and any and all other applicable Loan Documents.

 

(e)           The Advances and Letters of Creditdescribed in this Section 2.1 shall be herein collectively referred to as the“Revolving Loan”.  Within the limitationsset forth in this Section 2.1 and subject to the other terms and provisions ofthis Agreement, Borrower may borrow, repay and reborrow the Revolving Loanhereunder.

 

Section 2.2.            TheHedging Loan.  (a) Subject to theother terms and conditions of this Agreement, in addition to the Revolving Loandescribed in Section 2.1 above, BOK agrees to: (1) make short-term extensionsof credit to Borrower, each such credit extension to be in an amount equal tothe amount of the applicable Borrower/BOK Hedging Obligation and for the timeperiod from the applicable Hedging Settlement Date for that Borrower/BOKHedging Obligation to the Extended Hedging Repayment Date for that Borrower/BOKHedging Obligation, and (2) issue the Hedging L/C and deliver it to Wells Fargocontemporaneously with the Initial Advance.

 

(b)           BOK shall not have any obligation tomake any credit extension to Borrower in connection with any Borrower/BOKHedging Obligation: (1) which arises on or after the Maturity Date (Hedging),(2) which relates to a hedging transaction not arranged through BOK or as towhich BOK is not acting as the counterparty, or (3) if, immediately after suchcredit extension, the following would exceed $3,000,000: (A) the aggregateamount of all credit extensions from BOK to Borrower in connection with

 

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Borrower/BOK Hedging Obligations, minus (B) theaggregate amount of all Borrower/BOK Hedging Assets, plus (C) if the HedgingL/C remains outstanding, the face amount of the Hedging L/C.

 

(c)           Each credit extension from BOK toBorrower in connection with Borrower/BOK Hedging Obligations pursuant to theterms of this Section 2.2 shall be entitled to all benefits of the SecurityDocuments and shall be subject to all terms of this Agreement and any and allother applicable Loan Documents.

 

(d)           Any and all credit extensions fromBOK to Borrower in connection with Borrower/BOK Hedging Obligations pursuant tothe terms of this Section 2.2 shall be herein collectively referred to as the“Hedging Loan”.

 

Section 2.3.            TheNote; ISDA Agreement; Interest. (a)  Borrower’s obligation torepay the Revolving Loan, with interest thereon, shall be evidenced by theNote.  Borrower’s obligation to repaythe Hedging Loan, with interest, if any, thereon, shall be evidenced by theISDA Agreement.  In the event anyprovision contained in the Note or the ISDA Agreement conflicts with aprovision contained in this Agreement, the provisions of this Agreement shallcontrol.

 

(b)           At any time and from time to timehereafter, if Borrower desires to include in a LIBOR Tranche all or any portionof the Revolving Loan which is not already included in a LIBOR Tranche,Borrower shall deliver an Interest Rate Election to BOK at least three BusinessDays prior to the first day of the requested LIBOR Interest Period, specifyingthe dollar amount it desires to have included in the LIBOR Tranche, the firstday of the LIBOR Interest Period and the duration of the LIBOR Interest Period.  Any portion of the Revolving Loan which isnot included in a LIBOR Tranche shall be included in the Prime Rate Portion.

 

(c)           (1) Except as otherwise provided in(4) below, interest on each LIBOR Tranche shall accrue at a fixed annual rate(subject to adjustment for variations in the LIBOR Spread) equal to LIBOR(Adjusted) with respect to such LIBOR Tranche plus the applicable LIBOR Spreadfor the calendar quarter for which interest is being calculated.  (2) Except as otherwise provided in (4) below,interest on the Prime Rate Portion shall accrue at a fluctuating annual rateequal to the Prime Rate plus the Prime Rate Spread.  (3) Except as otherwise provided in (4) below, interest on theHedging Loan shall accrue as described in the ISDA Agreement; provided that, asto any Borrower/BOK Hedging Obligation, Borrower shall not be required to payinterest for the time period from the Hedging Settlement Date for thatBorrower/BOK Hedging Obligation to the Extended Hedging Repayment Date for thatBorrower/BOK Hedging Obligation.  (4)From and after the occurrence, and during the continuance, of any Event ofDefault hereunder, interest on the Loans shall accrue, from the date ofoccurrence of the Event of Default until the date the Event of Default iscured, at a fluctuating annual rate equal to the Prime Rate plus threepercentage points per annum.

 

(d)           Interest accrued on the Prime RatePortion shall be due and payable on 

 

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each Payment Date. Interest accrued on each LIBOR Tranche shall be due and payable on thelast day of the LIBOR Interest Period for such LIBOR Tranche (and, in the caseof any LIBOR Tranche having a LIBOR Interest Period in excess of three months,on the three-month anniversary of the first day of such LIBOR Interest Period).  Any remaining balance of interest on theRevolving Loan shall be due and payable not later than the Maturity Date.  Interest accrued on the Hedging Loan shallbe due and payable on demand from BOK to Borrower, with any remaining balanceof such interest being due and payable not later than the Maturity Date(Hedging).

 

Section 2.4.            MandatoryPrincipal Payments.  (a)  If for any reason the aggregate outstandingprincipal balance of all Advances plus the sum of the face amounts of alloutstanding Letters of Credit shall exceed the Commitment Amount, Borrowershall, not later than 30 days after written notice thereof from BOK: (1) paythe excess to BOK in a lump sum; or (2) commence (and thereafter continue) anamortization schedule under which Borrower repays the Revolving Loan in anamount at least equal to the excess in six equal monthly principal installmentson the last Business Day of each calendar month, which amounts shall be inaddition to the monthly interest payments and any other principal paymentsotherwise due, such that the entire excess is paid within six months; or (3)execute and deliver to BOK additional mortgages, supplements to mortgages orother instruments satisfactory in form and substance to BOK, by which Borrowermortgages, pledges or hypothecates to BOK, or creates a security interest infor the benefit of BOK, sufficient additional Oil and Gas Interests to induceBOK to make a redetermination of the Borrowing Base such that the CommitmentAmount is increased to an amount no less than the aggregate outstandingprincipal balance of all Advances plus the sum of the face amounts of alloutstanding Letters of Credit.

 

(b)           The outstanding principal balance ofany credit extension under the Hedging Loan shall be due and payable on theExtended Hedging Repayment Date for that credit extension, but in no eventlater than the Maturity Date (Hedging).

 

(c)           The outstanding principal balance ofall Advances, together with all unpaid fees and expenses, shall be due andpayable not later than the Maturity Date.

 

Section 2.5.            VoluntaryPrepayments.  Borrower shall havethe right to prepay any or all Advances and any or all extensions of creditunder the Hedging Loan at any time, in whole or in part, without penalty orpremium (except as otherwise described in Section 3.5 below).

 

Section 2.6.            Terminationof Agreement.  Borrower shall havethe right at any time and from time to time, upon not less than three BusinessDays’ prior written notice to BOK, to terminate this Agreement.  Upon any termination of this Agreement,Borrower shall, at the time of such termination, prepay the Loans in full,cause all Borrower/BOK Hedging Obligations to be terminated and cause alloutstanding Letters of Credit to be terminated and BOK released from any andall liabilities thereunder or in connection therewith.  Any such prepayment shall be without penaltyor premium (except as otherwise described in Section 3.5 below).

 

Section 2.7.            Paymentsto BOK.  Borrower will pay to BOKeach payment which Borrower owes under the Loan Documents not later than 12:00noon, Denver time, on the due 

 

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date, in lawful money of the United States of America and inimmediately available funds.  Anypayment received after such time will be deemed to have been made on the nextfollowing Business Day.  Except asotherwise provided in this Agreement as to LIBOR Tranches, should any suchpayment become due and payable on a day other than a Business Day, the maturityof such payment shall be extended to the next succeeding Business Day, and, inthe case of a payment of principal or past due interest, interest shall accrueand be due and payable thereon for the period of such extension.  Each payment under a Loan Document shall bedue and payable at the place provided therein or, if no specific place ofpayment is provided, shall be due and payable at the place of payment of theNote.

 

Section 2.8.            Useof Proceeds.  In no event shall theproceeds of either of the Loans be used directly or indirectly for the purpose,whether immediate, incidental or ultimate, of purchasing, acquiring or carryingany “margin stock” (as such term is defined in Regulation U promulgated by theBoard of Governors of the Federal Reserve System) or to extend credit to othersdirectly or indirectly for the purpose of purchasing or carrying any suchmargin stock or margin securities. Borrower represents and warrants to BOK that Borrower is not engagedprincipally, or as one of its important activities, in the business of extendingcredit to others for the purpose of purchasing or carrying such marginstock.  The Loans and the proceeds ofthe Loans shall be used solely for the following: (a) as to the InitialAdvance, for the purchase by BOK from Wells Fargo of the Wells Fargo Loan andthe Prior Credit Agreement and related documents for an amount not in excess ofthe Commitment Amount; and (b) as to the remainder of the Loans, for thefunding of capital expenditures by Borrower relating to oil and gas properties,acquisitions by Borrower of other oil and gas properties, the extension ofcredit to Borrower to facilitate Borrower’s hedging activities arranged throughBOK and as to which BOK is acting as the counterparty, general working capitalpurposes of Borrower and other uses in the ordinary course of Borrower’sbusiness.

 

Section 2.9.            BorrowingBase Procedures.  (a) The BorrowingBase will be redetermined by BOK as of the first day of each Borrowing BasePeriod, based upon the engineering reports submitted by Borrower pursuant toSection 6.1(b) below, the production information submitted by Borrower pursuantto Section 6.1(b) below and such other information and data as BOK deemsrelevant.  BOK may, in its solediscretion, redetermine the Borrowing Base not more than one additional timeduring each calendar year prior to the Maturity Date.  BOK shall advise Borrower of each redetermination of theBorrowing Base by providing to Borrower a Borrowing Base Notice approximately10 days prior to the effectiveness of the redetermined Borrowing Base; providedthat if, due to any failure by Borrower to submit in a timely manner anyengineering report or other information required to be submitted by Borrowerhereunder or, if requested in writing by BOK, any additional information or dataneeded in connection with a redetermination of the Borrowing Base or due to anyother reason beyond the control of BOK, BOK does not provide a Borrowing BaseNotice at the time described above, then, unless BOK gives notice to thecontrary to Borrower, the Borrowing Base from the previous period shall becarried over into the new period until a Borrowing Base Notice has been sent toBorrower by BOK.

 

(b)           Inaddition to the Borrowing Base redeterminations described in Section 2.9(a)above, upon any sale, transfer or other disposition of any Borrowing BaseProperty by

 

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Borrower, BOK may reduce the Borrowing Base by the amount that thetransferred Borrowing Base Property had previously been credited in determiningthe Borrowing Base.

 

ARTICLE III

 

Security; Fees; LIBORProvisions; Taxes; Increased Capital

 

Section 3.1.            TheSecurity.  The Obligations will besecured by the Security Documents and any additional Security Documentshereafter delivered by any Person and accepted by BOK.

 

Section 3.2.            Perfectionand Protection of Security Interests and Liens.  Borrower will from time to time deliver to BOK any amendments,financing statements, continuation statements, extension agreements and otherdocuments, properly completed and executed (and acknowledged when required) byBorrower in form and substance reasonably satisfactory to BOK, which BOK mayrequest for the purpose of perfecting, confirming or protecting BOK’s Liens andother rights in the Collateral.

 

Section 3.3.            BankAccounts and Offset.  To secure therepayment of the Obligations, Borrower hereby grants to BOK a securityinterest, a lien, and a right of offset, each of which shall be upon andagainst: (a) any and all moneys, securities or other property (and the proceedstherefrom) of Borrower now or hereafter held or received by or in transit toBOK from or for the account of Borrower, whether for safekeeping, custody,pledge, transmission, collection or otherwise, (b) any and all deposits (generalor special, time or demand, provisional or final) of Borrower with BOK, and (c)any other credits and claims of Borrower at any time existing against BOK,including without limitation claims under certificates of deposit; providedthat accounts held in Borrower’s name as a trustee or in another fiduciarycapacity shall not be subject to the rights granted to BOK in this Section3.3.  Upon the occurrence of any Eventof Default, BOK is hereby authorized to foreclose upon, offset, appropriate,and apply, at any time and from time to time, without notice to Borrower, anyand all items hereinabove referred to against the Obligations (whether or notsuch Obligations are then due and payable).

 

Section 3.4.            Fees.  (a) Borrower shall pay to BOK, within 30 days after the end of each calendarquarter (and as of the Maturity Date), commencing with the date of thisAgreement and ending on the Maturity Date, a commitment fee in an amount equalto: (1) the applicable Commitment Fee Rate, times (2) the excess of the CommitmentAmount over the sum of the aggregate outstanding principal balance of allAdvances plus the sum of the face amounts of all outstanding Letters of Credit,computed on a daily basis for such calendar quarter.

 

(b)           Borrower shall pay to BOK with respectto each Letter of Credit a fee in an amount equal to the greater of: (1) twopercent per annum times the face amount of such Letter of Credit, or (2)$500.00, which fee shall be due and payable at the time of issuance (and againat the time of any renewal) of such Letter of Credit.  Borrower shall pay to BOK with respect to the Hedging L/C a feein an amount equal to $10,000.00.

 

(c)           If BOK determines that marketconditions so warrant, upon notice from BOK to Borrower, Borrower shall pay toBOK a margin use fee in an amount equal to

 

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two percent per annum of the margin BOK is required topost in connection with hedging transactions arranged by BOK for the benefit ofBorrower.

 

Section 3.5.            SpecialLIBOR Provisions.  (a)  If BOK shall reasonably determine (whichdetermination shall, upon notice thereof to Borrower, be conclusive and bindingupon Borrower and BOK) that the introduction of or any change in or in theinterpretation of any law makes it unlawful, or any central bank or othergovernmental authority having jurisdiction asserts that it is unlawful, for BOKto fund, continue or maintain any LIBOR Tranche, the obligation of BOK to fund,continue or maintain any such LIBOR Tranche shall, upon such determination,forthwith be suspended until BOK shall notify Borrower that the circumstancescausing such suspension no longer exist, and all LIBOR Tranches shallautomatically be converted into the Prime Rate Portion at the end of thethen-current LIBOR Interest Periods with respect thereto or sooner, if requiredby such law or assertion.

 

(b)           If BOK shall reasonably determinethat:

 

(1)           U.S. Dollar deposits in the relevantamount and for the relevant LIBOR Interest Period are not available to BOK inits relevant market; or

 

(2)           By reason of circumstances affectingBOK’s relevant market, adequate means do not exist for ascertaining theinterest rate applicable hereunder to LIBOR Tranches;

 

then, upon notice from BOK to Borrower, the obligation of BOK to includeany portion of the Revolving Loan in a LIBOR Tranche shall forthwith besuspended until BOK shall notify Borrower that the circumstances causing suchsuspension no longer exist.

 

(c)           Borrower agrees to reimburse BOK forany increase in the cost to BOK of, or any reduction in the amount of any sumreceivable by BOK in respect of, funding, continuing or maintaining (or of itsobligation to fund, continue or maintain) any LIBOR Tranche; provided that theforegoing shall not apply to increases resulting from general increases ininterest rates or general increases in BOK’s administrative expenses oroverhead costs.  BOK shall promptlynotify Borrower in writing of the occurrence of any such event, such notice tostate, in reasonable detail, the reasons therefor and the additional amountrequired fully to compensate BOK for such increased cost or reducedamount.  Such additional amount shall bedue and payable by Borrower to BOK within fifteen days of Borrower’s receipt ofsuch notice, and such notice shall, in the absence of clear error, beconclusive and binding upon Borrower.

 

(d)           In the event BOK shall incur any lossor expense (including any loss or expense incurred by reason of the liquidationor reemployment of deposits or other funds acquired by BOK to fund, continue ormaintain any portion of the principal amount of any LIBOR Tranche) as a resultof:

 

(1)           Any conversion, repayment orprepayment (whether voluntary or mandatory) of the principal amount of anyLIBOR Tranche on a date other than

 

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the scheduled last day of the LIBOR Interest Periodapplicable thereto; or

 

(2)           Any requested LIBOR Tranche not beingfunded as a LIBOR Tranche in accordance with the provisions of this Agreementor the Interest Rate Election therefor;

 

then, upon the written notice by BOK to Borrower, Borrower shall,within fifteen days of receipt thereof, pay BOK such amount as will (in thereasonable determination of BOK) reimburse BOK for such loss or expense.  Such written notice (which shall includecalculations in reasonable detail) shall, in the absence of clear error, beconclusive and binding upon Borrower.

 

Section 3.6.            IncreasedCapital Costs.  If any change in, orthe introduction, adoption, effectiveness, interpretation, reinterpretation orphase-in of, any law or regulation, directive, guideline, decision or request(whether or not having the force of law) of any court, central bank, regulatoror other governmental authority affects or would affect the amount of capitalrequired or expected to be maintained by BOK or any Person controlling BOK, andBOK reasonably determines that the rate of return on its or such controllingPerson’s capital as a consequence of the Revolving Loan is reduced to a levelbelow that which BOK or such controlling Person could have achieved but for theoccurrence of any such circumstance, then, in any such case upon notice fromtime to time by BOK to Borrower, Borrower hereby agrees to pay to BOK, withinfifteen days of the effective date of such notice, such additional amount (asmay be reasonably determined by BOK) sufficient to compensate BOK or suchcontrolling Person for such reduction in rate of return.  A statement to Borrower by BOK as to anysuch additional amount or amounts (including calculations thereof in reasonabledetail) shall, in the absence of clear error, be conclusive and binding uponBorrower.

 

Section 3.7.            Taxes.  All payments by Borrower of principal of,and interest on, the Loans and all other amounts payable hereunder shall bemade free and clear of and without deduction for any present or future income,excise, stamp or franchise taxes and other taxes, fees, duties, withholdings orother charges of any nature whatsoever imposed by any taxing authority, butexcluding franchise taxes and taxes imposed on or measured by BOK’s net incomeor receipts (such non-excluded items being called “Taxes”).  In the event that any withholding ordeduction from any payment to be made by Borrower hereunder is required inrespect of any Taxes pursuant to any applicable law, rule or regulation,Borrower will:

 

(a)           Pay directly to the relevantauthority the full amount required to be so withheld or deducted;

 

(b)           Promptly forward to BOK an officialreceipt or other documentation satisfactory to BOK evidencing such payment tosuch authority; and

 

(c)           Pay BOK such additional amount oramounts as may be necessary to ensure that the net amount actually received byBOK will equal the full amount BOK would have received had no such withholdingor deduction been required.

 

Moreover, if any Taxes are directly asserted against BOK with respectto any payment received

 

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by BOK hereunder, BOK may pay such Taxes and Borrower will promptly paysuch additional amounts (including any penalties, interest or expenses) as maybe necessary in order that the net amount received by BOK after the payment ofsuch Taxes (including any Taxes on such additional amount) shall equal theamount BOK would have received had not such Taxes been asserted.

 

If Borrower fails to pay any Taxes when due to theappropriate taxing authority or fails to remit to BOK the required receipts orother required documentary evidence, then Borrower shall indemnify, save andhold harmless BOK from and against any incremental Taxes, interest or penaltiesthat may become payable by BOK as a result of any such failure.

 

Section 3.8.            ObligationsAbsolute.  The obligation ofBorrower to repay any amount drawn on BOK pursuant to the terms of a Letter ofCredit shall be absolute, unconditional and irrevocable, and shall be performedstrictly in accordance with the terms of this Agreement, under allcircumstances whatsoever, including without limitation the followingcircumstances:

 

(a)           The existence of any claim, set-off,defense or other right which Borrower may have at any time against anybeneficiary of a Letter of Credit (or any Person for whom any such beneficiarymay be acting) or any other Person, whether in connection with this Agreement,the transactions contemplated hereby or any unrelated transactions;

 

(b)           Any statement or any other documentpresented under any Letter of Credit proving to be forged, fraudulent, invalidor insufficient in any respect or any statement therein being untrue or inaccuratein any respect whatsoever; or

 

(c)           Payment by BOK under any Letter ofCredit against presentation of a draft or certificate which does not comply inall material respects with the terms of such Letter of Credit.

 

Payment by Borrower of a reimbursement obligation in connection with aLetter of Credit issued pursuant to this Agreement shall not be deemed a waiverof any rights of Borrower against BOK under Section 3.10(d) below.

 

Section 3.9.            Indemnification.  Borrower hereby indemnifies and agrees tohold harmless BOK from and against any and all claims, damages, losses,liabilities, costs or expenses whatsoever which BOK may incur (or which may beclaimed against BOK by any Person) by reason of or in connection with theexecution and delivery or transfer of or payment or failure to pay under anyLetter of Credit; provided, however, that Borrower shall not be required toindemnify BOK for any claims, damages, losses, liabilities, costs or expensesto the extent, but only to the extent, caused by the willful misconduct orgross negligence of BOK in connection with paying a draft presented under aLetter of Credit.  Nothing in thisSection 3.9 is intended to limit the obligation of Borrower to repay any amountdrawn on BOK pursuant to the terms of a Letter of Credit.

 

Section 3.10.          Liabilityof BOK.  Borrower assumes all risksof the acts or omissions of any beneficiary or permitted transferee of anyLetter of Credit with respect to its use of such

 

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Letter of Credit.  Neither BOKnor any of its employees, officers or directors shall be liable or responsiblefor:

 

(a)           The use which may be made of anyLetter of Credit or for any acts or omissions of any beneficiary or transfereethereof in connection therewith;

 

(b)           The validity, sufficiency orgenuineness of documents, or of any endorsements thereon, even if suchdocuments should in fact prove to be in any or all respects invalid,insufficient, fraudulent or forged;

 

(c)           Payment by BOK against presentationof documents which do not comply with the terms of the applicable Letter ofCredit, including failure of any documents to bear any reference or adequatereference to the applicable Letter of Credit, unless such payment by BOKresults from BOK’s willful misconduct, bad faith or gross negligence inconnection therewith; or

 

(d)           Any other circumstance whatsoever inmaking or failing to make payment under the Letter of Credit, except only thatBorrower shall have a claim against BOK, and BOK shall be liable to Borrower,to the extent, but only to the extent, of any direct (as opposed toconsequential) damages suffered by Borrower which were caused by:

 

(1)           BOK’s willful misconduct, bad faithor gross negligence in connection with the Letter of Credit; or

 

(2)           BOK’s bad-faith or grossly negligentfailure to pay under any Letter of Credit after the presentation to it by thebeneficiary of a draft and certificate strictly complying with the terms andconditions of such Letter of Credit.

 

 

ARTICLE IV

 

Conditions Precedent toLoans

 

Section 4.1.            InitialConditions Precedent.  BOK shallhave no obligation to make the Initial Advance, to make any extension of creditunder the Hedging Loan or to issue any Letter of Credit unless BOK shall havereceived all of the following at its office in Denver, Colorado, duly executedand delivered and in form, substance and date satisfactory to BOK:

 

(a)           The Note.

 

(b)           An “Omnibus Certificate” of theSecretary or an Assistant Secretary of Borrower, which shall contain the namesand signatures of the officers of Borrower authorized to execute Loan Documentsand which shall certify to the truth, correctness and completeness of thefollowing exhibits attached thereto: (1) a copy of the articles ofincorporation of Borrower and all amendments thereto, (2) a copy of the bylawsof

 

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Borrower and all amendments thereto, and (3) a copy ofthe resolutions of the board of directors of Borrower authorizing thisAgreement and the transactions contemplated hereby.

 

(c)           A “Compliance Certificate” of anofficer of Borrower in which such person certifies to the satisfaction of theconditions set out in subsections (a), (b) and (c) of Section 4.2 below.

 

(d)           The Security Documents.

 

(e)           Such title opinions, supplementaltitle opinions, UCC searches and other title information concerning Borrower’stitle to the Borrowing Base Properties or any portions thereof as may bereasonably satisfactory to BOK.

 

(f)            Any and all other Loan Documents.

 

Section 4.2.            AdditionalConditions Precedent.  BOK shallhave no obligation to make the Initial Advance, any other Advance or anyextension of credit under the Hedging Loan or to issue any Letter of Creditunless the following conditions precedent have been satisfied:

 

(a)           All representations and warrantiesmade by any Obligated Person in any Loan Document shall be true on and as ofthe date of the Advance, the date of the extension of credit under the HedgingLoan or the date of issuance of the Letter of Credit as if such representationsand warranties had been made as of the date hereof.

 

(b)           No Default shall exist as of the dateof the Advance, the date of the extension of credit under the Hedging Loan orthe date of issuance of the Letter of Credit.

 

(c)           Each Obligated Person shall haveperformed and complied with all agreements and conditions herein required to beperformed or complied with by it on or prior to the date of the Advance, thedate of the extension of credit under the Hedging Loan or the date of issuanceof the Letter of Credit.

 

(d)           The making of the Advance, theextension of credit under the Hedging Loan or the issuance of the Letter ofCredit shall not be prohibited by any law or any regulation or order of anycourt or governmental agency or authority and shall not subject BOK to anypenalty or other onerous condition under or pursuant to any such law,regulation or order.

 

(e)           If an extension of credit under theHedging Loan is to be made, an ISDA Agreement in form and substancesatisfactory to BOK shall have been executed and delivered and shall be in fullforce and effect between Borrower and BOK.

 

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ARTICLE V

 

Representations andWarranties

 

Section 5.1.            Borrower’sand Guarantor’s Representations and Warranties.  To induce BOK to enter into this Agreement and to make the Loans,each of Borrower and Guarantor represents and warrants to BOK (whichrepresentations and warranties shall survive the delivery of the Note and shallbe deemed to be continuing representations and warranties until repayment infull of the Loans) as follows; provided that those portions of the followingrepresentations and warranties relating to Borrower shall be deemed made solelyby Borrower and those portions of the following representations and warrantiesrelating to Guarantor shall be deemed made solely by Guarantor:

 

(a)           No Default.  Borrower is not in default in any materialrespect in the performance of any of the covenants and agreements containedherein.  No event has occurred and iscontinuing which constitutes a Default.

 

(b)           Organization and Good Standing.  Borrower is a corporation duly organized,validly existing and in good standing under the laws of the State of Colorado,having all powers required to carry on its business and enter into and carryout the transactions contemplated hereby. Borrower is duly qualified, in good standing, and authorized to dobusiness in all other jurisdictions wherein the character of the propertiesowned or held by it or the nature of the business transacted by it makes suchqualification necessary.

 

(c)           Authorization.  Borrower has duly taken all action necessaryto authorize the execution and delivery by it of the Loan Documents and toauthorize the consummation of the transactions contemplated thereby and theperformance of its obligations thereunder.

 

(d)           No Conflicts or Consents.  The execution and delivery by the variousObligated Persons of the Loan Documents to which each is a party, theperformance by each of its obligations under such Loan Documents, and theconsummation of the transactions contemplated by the various Loan Documents, donot and will not: (1) conflict with any provision of: (A) any domestic orforeign law, statute, rule or regulation, (B) the governing documents of anyObligated Person, or (C) any agreement, judgment, license, order or permitapplicable to or binding upon any Obligated Person, (2) result in theacceleration of any Debt owed by any Obligated Person, or (3) result in orrequire the creation of any Lien upon any assets or properties of any ObligatedPerson except as expressly contemplated by the Loan Documents.  Except as expressly contemplated by the LoanDocuments, no consent, approval, authorization or order of, and no notice to orfiling with, any court or governmental authority or third party is required inconnection with the execution, delivery or performance by any Obligated Personof any Loan Document or to consummate any transactions contemplated by the LoanDocuments.

 

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(e)           Enforceable Obligations.  This Agreement is, and the other LoanDocuments when duly executed and delivered will be, legal and bindingobligations of each Obligated Person which is a party hereto or thereto,enforceable in accordance with their respective terms, except as limited bybankruptcy, insolvency or similar laws of general application relating to theenforcement of creditors’ rights and as limited by general equitableprinciples.

 

(f)            Initial Financial Statements.  The Initial Financial Statements fairlypresent Guarantor’s financial position at the dates thereof.  Since the dates of the Initial FinancialStatements no material adverse change has occurred in Borrower’s or Guarantor’sfinancial condition or business.

 

(g)           Other Obligations.  Neither Borrower nor Guarantor has anyoutstanding Debt of any kind (including contingent obligations, taxassessments, and unusual forward or long-term commitments) which is not shownin the Initial Financial Statements or the notes thereto, except any obligationof that as a Guarantor as defined in the Financing Commitment by and betweenCEC Resources Ltd. (the Borrower), Carbon Energy Corporation (the Guarantor)and Canadian Imperial Bank of Commerce (CIBC) effective May 17, 2002.

 

(h)           Full Disclosure.  No certificate, statement or otherinformation delivered herewith or heretofore by Borrower to BOK in connectionwith the negotiation of this Agreement or in connection with any transactioncontemplated hereby contains any untrue statement of a material fact or omitsto state any material fact known to Borrower necessary to make the statementscontained herein or therein not misleading in any material respect as of thedate made or deemed made.  At the dateof this Agreement, Borrower is not aware of any material fact that has not beendisclosed to BOK in writing which could materially and adversely affectBorrower’s properties, businesses, prospects or condition (financial orotherwise).  To the best of Borrower’sknowledge, the Initial Engineering Report is based upon complete and accuratefactual information in all material respects, it being understood that theInitial Engineering Report is necessarily based upon professional opinions,estimates and projections and that Borrower does not warrant that suchopinions, estimates and projections will ultimately prove to have beenaccurate.

 

(i)            Litigation.  Except as disclosed in the Initial FinancialStatements or as otherwise previously disclosed in writing by Borrower toBOK:  (1) there are no actions, suits orlegal, equitable, arbitrative or administrative proceedings pending, or to theknowledge of Borrower threatened, against any Obligated Person before anyfederal, state, municipal or other court, department, commission, body, board,bureau, agency, or instrumentality, domestic or foreign, which do or maymaterially and adversely affect any Obligated Person, any Affiliate ofBorrower, any Obligated Person’s ownership or use of any of its assets orproperties, its business or financial condition or prospects, or the right orability of any Obligated Person to enter into the Loan Documents or perform itsobligations thereunder and (2) there are no outstanding judgments, injunctions,writs, rulings or orders by any such governmental entity against any ObligatedPerson which

 

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have or may have any such effect.

 

(j)            Title to Properties.  To the best of Borrower’s knowledge,Borrower has good and defensible title to the Borrowing Base Properties, freeand clear of all liens, encumbrances and defects of title, except forcovenants, restrictions, rights, easements, liens, encumbrances and minorirregularities in title which do not materially interfere with the occupation,use and enjoyment of such Borrowing Base Properties in the normal course ofbusiness as presently conducted or materially impair the value thereof for suchbusiness. Borrower enjoys peaceful and undisturbed possession under allmaterial leases under which it operates, and all such leases are valid andsubsisting, with no material default existing thereunder.

 

(k)           Place of Business.  The chief executive office and principalplace of business of Borrower are located at the address of Borrower set out inSection 8.3 below.

 

(l)            Taxes.  All tax returns required to be filed byBorrower in any jurisdiction prior to the date hereof have been filed: alltaxes, assessments, fees and other governmental charges upon Borrower or uponany of its properties, income or franchises, which are due and payable havebeen paid, or adequate reserves have been provided for payment thereof.

 

(m)          Use of Proceeds.  Borrower is not engaged principally, or asone of its important activities, in the business of extending credit for thepurpose of purchasing or carrying margin stock (within the meaning ofRegulation U or X of the Board of Governors of the Federal Reserve System), andno part of the proceeds of either of the Loans will be used to purchase orcarry any such margin stock or to extend credit to any Person for the purposeof purchasing or carrying any such margin stock.  Neither Borrower nor any Person acting on Borrower’s behalf hastaken or will take any action which might cause this Agreement, the Note or theISDA Agreement or the application of the proceeds of either of the Loans toviolate either of said Regulations U or X or any other regulation of the Boardof Governors of the Federal Reserve System or to violate the SecuritiesExchange Act of 1934, in each case as now in effect or as the same mayhereafter be in effect.

 

(n)           Investment Company Act NotApplicable.  Borrower is not an“investment company” or a person “controlled” by an “investment company” withinthe meaning of the Investment Company Act of 1940, as amended.

 

(o)           Public Utility Holding Company ActNot Applicable.  Borrower is not a“holding company,” or a “subsidiary company” of a “holding company,” or an“affiliate” of a “holding company,” or of a “subsidiary company” of a “holdingcompany” as such terms are defined in the Public Utility Holding Company Act of1935, as amended.

 

Section 5.2.            Representationsby BOK.  BOK hereby represents thatit will acquire the Note for its own account in the ordinary course of itscommercial banking business; however, the disposition of BOK’s property shallat all times be and remain within its control and this section

 

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does not prohibit BOK’s sale of the Note or of any participation in theNote to any bank, financial institution, investor or other purchaser.

 

ARTICLE VI

 

Covenants ofBorrower

 

Section 6.1.            Affirmative Covenants.  Each of Borrower and Guarantor warrants,covenants and agrees as follows, until the full and final payment of theObligations and the termination of this Agreement, unless BOK has previouslyagreed otherwise in writing; provided that those portions of the followingcovenants relating to Borrower shall be deemed made solely by Borrower andthose portions of the following covenants relating to Guarantor shall be deemedmade solely by Guarantor:

 

(a)           Payment and Performance.  Borrower will pay all amounts due under theLoan Documents in accordance with the terms thereof and will in all materialrespects observe, perform and comply with every covenant, term and conditionexpress or implied in the Loan Documents. Guarantor will observe, perform and comply with every such term,covenant and condition, to the extent applicable to Guarantor.

 

(b)           Books, Financial Statements andRecords.  Borrower will at all timesmaintain full and accurate books of account and records, will maintain astandard system of accounting in accordance with GAAP and will furnish thefollowing statements and reports to BOK at Borrower’s expense:

 

(1)                                  Assoon as available, and in any event within 90 days after the end of each FiscalYear, complete Consolidated financial statements of Guarantor (together with asupplement showing the complete unaudited financial statements of Borrower),prepared in reasonable detail and in accordance with GAAP or with anotheraccounting system agreed to in writing by BOK. These financial statements shall contain at least a balance sheet as ofthe end of such Fiscal Year and a statement of earnings and cash flow, settingforth in comparative form the corresponding figures for the preceding FiscalYear and, to the extent they relate to Guarantor, shall be accompanied by anopinion of a firm of independent certified public accountants chosen byGuarantor and competent to perform accounting functions for a substantialpublic company, which opinion shall be unqualified and shall state that saidfinancial statements have been prepared in accordance with GAAP and fairlypresent the financial position and the results of operations of Guarantor as ofthe end of and for such Fiscal Year;

 

(2)                                  Assoon as available and in any event within 60 days after the end of each FiscalQuarter (excluding the last Fiscal Quarter of each Fiscal Year) , completeunaudited Consolidated financial 

 

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statements of Guarantor (together with a supplementshowing the complete unaudited financial statements of Borrower) for suchFiscal Quarter and for the then-current Fiscal Year, prepared in reasonabledetail and in accordance with GAAP or with another accounting system agreed toin writing by BOK;

 

(3)                                  Atthe time of submission of the financial statements described in (1) and (2)above, a report signed by the president or the chief financial officer ofBorrower and of Guarantor: (A) attesting to the authenticity of such financialstatements, (B) stating that he has read this Agreement and the SecurityDocuments, (C) stating that after reviewing the financial statements describedabove he has concluded that there did not exist any condition or event as ofthe date of such financial statements or at the time of his report whichconstituted an Event of Default or a Default, or, if he did conclude that suchcondition or event existed, specifying the nature and period of existence ofany such condition or event, and (D) showing the calculation of, and Borrower’sand Guarantor’s compliance with, all of the financial covenants containedherein;

 

(4)                                  ByMarch 31 of each year, an engineering report and economic evaluation preparedas of the preceding December 31 by one or more independent petroleum engineerschosen by Borrower and reasonably acceptable to BOK, covering all oil and gasproperties and interests included in the Borrowing Base Properties.  Each such engineering report shall be inform and substance reasonably satisfactory to BOK and shall contain informationand analysis comparable in scope to that contained in the Initial EngineeringReport; and

 

(5)                                  Assoon as available, and in any event within 60 days after the end of each FiscalQuarter, commencing with the Fiscal Quarter ending December 31, 2002, a reportdescribing, for each calendar month during such Fiscal Quarter, the grossvolume of production and sales attributable to production (and the prices atwhich such sales were made and the revenues derived from such sales) for eachsuch calendar month from the Borrowing Base Properties, and describing therelated ad valorem, severance and production taxes and lease operating expensesattributable thereto and incurred for each such calendar month.

 

(c)           Other Information and Inspections.  Borrower will furnish to BOK any informationwhich BOK may from time to time request concerning any covenant, provision orcondition of the Loan Documents or any matter in connection with Borrower’sbusiness and operations.  Borrower willpermit representatives appointed by BOK, including independent accountants,agents, attorneys, appraisers and any other

 

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persons, to visit and inspect, at their sole risk(and, except during the continuance of an Event of Default, at their sole costand expense), any of Borrower’s property, including its books of account, otherbooks and records, and any facilities or other business assets, and to makeextra copies therefrom and photocopies and photographs thereof, and to writedown and record any information such representatives obtain, and Borrower shallpermit BOK or its representatives to investigate and verify the accuracy of theinformation furnished to BOK in connection with the Loan Documents and todiscuss all such matters with its officers, managers, employees andrepresentatives.

 

(d)           Notice of Material Events.  Borrower will promptly notify BOK: (1) ofany material adverse change in the financial condition of Borrower, (2) of theoccurrence of any Default, (3) of the acceleration of the maturity of any Debtowed by Borrower or of any default by Borrower under any indenture, mortgage,agreement, contract or other instrument to which Borrower is a party or bywhich Borrower or any of Borrower’s properties is bound, (4) of any uninsuredclaim of $500,000 or more asserted against Borrower or any of its properties,(5) of the filing of any suit or proceeding against Borrower (or the occurrenceof any material development in any such suit or proceeding) in which an adversedecision could have a material adverse effect upon Borrower’s financialcondition, business or operations (or could result in a judgment not covered byinsurance of $500,000 or more against Borrower) , (6) of any Termination Eventor any adverse development with respect to any ERISA Plan, (7) of the merger orconsolidation of Borrower with any other business entity, (8) of the sale,transfer, lease, exchange or disposal by Borrower of any material assets orproperties or any assets or properties with a value in excess of $250,000,except sales of already-severed hydrocarbons and other products in the ordinarycourse of Borrower’s business, and (9) of the occurrence of any of thefollowing: a material adverse change in the financial condition of Guarantor, adefault by Guarantor with respect to any material indebtedness owed byGuarantor to any Person or the filing by Guarantor of any petition forbankruptcy protection.  Upon theoccurrence of any of the foregoing, Borrower will take all necessary orappropriate steps to remedy promptly any such material adverse change, Default,or default, to protect against any such adverse claim, to defend any such suitor proceeding, and to resolve all controversies on account of any of theforegoing.  Borrower will also notifyBOK in writing at least twenty Business Days prior to the date that Borrowerchanges its name or the location of its chief executive office or principalplace of business or the place where it keeps its books and records concerningthe Collateral, furnishing with such notice any necessary financing statementamendments or requesting BOK and its counsel to prepare the same.

 

(e)           Maintenance of Existence andQualifications.  Borrower willmaintain and preserve its existence and its rights and franchises in full forceand effect and will qualify to do business in all states or jurisdictions whererequired by applicable law, except where the failure so to qualify will nothave any material adverse effect on Borrower.

 

(f)            Maintenance of Properties.  Borrower will in all material respectsmaintain, preserve, protect and keep all property used or useful in the conductof its business in accordance with the standards of a reasonable and prudentoperator.

 

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(g)           Payment of Trade Debt, Taxes, etc.  Borrower will:  (1) timely file all required tax returns; (2) timely pay alltaxes, assessments, and other governmental charges or levies imposed upon it orupon its income, profits or property; (3) pay all Debt owed by it on ordinarytrade terms to vendors, suppliers and other Persons providing goods andservices used by it in the ordinary course of its business; and (4) maintainappropriate accruals and reserves for all of the foregoing Debt in accordancewith GAAP.  Borrower will pay anddischarge in all material respects, when due, all other Debt, taxes orassessments now or hereafter owed by it. Borrower may, however, delay paying or discharging any such Debt so longas it is in good faith contesting the validity thereof by appropriateproceedings and has set aside on its books adequate reserves therefor.

 

(h)           Insurance.  Borrower will maintain with financiallysound and reputable insurance companies, insurance with respect to itsbusiness, operations and properties in at least such amounts and against atleast such risks as are usually insured against in the same general area bycompanies of established repute engaged in the same or a similar business.

 

(i)            Payment of Expenses.  Borrower will promptly (and in any eventwithin 30 days after any invoice or other statement or notice) pay allreasonable costs and expenses incurred by or on behalf of BOK (includingattorneys’ fees) in connection with: (1) the preparation, execution and delivery of this Agreement and theother Loan Documents (including without limitation any and all futureamendments or supplements thereto or restatements thereof) , and any and allconsents, waivers or other documents or instruments relating thereto, (2) thefiling, recording, refiling and re-recording of any Security Documents and anyother documents or instruments or further assurances required to be filed orrecorded or refiled or re-recorded by the terms of any Loan Document, (3) theexamination of Borrower’s title to the Collateral, and (4) the enforcement,after the occurrence of a Default or an Event of Default, of the LoanDocuments.

 

(j)            Performance on Borrower’s Behalf.  If Borrower fails to pay any taxes,insurance premiums or other amounts it is required to pay under any LoanDocument, BOK may pay the same. Borrower shall immediately reimburse BOK for any such payments, and eachamount paid shall constitute a part of the Obligations, shall be secured by theSecurity Documents and shall bear interest at the rate described in Section2.3(c)(4) above, from the date such amount is paid by BOK until the date suchamount is repaid to BOK.

 

(k)           Compliance with Agreements and Law.  Borrower will perform all materialobligations it is required to perform under the terms of each indenture,mortgage, deed of trust, security agreement, lease, franchise, agreement,contract or other instrument or obligation to which it is a party or by whichit or any of its properties is bound in such a way that they result in nomaterial adverse effect upon the Borrowing Base Properties or Borrower’sability to perform its obligations under this Agreement.  Borrower will in all material respectsconduct its business and affairs in compliance with

 

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all laws, regulations, and orders applicable thereto(including those relating to pollution and other environmental matters).

 

(l)            Certifications of Compliance.  Borrower will furnish to BOK at Borrower’sexpense all certifications which BOK from time to time reasonably requests, asto the accuracy and validity of or compliance with all representations,warranties and covenants made by Borrower in the Loan Documents, thesatisfaction of all conditions contained therein, and all other matterspertaining thereto.

 

(m)          Additional Security Documents.  Promptly after a request therefor by BOK atany time and from time to time, Borrower will execute and deliver to BOK suchadditional Security Documents and/or amendments to existing Security Documentsas BOK may deem necessary or appropriate in order to grant to BOK a perfectedlien on and security interest in any or all oil and/or gas interests owned byBorrower.

 

(n)           ERISA Liabilities.  Borrower shall comply with ERISA in allmaterial respects.  Borrower shallcontinue not to be required to contribute to, nor to have any other absolute orcontingent liability in respect of, any “multiemployer plan” as defined inSection 4001 of ERISA.

 

Section 6.2.            NegativeCovenants.  Borrower warrants,covenants and agrees that, until the full and final payment of the obligationsand the termination of this Agreement, unless BOK has previously agreedotherwise in writing:

 

(a)           Financial Covenants.  (1) The Current Ratio of Borrower will not, at any time after the datehereof, be less than 1.0:1.0.  (2) TheTangible Net Worth of Borrower will not, at any time after the date hereof, beless than: (A) $7,500,000, plus (B) 50 percent of the Cumulative Net Income ofBorrower for all Fiscal Quarters ending after September 30, 2002, plus (C) 80percent of any and all Capital Additions to Borrower after September 30,2002.  (3) The Tangible Net Worth ofGuarantor will not, at any time after the date hereof, be less than: (A)$17,000,000, plus (B) 50 percent of the Cumulative Net Income of Guarantor forall Fiscal Quarters ending after September 30, 2002, plus (C) 80 percent of anyand all Capital Additions to Guarantor after September 30, 2002.

 

(b)           Limitation on Liens.  Borrower will not create, assume or permitto exist any mortgage, deed of trust, pledge, encumbrance, lien or charge ofany kind (including any security interest in or vendor’s lien on propertypurchased under conditional sales or other title retention agreements andincluding any lease intended as security or in the nature of a title retentionagreement) upon any of Borrower’s properties or assets, whether now owned orhereafter acquired, except:

 

(1)           Liens at any time existing in favorof BOK;

 

(2)                                  statutoryLiens for taxes, statutory or contractual mechanics’ and materialmen’s Liensincurred in the ordinary course of business,

 

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and other similar Liens incurred in the ordinarycourse of business, provided such Liens secure only Debt which is notdelinquent or which is being contested as provided in Section 6.1(g) above; and

 

(3)                                  purchase-moneysecurity interests granted by Borrower on office equipment, vehicles and otherpersonal property acquired by Borrower in the ordinary course of business;provided that the aggregate amount secured by all such security interestsoutstanding at any one time shall not exceed $250,000.

 

(c)           Additional Debt.  Borrower will not create, incur, assume orpermit to exist Debt of Borrower except:

 

(1)                                theLoans,

 

(2)                                tradedebt owed to suppliers, pumpers, mechanics, materialmen and others furnishinggoods or services to Borrower in the ordinary course of Borrower’s business,

 

(3)                                Debtincurred in the ordinary course of Borrower’s business in connection with commodity-pricehedging transactions and gas-balancing contracts,

 

(4)                                Debtof the types permitted to be secured by the security interests described inSection 6.2(b) (3) above; provided that the amount of such Debt does not exceedthe limits set forth in said Section;

 

(5)                                SubordinatedDebt; and

 

(6)                                otherunsecured Debt in an aggregate amount not in excess of $250,000 at any timeoutstanding.

 

(d)           Limitation on Sales of Property.  Borrower will not sell, transfer, lease,exchange, alienate or dispose of any of its assets except as follows (and thefollowing exceptions shall be subject to any limitations contained in theSecurity Documents):

 

(1)                                  equipmentwhich is worn out or obsolete, which is replaced by equipment of equalsuitability and value or which is salvaged from wells which have been pluggedand abandoned by or on behalf of Borrower;

 

(2)                                  inventory(including oil and gas sold as produced) which is sold in the ordinary courseof business;

 

(3)                                  personalproperty located on oil and gas properties operated by third parties, the saleof which personal property cannot be

 

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prevented by Borrower;

 

(4)                                  Borrower’sPermian Basin assets; provided that, at the time of such sale, and as acondition to BOK’s release of the Security Documents covering such assets,Borrower shall have made any prepayment of the Revolving Loan required by BOKto keep the Revolving Loan in compliance with the reduced Borrowing Base; and

 

(5)                                  asto any Fiscal Year of Borrower, other assets having an aggregate fair marketvalue not in excess of $250,000.

 

(e)           Limitation on Credit Extensions.  Borrower will not extend credit, makeadvances or make loans other than normal and prudent extensions of credit tocustomers buying goods and services in the ordinary course of business, whichextensions shall not be for longer periods than those extended by similarbusinesses operated in a normal and prudent manner.

 

(f)            Fiscal Year.  Borrower will not change its fiscal year.

 

(g)           Amendment of Contracts.  Borrower will not amend or permit anyamendment to any contract which could reasonably be foreseen to release,qualify, limit, make contingent or otherwise detrimentally affect, in anymaterial way, the rights and benefits of BOK under or acquired pursuant to anyof the Security Documents.

 

(h)           Limitation on Guaranties.  Borrower will not assume, guaranty, endorseor be or become secondarily liable for any Debt which is the primary obligationof any other Person.

 

(i)            ERISA Plans.  Borrower will not incur any obligation tocontribute to any “multiemployer plan” as defined in Section 4001 of ERISA.

 

(j)            Distributions.  Borrower will not make any Distributions.

 

(k)           Reorganizations; Combinations.  Borrower will not change its name or thenature of its business, reorganize, liquidate, dissolve or enter into anymerger, joint venture, partnership or other combination.

 

(l)            Hedging Transactions.  Borrower will not at any time enter into orbe or become a party to any one or more hedging transactions with respect toits oil and gas production for any time period after June 30, 2003, except forhedging transactions in amounts not in excess of 70 percent of the volume ofBorrower’s proved, developed, producing reserves (timed in accordance with theexpected production rates of such reserves), according to the then most recentengineering report submitted pursuant to Section 6.1(b) above.

 

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(m)          Ownership.  Borrower will continue to be a wholly-ownedsubsidiary of Guarantor.

 

ARTICLE VII

 

Events of Default andRemedies

 

Section 7.1.            Eventsof Default.  Each of the followingevents constitutes an Event of Default under this Agreement:

 

(a)           Borrower fails to pay any Obligationwhen due and payable, whether at a date for the payment of a fixed installmentor contingent or other payment to BOK or as a result of acceleration orotherwise; or

 

(b)           Any “default” or “event of default”occurs under any Loan Document which defines either term; or

 

(c)           Borrower or Guarantor fails to dulyobserve, perform or comply with any covenant, agreement, condition or provisionof any Loan Document; provided that, except with respect to: (1) any suchcovenant, agreement, condition or provision which may constitute an Event ofDefault under one or more of the other subsections of this Section 7.1, or (2)any covenant, agreement, condition or provision contained in the ISDA Agreementor any of Sections 2.3, 2.4, 3.4, 3.5, 3.6, 6.1(i) or 6.2 above, Borrower shallhave a 30-day grace period after such failure in which to cure such failure;

 

(d)           Any representation or warrantypreviously, presently or hereafter made in writing by or on behalf of anyObligated Person in connection with any Loan Document shall prove to have beenfalse or incorrect in any material respect on any date on or as of which made;or

 

(e)           Borrower or Guarantor:

 

(1)                                  suffersthe entry against it of a judgment, decree or order for relief by a court ofcompetent jurisdiction in an involuntary proceeding commenced under anyapplicable bankruptcy, insolvency or other similar law of any jurisdiction nowor hereafter in effect, including the federal Bankruptcy Code, as from time totime amended, or has any such proceeding commenced against it which remainsundismissed for a period of 60 days; or

 

(2)                                  suffersthe appointment of a receiver, liquidator, assignee, custodian, trustee,sequestrator or similar official for a substantial part of its assets or forany part of the Borrowing Base Properties in a proceeding brought against orinitiated by it, and such appointment is neither made ineffective nordischarged within 30 days after the making thereof, or such appointment isconsented to, 

 

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requested by, or acquiesced to by it; or

 

(3)                                  commencesa voluntary case under any applicable bankruptcy, insolvency or similar law nowor hereafter in effect, including the federal Bankruptcy Code, as from time totime amended; or applies for or consents to the entry of an order for relief inan involuntary case under any such law or to the appointment of or takingpossession by a receiver, liquidator, assignee, custodian, trustee,sequestrator or other similar official of any substantial part of its assets orany part of the Borrowing Base Properties; or makes a general assignment forthe benefit of creditors; or fails generally to pay (or admits in writing itsinability to pay) its debts as such debts become due; or takes action infurtherance of any of the foregoing: or

 

(4)                                  suffersthe entry against it of a final judgment for the payment of money in excess of$500,000 (not covered by insurance) , unless the same is discharged within 30days after the date of entry thereof or an appeal or appropriate proceeding forreview thereof is taken within such period and a stay of execution pending suchappeal is obtained; or

 

(5)                                  suffersthe entry of an order issued by any court or tribunal taking, seizing orapprehending all or one or more parts of the Borrowing Base Properties havingan aggregate value in excess of five percent of the total present value, usinga discount rate of 10 percent per annum, of all proved, developed, producingreserves attributed to the Borrowing Base Properties and bringing the same intothe custody of such court or tribunal, and such order is not stayed or releasedwithin thirty days after the entry thereof; or

 

(f)            Either: (1) any “accumulated fundingdeficiency” (as defined in Section 412(a) of the Internal Revenue Code of 1986,as amended) in excess of $10,000 exists with respect to any ERISA Plan, whetheror not waived by the Secretary of the Treasury or his delegate, or (2) anyTermination Event occurs with respect to any ERISA Plan and the then currentvalue of such ERISA Plan’s benefits guaranteed under Title IV of ERISA exceedsthe then current value of such ERISA Plan’s assets available for the payment ofsuch benefits by more than $10,000 (or in the case of a Termination Eventinvolving the withdrawal of a substantial employer, the withdrawing employer’sproportionate share of such excess exceeds such amount): or

 

(g)           The Guaranty ceases to be in fullforce and effect and applicable to any and all of the Obligations coveredthereby in accordance with its terms (or Guarantor takes that position),whether by operation of law, revocation or attempted revocation or otherwise;or

 

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(h)           Any default, including the expirationof any applicable period of grace, occurs with respect to any otherindebtedness owed by Borrower to any Person.

 

Upon the occurrence of an Event of Default described in subsection(e)(l), (e)(2) or (e)(3) of this section, all of the Obligations shallthereupon be immediately due and payable, without presentment, demand, protest,notice of protest, declaration or notice of acceleration or intention toaccelerate, or any other notice or declaration of any kind, all of which arehereby expressly waived by Borrower. During the continuance of any other Event of Default, BOK at any timeand from time to time (unless all Events of Default have theretofore beenremedied) may declare any or all of the Obligations immediately due andpayable, and all such Obligations shall thereupon be immediately due andpayable.

 

Section 7.2.            Remedies.  If any Default or Event of Default shalloccur and be continuing, the obligation of BOK to make Advances, to issueLetters of Credit and to extend credit under the Hedging Loan shall terminateimmediately.  If any Event of Defaultshall occur, BOK may protect and enforce its rights under the Loan Documents byany appropriate proceedings, including proceedings for specific performance ofany covenant or agreement contained in any Loan Document, and BOK may enforcethe payment of any Obligations due or enforce any other legal or equitableright.  All rights, remedies and powersconferred upon BOK under the Loan Documents shall be deemed cumulative and notexclusive of any other rights, remedies or powers available under the LoanDocuments or at law or in equity.

 

Section 7.3.            Indemnity.  Borrower hereby agrees to indemnify, defendand hold harmless BOK and its agents, affiliates, officers, directors, andemployees from and against any and all claims, losses, demands, actions, causesof action, and liabilities whatsoever (including without limitation reasonableattorneys’ fees and expenses, and costs and expenses reasonably incurred ininvestigating, preparing or defending against any litigation or claim, action,suit, proceeding or demand of any kind or character) arising out of or resultingfrom: (a) the Loan Documents (including without limitation the enforcementthereof), except to the extent such claims, losses, and liabilities areproximately caused by a BOK’s gross negligence or willful misconduct, (b) thecontamination of any of the Borrowing Base Properties by any hazardoussubstance or environmental pollutant, or (c) the violation of any federal,state or local environmental statute, rule, regulation or ordinance, includingwithout limitation violation of the Comprehensive Environmental Response,Compensation and Liability Act, as amended from time to time, or of theResource Conservation and Recovery Act, as amended from time to time.

 

ARTICLE VIII

 

Miscellaneous

 

Section 8.1.            Waiverand Amendment.  No failure or delayby BOK in exercising any right, power or remedy which it may have under any ofthe Loan Documents shall operate as a waiver thereof or of any other right,power or remedy, nor shall any single or partial exercise by BOK of any suchright, power or remedy preclude any other or further exercise thereof or of anyother right, power or remedy.  No waiverof any provision of any Loan Document and no consent to any departure therefromshall ever be effective unless it is in writing and signed by

 

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BOK, and then such waiver or consent shall be effective only in thespecific instances and for the purposes for which given and to the extentspecified in such writing.  No notice toor demand on any Obligated Person shall in any case of itself entitle anyObligated Person to any other or further notice or demand in similar or othercircumstances.  No modification oramendment of or supplement to this Agreement or the other Loan Documents shallbe valid or effective unless the same is in writing and signed by the partyagainst whom it is sought to be enforced.

 

Section 8.2.            Survivalof Agreements; Cumulative Nature. All of the Obligated Persons’ various representations, warranties,covenants and agreements in the Loan Documents shall survive the execution anddelivery of this Agreement and the other Loan Documents and the performancehereof and thereof, including without limitation the making or granting of theLoans and the delivery of the Note and the other Loan Documents, and shallfurther survive until all of the Obligations are paid in full to BOK and all ofBOK’s obligations to Borrower are terminated. All statements and agreements contained in any certificate or otherinstrument delivered to BOK pursuant to the terms of any Loan Document shall bedeemed representations and warranties by Borrower to BOK and/or agreements andcovenants of Borrower under this Agreement. The representations, warranties, and covenants made by the ObligatedPersons in the Loan Documents, and the rights, powers, and privileges grantedto BOK in the Loan Documents, are cumulative, and no Loan Document shall beconstrued in the context of another to diminish, nullify, or otherwise reducethe benefit to BOK of any such representation, warranty, covenant, right, poweror privilege.  In particular and withoutlimitation, no exception set out in this Agreement to any representation,warranty or covenant herein contained shall apply to any similarrepresentation, warranty or covenant contained in any other Loan Document, andeach such similar representation, warranty or covenant shall be subject only tothose exceptions which are expressly made applicable to it by the terms of thevarious Loan Documents.

 

Section 8.3.            Notices.  All notices, requests, consents, demands andother communications required or permitted under any Loan Document shall be inwriting and, unless otherwise specifically provided in such Loan Document,shall be deemed sufficiently given or furnished if delivered by personaldelivery, by expedited delivery service with proof of delivery, or byregistered or certified United States mail, return receipt requested, postageprepaid, at the addresses specified below (unless changed by similar notice inwriting given by the particular Person whose address is to be changed).  Any such notice or communication shall bedeemed to have been given upon receipt:

 
| Borrower’s address: |   | 1700 Broadway, Suite 1150         |
|--------------------------|--------|-----------------------------------|
|                     |   | Denver, Colorado 80290            |
|                     |   | Attention: Mr. Kevin D. Struzeski |
|                     |   |                              |
| with an additional       |   |                              |
| copy to  Guarantor at:   |   | 1700 Broadway, Suite 1150         |
|                     |   | Denver, Colorado 80290            |
|                     |   | Attention: Mr. Kevin D. Struzeski |

 

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| BOK’s address: |   | 1625 Broadway, Suite 1570      |
|---------------------|--------|--------------------------------|
|                |   | Denver, Colorado 80202         |
|                |   | Attention: Thomas M. Foncannon |
|                |   |                           |
| with an additional  |   |                           |
| copy to:            |   | Bank of Oklahoma, N.A.         |
|                |   | 101 East Second Street         |
|                |   | Tulsa, Oklahoma 74103          |
|                |   | Attention: Energy Department   |

 

Section 8.4.            Partiesin Interest. All grants, covenants and agreements contained in the LoanDocuments shall bind and inure to the benefit of the parties thereto and theirrespective successors and assigns; provided, however, that no Obligated Personmay assign or transfer any of its rights or delegate any of its duties orobligations under any Loan Document without the prior consent of BOK.

 

Section 8.5.            GoverningLaw.  The Loan Documents shall bedeemed contracts and instruments made under the laws of the State of Coloradoand shall be construed and enforced in accordance with and governed by the lawsof the State of Colorado and the laws of the United States of America, except(a) to the extent that the law of another jurisdiction is expressly elected ina Loan Document, and (b) with respect to specific Liens, or the perfectionthereof, evidenced by Security Documents covering real or personal propertywhich by the laws applicable thereto are required to be construed under thelaws of another jurisdiction.  Each ofBorrower and Guarantor hereby irrevocably submits itself to the non-exclusivejurisdiction of the state and federal courts of the State of Colorado.

 

Section 8.6.            Limitationon Interest.  BOK and the ObligatedPersons intend to contract in strict compliance with applicable usury law fromtime to time in effect.  In furtherancethereof such persons stipulate and agree that none of the terms and provisionscontained in the Loan Documents shall ever be construed to create a contract topay, for the use, forbearance or detention of money, interest in excess of themaximum amount of interest permitted to be charged by applicable law from timeto time in effect.  Neither anyObligated Person nor any present or future guarantors, endorsers, or otherPersons hereafter becoming liable for payment of any Obligation shall ever beliable for unearned interest thereon or shall ever be required to pay interestthereon in excess of the maximum amount that may be lawfully charged underapplicable law from time to time in effect, and the provisions of this sectionshall control over all other provisions of the Loan Documents which may be inconflict or apparent conflict herewith. BOK expressly disavows any intention to charge or collect excessiveunearned interest or finance charges in the event the maturity of any obligationis accelerated.  If (a) the maturity ofany obligation is accelerated for any reason, (b) any Obligation is prepaid andas a result any amounts held to constitute interest are determined to be inexcess of the legal maximum, or (c) BOK or any other holder of any or all ofthe Obligations shall otherwise collect moneys which are determined toconstitute interest which would otherwise increase the interest on any or allof the Obligations to an amount in excess of that permitted to be charged byapplicable law then in effect, then all such sums determined to constituteinterest in excess or such legal limit shall,

 

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without penalty, be promptly applied to reduce the then outstandingprincipal of the related Obligations or, at BOK’s option, promptly returned toBorrower or the other payor thereof upon such determination.

 

Section 8.7.            Severability.  If any term or provision of any LoanDocument shall be determined to be illegal or unenforceable, all other termsand provisions of the Loan Documents shall nevertheless remain effective andshall be enforced to the fullest extent permitted by applicable law.

 

Section 8.8.            Counterparts.  This Agreement may be separately executed inany number of counterparts and by different parties hereto in separatecounterparts, each of which when so executed shall be deemed to constitute oneand the same Agreement.  Delivery ofthis Agreement and the other documents to be delivered in connection herewithby any party may be effected, without limitation, by faxing a signedcounterpart of any such document to BOK (any party that effects delivery insuch manner hereby agreeing to transmit promptly to each of the other partiesan actual signed counterpart).

 

Section 8.9.            Conflicts.  To the extent of any irreconcilableconflicts between the provisions of this Agreement and the provisions of any ofthe Loan Documents, the provisions of this Agreement shall prevail.

 

Section 8.10.  EntireAgreement.  This Agreement, theNote, the ISDA Agreement, the Security Documents and the other Loan Documentsfrom time to time executed in connection herewith state the entire agreementbetween the parties with respect to the subject matter hereof.

 

SECTION 8.11.  WAIVEROF JURY TRIAL.  EACH OF BORROWER,GUARANTOR AND BOK HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,DEMAND, ACTION OR CAUSE OF ACTION: (A) ARISING UNDER THIS AGREEMENT OR ANYOTHER LOAN DOCUMENT, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTALTO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT OF THISAGREEMENT OR ANY OTHER LOAN DOCUMENT. EACH OF BORROWER, GUARANTOR AND BOK HEREBY AGREES THAT THE OTHERS MAYFILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTOF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHTS TO TRIAL BY JURY.

 

Section 8.12.  Supersession.  At the time of the Initial Advance, theterms and provisions of this Agreement and the Note shall supersede the termsand provisions of any and all agreements, promissory notes and relateddocuments evidencing the Wells Fargo Loan, as assigned to BOK contemporaneouslywith the Initial Advance; provided that the security documents securing theWells Fargo Loan, as assigned to BOK, shall remain in full force andeffect.  Borrower hereby releases BOKfrom any and all duties, obligations and liabilities, whether known or unknown,assumed by BOK from Wells Fargo, to the extent that they arose under anydocument relating to the Wells Fargo Loan at any time on or before the date ofthe Initial Advance.

 

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

 

 
|   | CARBON ENERGY CORPORATION (USA)        |
|--------|----------------------------------------|
|   |                                   |
|   |                                   |
|   | By:                                    |   |
|   |                                   | Kevin D.  Struzeski, |
|   |                                   | Chief Financial  Officer |
|   |                                   |
|   | BANK OF OKLAHOMA, NATIONAL ASSOCIATION |
|   |                                   |
|   |                                   |
|   | By:                                    |   |
|   |                                   | Thomas M.  Foncannon, |
|   |                                   | Senior Vice  President |
|        |                                        |  |  |

 

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LIMITED JOINDER

 

Carbon Energy Corporation, a Colorado corporation(“Guarantor”), joins herein for the sole purpose of making the representationsand warranties set forth in the foregoing Amended and Restated CreditAgreement, insofar and only insofar as they relate to Guarantor, and agreeingto perform the covenants set forth in the foregoing Amended and Restated CreditAgreement, insofar and only insofar as they relate to Guarantor; provided thatthis joinder shall not be deemed an undertaking by Guarantor to repay the Loans(as defined in the foregoing Credit Agreement) except to the extent thatGuarantor is obligated to do so pursuant to the terms of the Guaranty (asdefined in the foregoing Amended and Restated Credit Agreement).

 
|   | CARBON ENERGY CORPORATION |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By:                       |   |   |
|   |                      | Kevin D.  Struzeski, |
|   |                      | Chief Financial  Officer |

 

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**EXHIBIT A**

 

**PROMISSORY NOTE**

 

| $40,000,000 |   | December 31, 2002 |
|-------------|--------|-------------------|
|        |   | Denver, Colorado  |

 

 

FOR VALUE RECEIVED, CARBON ENERGY CORPORATION (USA), aColorado corporation (“Borrower”), promises to pay to the order of BANK OFOKLAHOMA, NATIONAL ASSOCIATION (“Payee”), the principal sum of $40,000,000 (orso much thereof as may be borrowed hereunder) , together with interest on theoutstanding unpaid balance of such principal amount at the rates providedbelow.

 

This Note is issued pursuant to, and is subject to theterms and provisions of, the Amended and Restated Credit Agreement dated as ofDecember 31, 2002, between Borrower and Payee, as now in effect or as the samemay hereafter be amended, restated, extended, renewed or otherwise modified(the “Credit Agreement”).  Except asotherwise defined herein, terms defined in the Credit Agreement shall have thesame meanings when used herein.

 

The outstanding principal amount of this Note shall bedue and payable as provided in the Credit Agreement.  Any then-unpaid principal balance of this Note shall be due andpayable on the Maturity Date (unless due and payable sooner pursuant to theterms of the Credit Agreement).

 

Interest shall accrue daily on the unpaid principalbalance of this Note at the applicable rate or rates set forth in the CreditAgreement, shall be due and payable at such times as may be provided in theCredit Agreement and at the maturity of this Note, and shall be calculated onthe basis of a year of 360 days and the actual number of days elapsed.

 

All payments of principal and interest hereon shall bemade at Payee’s offices at Bank of Oklahoma Tower, One Williams Center, Tulsa,Oklahoma 74192 (or at such other place as Payee shall have designated toBorrower in writing) on the date due in immediately available funds and withoutset-off or counterclaim or deduction of any kind.  All payments received hereunder shall be applied first to costsof collection, second to accrued interest as of the date of payment and thirdto the outstanding principal balance of this Note.

 

Notwithstanding anything to the contrary contained inthis Note, upon the occurrence and during the continuance of any Event ofDefault specified in the Credit Agreement, overdue principal, and (to theextent permitted under applicable law) overdue interest, whether caused byacceleration of maturity or otherwise, shall bear interest at a fluctuatingrate, adjustable the day of any change in such rate, equal to three percentagepoints in excess of the Prime Rate, until paid, and shall be due and payable monthlyor, at the option of the holder hereof, on demand.

 

This Note is secured by, and the holder of this Noteis entitled to the benefits of, the Security Documents.  Reference is made to the Security Documentsfor a description of the

 

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property covered thereby and the rights, remedies and obligations ofthe holder hereof in respect thereto.

 

Subject to the expiration of any applicable period ofgrace provided for in the Credit Agreement, in the event of: (a) any default inany payment of the principal of or interest or this Note when due and payable,or (b) any other Event of Default (as defined in the Credit Agreement), thenthe whole principal sum of this Note plus accrued interest and all other obligationsof Borrower to holder, direct or indirect, absolute or contingent, now existingor hereafter arising, shall, at the option of Payee, become immediately due andpayable, and any or all of the rights and remedies provided herein and in theCredit Agreement and the Security Documents, as they may be amended, modifiedor supplemented from time to time may be exercised by Payee.

 

If Borrower fails to pay any amount due under thisNote and Payee has to take any action to collect the amount due or to exerciseits rights under the Security Documents, including without limitation retainingattorneys for collection of this Note, or if any suit or proceeding is broughtfor the recovery of all or any part of or for protection of the indebtedness orto foreclose the Security Documents or to enforce Payee’s rights under theSecurity Documents, then Borrower agrees to pay on demand all reasonable costsand expenses of any such action to collect, suit or proceeding, or any appealof any such suit or proceeding, incurred by Payee, including without limitationthe reasonable fees and disbursements of Payee’s attorneys and theirprofessional staff.

 

Borrower waives presentment, notice of dishonor andprotest, and assents to any extension of time with respect to any payment dueunder this Note, to any substitution or release of collateral and to theaddition or release of any party, except as provided in the CreditAgreement.  No waiver of any payment orother right under this Note shall operate as a waiver of any other payment orright.

 

If any provision in this Note shall be held invalid,illegal or unenforceable in any jurisdiction, the validity, legality orenforceability of any defective provisions shall not be in any way affected orimpaired in any other jurisdiction.

 

No delay or failure of the holder of this Note in theexercise of any right or remedy provided for hereunder shall be deemed a waiverof such right by the holder hereof, and no exercise of any right or remedyshall be deemed a waiver of any other right or remedy that the holder may have.

 

All notices given hereunder shall be given as providedin the Credit Agreement.

 

At the option of the holder hereof, an action may bebrought to enforce this Note in the District Court in and for the City andCounty of Denver, State of Colorado, in the United States District Court forthe District of Colorado or in any other court in which venue and jurisdictionare proper.  Borrower and all signers orendorsers hereof consent to venue and jurisdiction in the District Court in andfor the City and County of Denver, State of Colorado and in the United StatesDistrict Court for the District of Colorado and to service of process underSections 13-1-124(1) (a) 

 

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and 13-1-125, Colorado Revised Statutes (1992), as amended, in anyaction commenced to enforce this Note.

 

This Note is in part a substitute for a PromissoryNote dated August 14, 2002, in the face amount of $40,000,000, made byBorrower, payable to the order of Wells Fargo Bank, N.A., as assigned by WellsFargo Bank, N.A. to Payee.

 

This Note is to be governed by and construed accordingto the laws of the State of Colorado.

 
|   | CARBON ENERGY CORPORATION (USA) |
|--------|---------------------------------|
|   |                            |
|   | By:                             |   |   |
|   |                            | Kevin D. Struzeski, |
|   |                            | Chief Financial Officer |

 

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**EXHIBIT B**

 

**ADVANCE REQUEST**

 

 

Bank of Oklahoma, National Association

1625 Broadway, Suite 1570

Denver, Colorado 80202

Attention:  Thomas M. Foncannon

 

Gentlemen:

 

1.             ThisAdvance Request is delivered to you pursuant to Section 2.1 of the Amended andRestated Credit Agreement dated as of December 31, 2002 (the “CreditAgreement”), between Carbon Energy Corporation (USA) and Bank of Oklahoma,National Association.  Except asotherwise defined herein, terms defined in the Credit Agreement shall have thesame meanings when used herein.

 

2.             Borrowerhereby requests an Advance as follows:

 

(a)           Proposed Date of Advance:

(b)           Amount of Advance:

 

3.             Borrowerhereby represents and warrants that as of the date hereof and as of the date ofthe Advance requested hereunder, all statements contained in Section 4.2(a),(b) and (c) of the Credit Agreement are and will be true and correct in allmaterial respects.

 

4.             Borroweragrees that if, at any time prior to the date of the Advance requested byBorrower hereunder, any representation or warranty of Borrower contained hereinis not true and correct as of such time, Borrower will immediately so notifyBOK.  Except to the extent of any suchnotification by Borrower, the acceptance by Borrower of any Advance requestedhereunder shall be deemed a re-certification by Borrower as of the date of suchAdvance of the representations and warranties made by Borrower herein.

 
|   | CARBON ENERGY CORPORATION (USA) |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | By:                             |   |   |

 

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**EXHIBIT C**

 

**REQUEST FOR ISSUANCE OF LETTER OF CREDIT**

 

 

Bank of Oklahoma, National Association

1625 Broadway, Suite 1570

Denver, Colorado 80202

Attention:  Thomas M. Foncannon

 

Gentlemen:

 

1.             ThisRequest for Issuance of Letter of Credit is delivered to you pursuant toSection 2.1 of the Amended and Restated Credit Agreement dated as of December31, 2002 (the “Credit Agreement”), between Carbon Energy Corporation (USA) andBank of Oklahoma, National Association. Except as otherwise defined herein, terms defined in the CreditAgreement shall have the same meanings when used herein.

 

2.             Borrowerhereby requests that BOK issue a Letter of Credit as follows:

 

(a)           Name of Beneficiary:

(b)           Proposed Issuance Date:

(c)           Expiration Date:

(d)           Face Amount:

(e)           Payment Instructions (if any):

 

3.             Borrowerhereby represents and warrants that as of the date hereof and as of the date ofissuance of the Letter of Credit requested hereunder, all statements containedin Section 4.2(a), (b) and (c) of the Credit Agreement are and will be true andcorrect in all material respects.

 

4.             Borroweragrees that if, at any time prior to the date of issuance of the Letter ofCredit requested by Borrower hereunder, any representation or warranty ofBorrower contained herein is not true and correct as of such time, Borrowerwill immediately so notify BOK.  Exceptto the extent of any such notification by Borrower, the acceptance by Borrowerof any Letter of Credit requested hereunder shall be deemed a re-certificationby Borrower as of the date of such Advance of the representations andwarranties made by Borrower herein.

 
|   | CARBON ENERGY CORPORATION (USA) |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | By:                             |   |   |

 

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**EXHIBIT D**

 

**INTEREST RATE ELECTION**

 

 

Bank of Oklahoma, National Association

1625 Broadway, Suite 1570

Denver, Colorado 80202

Attention:  Thomas M. Foncannon

 

Gentlemen:

 

1.             ThisInterest Rate Election is delivered to you pursuant to Section 2.3 of theAmended and Restated Credit Agreement dated as of December 31, 2002 (the“Credit Agreement”), between Carbon Energy Corporation (USA) and Bank ofOklahoma, National Association.  Exceptas otherwise defined herein, terms defined in the Credit Agreement shall havethe same meanings when used herein.

 

2.             Borrowerhereby requests a LIBOR Tranche as follows:

 

(a)           Dollar Amount:

 

(b)           First Day of LIBOR Interest Period:

 

(c)           Duration (month(s)):

 

 
|   | CARBON ENERGY CORPORATION (USA) |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | By:                             |   |   |

 

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