**EXHIBIT 10.1**

 

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**FIRST AMENDED AND RESTATEDCREDIT AGREEMENT**

 

 

**DATED ASOFFEBRUARY 14, 2008**

 

**AMONG**

 

**VANGUARDNATURAL GAS, LLC,AS BORROWER,**

 

 

**CITIBANK,N.A.,AS ADMINISTRATIVE AGENT,**

 

**AND**

 

**THELENDERS PARTY HERETO**

 

 

**CO-LEADARRANGER, SOLE BOOKRUNNER AND CO-SYNDICATION AGENTCITIBANK, N.A.**

 

 

**CO-LEADARRANGER AND CO-SYNDICATION AGENTBNP PARIBAS**

 

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**TABLE OF CONTENTS**

 
| ** **                                                 | ** ** | ** **                                                     | ** ** | **Page** |
|------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------|
|                                                       |       |                                                           |       |     |
| ARTICLE  I                                                 |       |                                                           |
| Definitions  and Accounting Matters                        |       |                                                           |
|                                                       |       |                                                           |       |     |
| Section 1.01.                                              |       | Terms Defined Above                                            |       | 1        |
| Section 1.02.                                              |       | Certain Defined Terms                                          |       | 1        |
| Section 1.03.                                              |       | Types of Loans and Borrowings                                  |       | 21       |
| Section 1.04.                                              |       | Terms Generally; Rules of Construction                         |       | 21       |
| Section 1.05.                                              |       | Accounting Terms and Determinations; GAAP                      |       | 22       |
|                                                       |       |                                                           |       |     |
| ARTICLE II                                                 |       |                                                           |
| The Credits                                                |       |                                                           |
|                                                       |       |                                                           |       |     |
| Section 2.01.                                              |       | Commitments                                                    |       | 22       |
| Section 2.02.                                              |       | Loans and Borrowings                                           |       | 22       |
| Section 2.03.                                              |       | Requests for Borrowings                                        |       | 23       |
| Section 2.04.                                              |       | Interest Elections                                             |       | 24       |
| Section 2.05.                                              |       | Funding of Borrowings                                          |       | 26       |
| Section 2.06.                                              |       | Termination and Reduction of Aggregate Maximum  Credit Amounts |       | 26       |
| Section 2.07.                                              |       | Borrowing Base                                                 |       | 27       |
| Section 2.08.                                              |       | Letters of Credit                                              |       | 30       |
| Section 2.09.                                              |       | Collateral                                                     |       | 35       |
|                                                       |       |                                                           |       |     |
| ARTICLE III                                                |       |                                                           |
| Payments of Principal and Interest; Prepayments; Fees      |       |                                                           |
|                                                       |       |                                                           |       |     |
| Section 3.01.                                              |       | Repayment of Loans                                             |       | 35       |
| Section 3.02.                                              |       | Interest                                                       |       | 36       |
| Section 3.03.                                              |       | Alternate Rate of Interest                                     |       | 37       |
| Section 3.04.                                              |       | Prepayments                                                    |       | 37       |
| Section 3.05.                                              |       | Fees                                                           |       | 38       |
|                                                       |       |                                                           |       |     |
| ARTICLE IV                                                 |       |                                                           |
| Payments; Pro Rata Treatment; Sharing of Set-offs          |       |                                                           |
|                                                       |       |                                                           |       |     |
| Section 4.01.                                              |       | Payments Generally; Pro Rata Treatment; Sharing of  Set-offs   |       | 39       |
| Section 4.02.                                              |       | Presumption of Payment by the Borrower                         |       | 41       |
| Section 4.03.                                              |       | Certain Deductions by the Administrative Agent                 |       | 41       |
| Section 4.04.                                              |       | Disposition of Proceeds                                        |       | 41       |
|                                                       |       |                                                           |       |     |
| ARTICLE V                                                  |       |                                                           |
| Increased Costs; Break Funding Payments; Taxes; Illegality |       |                                                           |
|                                                       |       |                                                           |       |     |
| Section 5.01.                                              |       | Increased Costs                                                |       | 41       |

 

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| Section 5.02.                  |   | Break Funding Payments                               |   | 43     |
|--------------------------------|--------|------------------------------------------------------|--------|--------|
| Section 5.03.                  |   | Taxes                                                |   | 43     |
| Section 5.04.                  |   | Mitigation Obligations; Replacement of Lenders       |   | 45     |
| Section 5.05.                  |   | Illegality                                           |   | 46     |
|                           |   |                                                 |   |   |
| ARTICLE VI                     |   |                                                 |
| Conditions Precedent           |   |                                                 |
|                           |   |                                                 |   |   |
| Section 6.01.                  |   | Effectiveness                                        |   | 46     |
| Section 6.02.                  |   | Each Credit Event                                    |   | 48     |
| Section 6.03.                  |   | Effectiveness of Borrowing Base Increase             |   | 49     |
| Section 6.04.                  |   | Certain Matters to be Completed After Closing        |   | 49     |
|                           |   |                                                 |   |   |
| ARTICLE VII                    |   |                                                 |
| Representations and Warranties |   |                                                 |
|                           |   |                                                 |   |   |
| Section 7.01.                  |   | Organization; Powers                                 |   | 50     |
| Section 7.02.                  |   | Authority; Enforceability                            |   | 50     |
| Section 7.03.                  |   | Approvals; No Conflicts                              |   | 51     |
| Section 7.04.                  |   | Financial Condition; No Material Adverse Change      |   | 51     |
| Section 7.05.                  |   | Litigation                                           |   | 52     |
| Section 7.06.                  |   | Environmental  Matters                               |   | 52     |
| Section 7.07.                  |   | Compliance with the Laws and Agreements; No Defaults |   | 53     |
| Section 7.08.                  |   | Investment Company Act                               |   | 53     |
| Section 7.09.                  |   | Taxes                                                |   | 53     |
| Section 7.10.                  |   | ERISA                                                |   | 54     |
| Section 7.11.                  |   | Disclosure; No Material Misstatements                |   | 55     |
| Section 7.12.                  |   | Insurance                                            |   | 55     |
| Section 7.13.                  |   | Restriction on  Liens                                |   | 56     |
| Section 7.14.                  |   | Subsidiaries                                         |   | 56     |
| Section 7.15.                  |   | Location of Business and Offices                     |   | 56     |
| Section 7.16.                  |   | Properties;  Titles, Etc.                            |   | 56     |
| Section 7.17.                  |   | Maintenance of Properties                            |   | 57     |
| Section 7.18.                  |   | Gas Imbalances, Prepayments                          |   | 58     |
| Section 7.19.                  |   | Marketing of Production                              |   | 58     |
| Section 7.20.                  |   | Swap Agreements                                      |   | 58     |
| Section 7.21.                  |   | Use of Loans and Letters of Credit                   |   | 58     |
| Section 7.22.                  |   | Solvency                                             |   | 59     |
| Section 7.23.                  |   | Sanctioned Persons                                   |   | 59     |
| Section 7.24.                  |   | Security Instruments                                 |   | 59     |
|                           |   |                                                 |   |   |
| ARTICLE VIII                   |   |                                                 |
| Affirmative Covenants          |   |                                                 |
|                           |   |                                                 |   |   |
| Section 8.01.                  |   | Financial Statements; Other Information              |   | 60     |
| Section 8.02.                  |   | Notices of Material Events                           |   | 63     |
| Section 8.03.                  |   | Existence; Conduct of Business                       |   | 64     |

 

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| Section 8.04.               |   | Payment of Obligations                            |   | 64     |
|-----------------------------|--------|---------------------------------------------------|--------|--------|
| Section 8.05.               |   | Performance of Obligations under Loan Documents   |   | 64     |
| Section 8.06.               |   | Operation and Maintenance of Properties           |   | 64     |
| Section 8.07.               |   | Insurance                                         |   | 65     |
| Section 8.08.               |   | Books and Records; Inspection Rights              |   | 66     |
| Section 8.09.               |   | Compliance with Laws                              |   | 66     |
| Section 8.10.               |   | Environmental Matters                             |   | 66     |
| Section 8.11.               |   | Further Assurances                                |   | 67     |
| Section 8.12.               |   | Reserve Reports                                   |   | 67     |
| Section 8.13.               |   | Title Information                                 |   | 68     |
| Section 8.14.               |   | Additional Collateral; Additional Guarantors      |   | 69     |
| Section 8.15.               |   | ERISA Compliance                                  |   | 70     |
| Section 8.16.               |   | Swap Agreements and Put Option Contracts          |   | 71     |
| Section 8.17.               |   | Administrative Agent as Principal Depository      |   | 71     |
| Section 8.18.               |   | Chief Financial Officer                           |   | 71     |
|                        |   |                                              |   |   |
| ARTICLE IX                  |   |                                              |
| Negative Covenants          |   |                                              |
|                        |   |                                              |   |   |
| Section 9.01.               |   | Financial  Covenants                              |   | 71     |
| Section 9.02.               |   | Debt                                              |   | 72     |
| Section 9.03.               |   | Liens                                             |   | 73     |
| Section 9.04.               |   | Dividends, Distributions and Redemptions          |   | 73     |
| Section 9.05.               |   | Investments, Loans and Advances                   |   | 73     |
| Section 9.06.               |   | Nature of Business; International Operations      |   | 75     |
| Section 9.07.               |   | Limitation on Leases                              |   | 75     |
| Section 9.08.               |   | Proceeds of Notes                                 |   | 75     |
| Section 9.09.               |   | ERISA Compliance                                  |   | 75     |
| Section 9.10.               |   | Sale or Discount of Receivables                   |   | 77     |
| Section 9.11.               |   | Mergers, Etc.                                     |   | 77     |
| Section 9.12.               |   | Sale of Properties                                |   | 77     |
| Section 9.13.               |   | Environmental Matters                             |   | 77     |
| Section 9.14.               |   | Transactions with Affiliates                      |   | 77     |
| Section 9.15.               |   | Subsidiaries                                      |   | 78     |
| Section 9.16.               |   | Negative Pledge Agreements; Dividend Restrictions |   | 78     |
| Section 9.17.               |   | Gas Imbalances, Take-or-Pay or Other Prepayments  |   | 78     |
| Section 9.18.               |   | Swap Agreements                                   |   | 78     |
| Section 9.19.               |   | Marketing Activities                              |   | 78     |
| Section 9.20.               |   | Management Fees                                   |   | 79     |
|                        |   |                                              |   |   |
| ARTICLE X                   |   |                                              |
| Events of Default; Remedies |   |                                              |
|                        |   |                                              |   |   |
| Section 10.01.              |   | Events of Default                                 |   | 79     |
| Section 10.02.              |   | Remedies                                          |   | 81     |

 

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| ARTICLE XI     |   |                                                                              |
|----------------|--------|-----------------------------------------------------------------------------------|
| The Agents     |   |                                                                              |
|           |   |                                                                              |   |   |
| Section 11.01. |   | Appointment; Powers                                                               |   | 82 |
| Section 11.02. |   | Duties and Obligations of Administrative Agent                                    |   | 83 |
| Section 11.03. |   | Action by Administrative Agent                                                    |   | 83 |
| Section 11.04. |   | Reliance by Administrative Agent                                                  |   | 84 |
| Section 11.05. |   | Subagents                                                                         |   | 85 |
| Section 11.06. |   | Resignation or Removal of Administrative Agent                                    |   | 85 |
| Section 11.07. |   | Agents as Lenders                                                                 |   | 85 |
| Section 11.08. |   | No Reliance                                                                       |   | 86 |
| Section 11.09. |   | Administrative Agent May File Proofs of Claim                                     |   | 86 |
| Section 11.10. |   | Authority of Administrative Agent to Release  Collateral and Liens                |   | 87 |
| Section 11.11. |   | The Arranger, Bookrunner, Etc.                                                    |   | 87 |
|           |   |                                                                              |   |   |
| ARTICLE XII    |   |                                                                              |
| Miscellaneous  |   |                                                                              |
|           |   |                                                                              |   |   |
| Section 12.01. |   | Notices                                                                           |   | 88 |
| Section 12.02. |   | Waivers; Amendments                                                               |   | 89 |
| Section 12.03. |   | Expenses, Indemnity; Damage Waiver                                                |   | 91 |
| Section 12.04. |   | Successors and Assigns                                                            |   | 93 |
| Section 12.05. |   | Survival; Revival; Reinstatement                                                  |   | 96 |
| Section 12.06. |   | Counterparts; Integration; Effectiveness                                          |   | 96 |
| Section 12.07. |   | Severability                                                                      |   | 97 |
| Section 12.08. |   | Right of Setoff                                                                   |   | 97 |
| Section 12.09. |   | GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER OF  JURY TRIAL |   | 98 |
| Section 12.10. |   | Headings                                                                          |   | 98 |
| Section 12.11. |   | Confidentiality                                                                   |   | 98 |
| Section 12.12. |   | Interest Rate Limitation                                                          |   | 99 |
| Section 12.13. |   | EXCULPATION PROVISIONS                                                            |   | 100 |
| Section 12.14. |   | Collateral Matters; Swap Agreements                                               |   | 100 |
| Section 12.15. |   | No Third Party Beneficiaries                                                      |   | 101 |
| Section 12.16. |   | USA Patriot Act Notice                                                            |   | 101 |
| Section 12.17. |   | Amendment and Restatement; Release                                                |   | 101 |

 

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**ANNEXES, EXHIBITS AND SCHEDULES**

** **
| Annex I       |   | List of Maximum Credit Amounts                                |   |   |
|---------------|--------|---------------------------------------------------------------|--------|--------|
|          |   |                                                          |   |   |
| Exhibit A     |   | Form of Note                                                  |   |   |
| Exhibit B     |   | Form of Borrowing Request                                     |   |   |
| Exhibit C     |   | Form of Interest Election Request                             |   |   |
| Exhibit D     |   | Form of Compliance Certificate                                |   |   |
| Exhibit E     |   | Security Instruments                                          |   |   |
| Exhibit F     |   | Form of Assignment and Assumption                             |   |   |
| Exhibit G     |   | Affidavit of Payment of Trade Bills                           |   |   |
| Exhibit H     |   | Property Certificate                                          |   |   |
| Exhibit I     |   | Reconciliation Schedule                                       |   |   |
|          |   |                                                          |   |   |
| Schedule 7.05 |   | Litigation                                                    |   |   |
| Schedule 7.06 |   | Environmental                                                 |   |   |
| Schedule 7.12 |   | Insurance                                                     |   |   |
| Schedule 7.14 |   | Subsidiaries and Partnerships                                 |   |   |
| Schedule 7.18 |   | Gas Imbalances                                                |   |   |
| Schedule 7.19 |   | Marketing Contracts                                           |   |   |
| Schedule 7.20 |   | Current Swap Agreements                                       |   |   |
| Schedule 7.24 |   | Mortgage Filing Offices                                       |   |   |
| Schedule 8.16 |   | Minimum Swap Requirements and Minimum Put Option Requirements |   |   |
| Schedule 9.03 |   | Existing Liens                                                |   |   |
| Schedule 9.05 |   | Investments                                                   |   |   |

 

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THIS FIRST AMENDED AND RESTATED CREDITAGREEMENT dated as of February 14, 2008, is among **VANGUARD NATURAL GAS, LLC,**a limited liability company dulyformed and existing under the laws of the Commonwealth of Kentucky (the “**Borrower**”);each of the Lenders from time to time party hereto; and **CITIBANK,N.A.**(in its individual capacity, “**Citibank**”),as administrative agent for the Lenders (in such capacity, together with itssuccessors in such capacity, the “**Administrative Agent**”).

 

**R E C I T A L S**

 

A.            The Borrower(formerly known as Nami Holding Company, LLC), Administrative Agent, andcertain lenders have previously entered into that certain Credit Agreementdated as of January 3, 2007, as amended by that certain First Amendment toCredit Agreement among the parties dated as of March 2, 2007, and asamended by that certain Second Amendment to Credit Agreement among the partiesdated as of April 13, 2007, and as amended by that certain Third Amendmentto Credit Agreement among the parties dated as of May 4, 2007, and asamended by that certain Fourth Amendment to Credit Agreement among the partiesdated as of August 30, 2007, and as amended by that certain FifthAmendment to Credit Agreement among the parties dated as of October 5,2007, and as amended by that certain Sixth Amendment to Credit Agreement amongthe parties dated as of November 15, 2007 (collectively, the **“Original Credit Agreement”**).

 

B.            The parties desireto further amend the Original Credit Agreement. Because of the number of amendments previously entered into and thechanges required to effect the desired amendments, the parties deem itadvantageous to restate the terms and provisions of the Original CreditAgreement as hereinafter set forth.

 

In consideration of the mutual covenants and agreements hereincontained and of the loans, extensions of credit and commitments hereinafterreferred to, the parties hereto hereby agree that the Original Credit Agreementis amended and restated in its entirety as follows:

 

# **ARTICLE IDefinitions and Accounting Matters**

##  

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

##  

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

 

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

 

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

 

1

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“**AdministrativeQuestionnaire**” means an Administrative Questionnaire in a formsupplied from time to time by the Administrative Agent.

 

“**AffectedLoans**” has the meaning assigned such term in Section 5.05.

 

“**Affidavit of Payment of Trade Bills**”means that certain Affidavit of Payment of Trade Bills executed by NRC, Arianaand TEC to the Administrative Agent dated as of January 3, 2007.

 

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

 

“**Agents**”means, collectively, the Administrative Agent and other agents subsequentlynamed; and “Agent” shall mean either the Administrative Agent or such otheragent, as the context requires.

 

“**AggregateMaximum Credit Amounts**” at any time shall equal the sum of theMaximum Credit Amounts of the respective Lenders, as the same may be reduced orterminated pursuant to Section 2.06.

 

“**Agreement**”means this First Amended and Restated Credit Agreement, as the same may fromtime to time be amended, modified, supplemented or restated.

 

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

 

*“**Apache******Acquisition Agreement****” means that certain Purchase and Sale Agreementbetween Apache Corporation, as seller, and Vanguard Permian, as buyer, dated asof December 21, 2007, and all modifications and amendments thereof.*

 

*“**Apache******AcquisitionDocuments****” means theApache Acquisition Agreement and all agreements, assignments, deeds,conveyances, certificates or other documents and instruments now or hereafterexecuted and delivered by and between Vanguard Permian and/or any member of theseller pursuant to the Apache Acquisition Agreement or in connection with thetransactions contemplated by the Apache Acquisition Agreement.*

 

*“**ApacheAffidavit of Payment of Trade Bills**” means an affidavit in theform of Exhibit G attached hereto containing the information asprovided herein with respect to the Apache Properties.*

 

*“**ApacheProperty Certificate**” means a certificate or certificates(whether one or more) in the form of Exhibit H attached hereto withrespect to the Apache Properties.*

 

2

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*“**ApacheProperties**” means the properties being acquired by VanguardPermian pursuant to the Apache Acquisition Documents.*

 

*“**ApacheReconciliation Schedule**” means a schedule in the form of Exhibit Iattached hereto confirming that, except as otherwise shown thereon, (i) eachwell or unit described on the exhibits to the Mortgages covering the ApacheProperties is also included in the reserve report  for such Apache Properties previouslydelivered by the Borrower to the Administrative Agent, and (ii) therespective net revenue interests and working interests for each well or unitdescribed on the exhibits to such Mortgages are also the net revenue interestsand working interests for the same well or unit included in such  initial reserve report.*

 

*“**ApacheTitle Indemnity Agreement**” means a title indemnity agreementfrom Vanguard Permian with respect to the Apache Properties which shall be inform and substance satisfactory to Administrative Agent.*

 

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

 

***Borrowing Base Utilization Grid***

 
| **Borrowing Base Utilization Percentage** | ** ** | **<****25%** | ** ** | **0>25% <50%** | ** ** | **>50% <75%** | ** ** | **>75%** | ** ** |
|----------------------------------------------------------|------------|-----------------|------------|---------------------------|------------|--------------------------|------------|-------------|------------|
| Eurodollar  Loans                                        |       | 1.00            | %          | 1.25                      | %          | 1.50                     | %          | 1.75        | %          |
| ABR Loans                                                |       | .00             | %          | .25                       | %          | .50                      | %          | .75         | %          |
| Commitment  Fee Rate                                     |       | .25             | %          | .30                       | %          | .375                     | %          | .375        | %          |
| Letter of  Credit Fee                                    |       | 1.00            | %          | 1.25                      | %          | 1.50                     | %          | 1.75        | %          |

 

Each change in the Applicable Margin shall apply during the periodcommencing on the effective date of such change and ending on the dateimmediately preceding the effective date of the next such change, provided,however, that if at any time the Borrower fails to deliver a Reserve Reportpursuant to Section 8.12(a), then the “**Applicable Margin**” meansthe rate per annum set forth on the grid when the Borrowing Base UtilizationPercentage is at its highest level.

 

“**ApplicablePercentage**” means, with respect to any Lender, the percentage ofthe Aggregate Maximum Credit Amounts represented by such Lender’s MaximumCredit Amount as such percentage is set forth on Annex I.  If the Maximum Credit Amounts have terminatedor expired, the Applicable Percentages shall be determined based upon theMaximum Credit Amounts most recently in effect, giving effect to anyassignments.

 

“**ApprovedCounterparty**” means (a) any Lender or any Affiliate of aLender, or (b) any other Person engaged in the business of writing SwapAgreements whose long term senior unsecured debt rating is A-/A3 by S&P orMoody’s (or their equivalent) or higher and that is acceptable to theAdministrative Agent, or (c) any other Person from time to time approvedby the Majority Lenders.

 

3

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“**ApprovedFund**” means any Person (other than a natural person) that isengaged in making, purchasing, holding or investing in bank loans and similarextensions of credit in the ordinary course of its business and that isadministered or managed by (a) a Lender, (b) an Affiliate of a Lenderor (c) an entity or an Affiliate of an entity that administers or managesa Lender.

 

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

 

“**Ariana**”****meansAriana Energy, LLC, a Tennessee limited liability company.

 

“**Arranger**”means (a) Citibank, in its capacities as the co-lead arranger, solebookrunner and co-syndication agent hereunder, and (b) BNP Paribas, in itscapacities as co-lead arranger and co-syndication agent hereunder.

 

“**Assignmentand Assumption**” means an assignment and assumption entered intoby a Lender and an Eligible Assignee (with the consent of any party whoseconsent is required by Section 12.04(b)), and accepted by theAdministrative Agent, in the form of Exhibit F or any other formapproved by the Administrative Agent.

 

“**AvailabilityPeriod**” means the period from and including the Effective Dateto but excluding the Termination Date.

 

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

 

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

 

“**BorrowingBase**” means at any time an amount equal to the amount determinedin accordance with Section 2.07, as the same may be adjusted from timeto time pursuant to Section 8.13(c).

 

“**BorrowingBase Deficiency**” occurs if at any time the total RevolvingCredit Exposures exceeds the Borrowing Base then in effect.

 

“**BorrowingBase Utilization Percentage**” means, as of any day, the fractionexpressed as a percentage, the numerator of which is the sum of the RevolvingCredit Exposures of the Lenders on such day, and the denominator of which isthe Borrowing Base in effect on such day.

 

“**BorrowingRequest**” means a request by the Borrower for a Borrowing inaccordance with Section 2.03.

 

“**BusinessDay**” means any day that is not a Saturday, Sunday or other dayon which commercial banks in New York City or Dallas, Texas are authorized orrequired by law to remain closed; and if such day relates to a Borrowing orcontinuation of, a payment or prepayment of principal of or interest on, or aconversion of or into, or the Interest Period for, a 

 

4

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Eurodollar Loan or a notice by the Borrower withrespect to any such Borrowing or continuation, payment, prepayment, conversionor Interest Period, any day which is also a day on which dealings in dollardeposits are carried out in the London interbank market.

 

“**CapitalExpenditures**” means, in respect of any Person, for any period,the aggregate (determined without duplication) of all exploration anddevelopment expenditures and costs that are capital in nature and any otherexpenditures that are capitalized on the balance sheet of such Person inaccordance with GAAP.

 

“**CapitalLeases**” means, in respect of any Person, all leases which shallhave been, or should have been, in accordance with GAAP, recorded as capitalleases on the balance sheet of the Person liable (whether contingent orotherwise) for the payment of rent thereunder.

 

“**CasualtyEvent**” means any loss, casualty or other insured damage to, orany nationalization, taking under power of eminent domain or by condemnation orsimilar proceeding of, any Property of the Borrower or any of its Subsidiarieshaving a fair market value in excess of $2,000,000.

 

“**Changein Control**” means(a) the acquisition of ownership, directly or indirectly, beneficially orof record, by any Person or group (within the meaning of the SecuritiesExchange Act of 1934 and the rules of the SEC thereunder as in effect onthe date hereof) of Equity Interests representing more than 25% of theaggregate ordinary voting power represented by the issued and outstandingEquity Interests of the Borrower, or (b) occupation of a majority of thoseseats (other than vacant seats) on the board of managers of Borrower by Personswho were neither (i) nominated by the board of managers of the Borrowernor (ii) appointed by managers so nominated.

 

“**Changein Law**” means (a) the adoption of any law, rule, regulationor treaty after the date of this Agreement, (b) any change in any law,rule, regulation or treaty or in the interpretation or application thereof byany Governmental Authority after the date of this Agreement or (c) complianceby any Lender or the Issuing Bank (or, for purposes of Section 5.01(b)),by any lending office of such Lender or by such Lender’s or the Issuing Bank’sholding company, (if any) with any request, guideline or directive (whether ornot having the force of law) of any Governmental Authority made or issued afterthe date of this Agreement.

 

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

 

“**Commitment**”means, with respect to each Lender, the commitment of such Lender to make Loansand to acquire participations in Letters of Credit hereunder, expressed as anamount representing the maximum aggregate amount of such Lender’s RevolvingCredit Exposure hereunder, as such commitment may be (a) modified fromtime to time pursuant to Section 2.06 and (b) modified fromtime to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b),and “**Commitments**” means the aggregateamount of the Commitments of all of the Lenders.  The amount representing each Lender’s Commitmentshall at any time be the lesser of such Lender’s Maximum Credit Amount and suchLender’s Applicable Percentage of the then effective Borrowing Base.

 

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“**CommitmentFee Rate**” has the meaning set forth in the definition of “**Applicable Margin**”.

 

“**ConsolidatedLeverage Ratio**” means,as of any date of determination, for the Borrower and its Subsidiaries on aconsolidated basis, the ratio of (a) Total Debt as of such date to (b) EBITDAfor each four consecutive fiscal quarter period ending on and after December 31,2007.  For purposes of calculating theConsolidated Leverage Ratio at any date, EBITDA shall be calculated on a proforma basis (as certified by the Borrower to the Administrative Agent and asapproved by the Administrative Agent) assuming that all acquisitions made, andall dispositions completed, during the four consecutive fiscal quarters thenmost recently ended have been made on the first day of such period (but withoutany adjustment for projected cost savings or other synergies).

 

“**ConsolidatedSubsidiaries**” means each Subsidiary of the Borrower (whether nowexisting or hereafter created or acquired) the financial statements of whichshall be (or should have been) consolidated with the financial statements ofthe Borrower in accordance with GAAP.

 

“**Control**”means the possession, directly or indirectly, of the power to direct or causethe direction of the management or policies of a Person, whether through theability to exercise voting power, by contract or otherwise.  For the purposes of this definition, andwithout limiting the generality of the foregoing, any Person that owns directlyor indirectly 10% or more of the Equity Interests having ordinary voting powerfor the election of the managers or other governing body of a Person will bedeemed to “control” such other Person.  “**Controlling**”and “**Controlled**”have meanings correlative thereto.

 

“**Debt**”means, for any Person, the sum of the following (without duplication):  (a) all obligations of such Person forborrowed money or evidenced by bonds, bankers’ acceptances, debentures, notesor other similar instruments; (b) all obligations of such Person (whethercontingent or otherwise) in respect of letters of credit, surety or other bondsand similar instruments; (c) all accounts payable and all accruedexpenses, liabilities or other obligations of such Person to pay the deferredpurchase price of Property or services; (d) all obligations under CapitalLeases; (e) all obligations under Synthetic Leases; (f) all Debt (asdefined in the other clauses of this definition) of others secured by (or forwhich the holder of such Debt has an existing right, contingent or otherwise,to be secured by) a Lien on any Property of such Person, whether or not such Debtis assumed by such Person; (g) all Debt (as defined in the other clausesof this definition) of others guaranteed by such Person or in which such Personotherwise assures a creditor against loss of the Debt (howsoever such assuranceshall be made) to the extent of the lesser of the amount of such Debt and themaximum stated amount of such guarantee or assurance against loss; (h) allobligations or undertakings of such Person to maintain or cause to bemaintained the financial position or covenants of others or to purchase theDebt or Property of others; (i) obligations to deliver commodities, goodsor services, including, without limitation, Hydrocarbons, in consideration ofone or more advance payments, other than gas balancing arrangements in theordinary course of business; (j) obligations to pay for goods or serviceseven if such goods or services are not actually received or utilized by suchPerson; (k) any Debt of a partnership for which such Person is liableeither by agreement, by operation of law or by a Governmental Requirement butonly to the extent of such liability; (l) Disqualified Capital 

 

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Stock; and (m) the undischarged balance of anyproduction payment created by such Person or for the creation of which suchPerson directly or indirectly received payment. The Debt of any Person shall include all obligations of such Person ofthe character described above to the extent such Person remains legally liablein respect thereof notwithstanding that any such obligation is not included asa liability of such Person under GAAP.

 

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

 

“**DisqualifiedCapital Stock**” means any Equity Interest that, by its terms (orby the terms of any security into which it is convertible or for which it isexchangeable) or upon the happening of any event, matures or is mandatorilyredeemable for any consideration other than other Equity Interests (which wouldnot constitute Disqualified Capital Stock), pursuant to a sinking fundobligation or otherwise, or is convertible or exchangeable for Debt orredeemable for any consideration other than other Equity Interests (which wouldnot constitute Disqualified Capital Stock) at the option of the holder thereof,in whole or in part, or requires the payment of any cash dividend or any otherscheduled payment constituting a return of capital, in the case of each of theforegoing, on or prior to the date that is after the earlier of (a) theMaturity Date and (b) the date on which there are no Loans, LC Exposure orother obligations hereunder outstanding and all of the Commitments areterminated.

 

“**DissentingLender**” has the meaning assigned such term in Section 2.07(c)(iv).

 

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

 

“**DomesticSubsidiary**” means any Subsidiary that is organized under thelaws of the United States of America or any state thereof or the District ofColumbia.

 

“**EBITDA**” means, for anytwelve-month period (except as otherwise expressly provided) ending on the lastday of any fiscal quarter, consolidated net income, excluding any non-cashrevenue or expense associated with Swap Agreements resulting from FAS 133,**plus** withoutduplication and to the extent deducted from revenues in determiningconsolidated net income, the sum of (a) the aggregate amount ofconsolidated Interest Expense for such period, (b) the aggregate amount ofincome tax expense for such period, (c) all amounts attributable todepletion, depreciation and amortization for such period, and (d) allother non-cash charges, all determined on a consolidated basis with respect toBorrower and its Subsidiaries in accordance with GAAP, using the results of thetwelve-month period ending with that reporting period (except as otherwiseherein provided).

 

“**EffectiveDate**” means the date on which the conditions specified in Section 6.01of the Original Credit Agreement were satisfied (or waived in accordance with Section 12.02of the Original Credit Agreement).

 

“**Eligible Assignee**”means (a) a Lender, (b) an Affiliate of a Lender, (c) anApproved Fund, and (d) any other Person (other than a natural person)approved by (i) the Administrative Agent, (ii) in the case of anyassignment of a Commitment, the Issuing Bank, and (iii) unless an Event ofDefault has occurred and is continuing, the Borrower (each such approval not tobe 

 

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unreasonably withheld ordelayed); provided that notwithstanding the foregoing, “EligibleAssignee” shall not include the Borrower or any of the Borrower’s Affiliates orSubsidiaries.

 

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

 

“**Environmental Laws**”****means any and all Governmental Requirements relating to theenvironment or to emissions, discharges, releases or threatened releases ofpollutants, contaminants, chemicals, or industrial, toxic or hazardoussubstances or wastes into the environment including ambient air, surface water,ground water, or land, or otherwise relating to the manufacture, processing,distribution, use, treatment, storage, disposal, transport or handling ofpollutants, contaminants, chemicals, or industrial, toxic or hazardoussubstances or wastes.

 

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

 

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

 

“**ERISAAffiliate**” means each trade or business (whether or notincorporated) which together with the Borrower or a Subsidiary would be deemedto be a “single employer” within the meaning of section 4001(b)(1) ofERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.

 

“**ERISAEvent**” means (a) a “Reportable Event” described in section4043 of ERISA and the regulations issued thereunder, (b) the withdrawal ofthe Borrower, a Subsidiary or any ERISA Affiliate from a Plan during a planyear in which it was a “substantial employer” as defined in section 4001(a)(2) ofERISA, (c) the filing of a notice of intent to terminate a Plan or thetreatment of a Plan amendment as a termination under section 4041 of ERISA, (d) theinstitution of proceedings to terminate a Plan by the PBGC, (e) receipt ofa notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) anyother event or condition which might constitute grounds under section 4042 ofERISA for the termination of, or the appointment of a trustee to administer, anyPlan.

 

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

 

“**Eventof Default**” has the meaning assigned such term in Section 10.01.

 

“**ExceptedLiens**” means:  (a) Liensfor Taxes, assessments or other governmental charges or levies which are notdelinquent or which are being contested in good faith by appropriate action andfor which adequate reserves have been established and maintained in accordancewith GAAP; (b) Liens in connection with workers’ compensation,unemployment insurance or other social security, old age pension or publicliability obligations which are not delinquent or which are being contested ingood faith by appropriate action and for which adequate reserves have beenestablished and maintained in accordance with GAAP; (c) statutory 

 

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landlord’s liens, operators’, vendors’, carriers’,warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s,construction or other like Liens arising by operation of law in the ordinarycourse of business or incident to the exploration, development, operation andmaintenance of Oil and Gas Properties each of which is in respect ofobligations that are not delinquent or which are being contested in good faithby appropriate action and for which adequate reserves have been established andmaintained in accordance with GAAP; (d) contractual Liens which arise inthe ordinary course of business under operating agreements, joint ventureagreements, oil and gas partnership agreements, oil and gas leases, farm-outagreements, division orders, contracts for the sale, transportation or exchangeof oil and natural gas, unitization and pooling declarations and agreements,area of mutual interest agreements, overriding royalty agreements, marketingagreements, processing agreements, net profits agreements, developmentagreements, gas balancing or deferred production agreements, injection,repressuring and recycling agreements, salt water or other disposal agreements,seismic or other geophysical permits or agreements, and other agreements whichare usual and customary in the oil and gas business and are for claims whichare not delinquent or which are being contested in good faith by appropriateaction and for which adequate reserves have been established and maintained inaccordance with GAAP, provided that any such Lien referred to in this clausedoes not materially impair the use of the Property covered by such Lien for thepurposes for which such Property is held by the Borrower or any Subsidiary ormaterially impair the value of such Property subject thereto; (e) Liensarising solely by virtue of any statutory or common law provision relating tobanker’s liens, rights of set-off or similar rights and remedies and burdeningonly deposit accounts or other funds maintained with a creditor depositoryinstitution, provided that no such deposit account is a dedicated cashcollateral account or is subject to restrictions against access by thedepositor in excess of those set forth by regulations promulgated by the Boardand no such deposit account is intended by Borrower or any of its Subsidiariesto provide collateral to the depository institution; (f) easements,restrictions, servitudes, permits, conditions, covenants, exceptions orreservations in any Property of the Borrower or any Subsidiary for the purposeof roads, pipelines, transmission lines, transportation lines, distributionlines for the removal of gas, oil, coal or other minerals or timber, and otherlike purposes, or for the joint or common use of real estate, rights of way,facilities and equipment, which do not secure any monetary obligations andwhich in the aggregate do not materially impair the use of such Property forthe purposes of which such Property is held by the Borrower or any Subsidiaryor materially impair the value of such Property subject thereto; (g) minordefects and irregularities in title to any Property which do not secure anymonetary obligations and which in the aggregate do not materially impair use ofsuch Property for the purposes for which such Property is held by the Borrowerand any Subsidiary or materially impair the value of such Property subjectthereto; (h) Liens on cash or securities pledged to secure performance oftenders, surety and appeal bonds, government contracts, performance and returnof money bonds, bids, trade contracts, leases, statutory obligations,regulatory obligations and other obligations of a like nature incurred in theordinary course of business and (i) judgment and attachment Liens notgiving rise to an Event of Default, provided that any appropriate legalproceedings which may have been duly initiated for the review of such judgmentshall not have been finally terminated or the period within which suchproceeding may be initiated shall not have expired and no action to enforcesuch Lien has been commenced; provided, further that Liens described in clauses(a) through (e) shall remain “Excepted Liens” only for so long as noaction to enforce such Lien has been commenced and no intention to subordinatethe first priority Lien granted in 

 

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favor of the Administrative Agent and the Lenders isto be hereby implied or expressed by the permitted existence of such ExceptedLiens.

 

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

 

“**FAS 133**”means Statement of Financial Accounting Standard 133 (and any statementsreplacing, modifying or superseding such statement) adopted by the FinancialAccounting Standards Board.

 

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

 

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

 

“**FinancialStatements**” means the financial statement or statements of theBorrower and its Consolidated Subsidiaries referred to in Section 7.04(a).

 

“**ForeignLender**” means any Lender that is organized under the laws of ajurisdiction other than that in which the Borrower is located.  For purposes of this definition, the UnitedStates of America, each State thereof and the District of Columbia shall bedeemed to constitute a single jurisdiction.

 

“**ForeignSubsidiary**” means any Subsidiary that is not a DomesticSubsidiary.

 

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

 

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“**GovernmentalAuthority**” means the government of the United States of America,any other nation or any political subdivision thereof, whether state or local,and any agency, authority, instrumentality, regulatory body, court, centralbank or other entity exercising executive, legislative, judicial, taxing,regulatory or administrative powers or functions of or pertaining to government(including any supranational bodies such as the European Union or the EuropeanCentral Bank) over the Borrower, any Subsidiary, any of their Properties, anyAgent, the Issuing Bank or any Lender.

 

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

 

“**Guarantors**”means (a) NRC until released as provided in Section  2.09(c), (b) allSubsidiaries of the Borrower, and (c) each other Subsidiary thatguarantees the Indebtedness pursuant to Section 8.14(b).

 

“**GuarantyAgreement**” means an agreement executed by the Guarantors in formand substance satisfactory to the Administrative Agent, unconditionallyguarantying on a joint and several basis, payment of the Indebtedness, as thesame may be amended, modified or supplemented from time to time.

 

“**HighestLawful Rate**” means, with respect to each Lender, the maximumnonusurious interest rate, if any, that at any time or from time to time may becontracted for, taken, reserved, charged or received on the Notes or on otherIndebtedness under laws applicable to such Lender which are presently in effector, to the extent allowed by law, under such applicable laws which mayhereafter be in effect and which allow a higher maximum nonusurious interestrate than applicable laws allow as of the date hereof.

 

“**HydrocarbonInterests**” means all rights, titles, interests and estates nowor hereafter acquired in and to oil and gas leases, oil, gas and mineral leases(excluding coal and timber), or other liquid or gaseous hydrocarbon leases,mineral fee interests, overriding royalty and royalty interests, net profitinterests and production payment interests, including any reserved or residualinterests of whatever nature.  Unlessother indicated herein, each reference to the term “**HydrocarbonInterests**” shall mean Hydrocarbon Interests of the Borrower andits Subsidiaries.

 

“**Hydrocarbons**”means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate,distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refinedor separated therefrom.  Unless otherwiseindicated herein, each reference to the term “**Hydrocarbons**”shall mean Hydrocarbons of the Borrower and its Subsidiaries.

 

“**Indebtedness**”means any and all amounts owing or to be owing by the Borrower, any Subsidiaryor any Guarantor (whether direct or indirect (including those acquired byassumption), absolute or contingent, due or to become due, now existing orhereafter arising):  (a) to theAdministrative Agent, the Issuing Bank or any Lender under any Loan Document; (b) 

 

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to any Swap Lender under any Swap Agreement betweenthe Borrower or any Subsidiary and such Swap Lender (which shall be deemed tobe the Swap Termination Value as of the date the amount of Indebtedness isbeing determined) and (c) all renewals, extensions and/or rearrangementsof any of the above.

 

“**IndemnifiedTaxes**” means Taxes other than Excluded Taxes.

 

“**InitialReserve Report**” means the report of Netherland, Sewell &Associates, Inc., with respect to certain Oil and Gas Properties of theBorrower and its Subsidiaries as of July 1, 2006.

 

“**InterestElection Request**” means a request by the Borrower to convert orcontinue a Borrowing in accordance with Section 2.04.

 

“**InterestExpense**” means, for any period, the sum (determined without duplication)of the aggregate gross interest expense of the Borrower and the ConsolidatedSubsidiaries for such period, including to the extent included in interestexpense under GAAP:  (a) amortizationof debt discount, (b) capitalized interest and (c) the portion of anypayments or accruals under Capital Leases allocable to interest expense, minus (i) theportion of any payments or accruals under Synthetic Leases allocable tointerest expense, and (ii) and any imputed interest pursuant to assetretirement obligations whether or not the same constitutes interest expenseunder GAAP.

 

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

 

“**InterestPeriod**” means with respect to any Eurodollar Borrowing, theperiod commencing on the date of such Borrowing and ending on the numericallycorresponding day in the calendar month that is one, two, three or six monthsthereafter, as the Borrower may elect; provided, that (a) if any InterestPeriod would end on a day other than a Business Day, such Interest Period shallbe extended to the next succeeding Business Day unless such next succeedingBusiness Day would fall in the next calendar month, in which case such InterestPeriod shall end on the next preceding Business Day and (b) any InterestPeriod pertaining to a Eurodollar Borrowing that commences on the last BusinessDay of a calendar month (or on a day for which there is no numericallycorresponding day in the last calendar month of such Interest Period) shall endon the last Business Day of the last calendar month of such Interest Period.  Interest shall accrue from and including thefirst day of an Interest Period to but excluding the last day of such InterestPeriod.  For purposes hereof, the date ofa Borrowing initially shall be the date on which such Borrowing is made and thereaftershall be the effective date of the most recent conversion or continuation ofsuch Borrowing.

 

“**InterimRedetermination**” has the meaning assigned such term in Section 2.07(b).

 

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“**InterimRedetermination Date**” means the date on which a Borrowing Basethat has been redetermined pursuant to an Interim Redetermination becomeseffective as provided in Section 2.07(d).

 

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

 

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

 

“**LCCollection Account**” has the meaning assigned such term in Section 2.08(j).

 

“**LCCommitment**” at any time means twenty percent (20%) of the thenexisting Borrowing Base.

 

“**LCDisbursement**” means a payment made by the Issuing Bank pursuantto a Letter of Credit.

 

“**LCExposure**” means, at any time, the sum of (a) the aggregateundrawn amount of all outstanding Letters of Credit at such time plus (b) theaggregate amount of all LC Disbursements that have not yet been reimbursed byor on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its ApplicablePercentage of the total LC Exposure at such time.

 

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

 

“**Letterof Credit**” means any letter of credit issued pursuant to thisAgreement.

 

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“**Letterof Credit Agreements**” means all letter of credit applicationsand other agreements (including any amendments, modifications or supplementsthereto) submitted by the Borrower, or entered into by the Borrower (whetherfor itself or any Subsidiary as the account party), with the Issuing Bankrelating to any Letter of Credit.

 

“**LIBORate**” means, with respect to any Eurodollar Borrowing for anyInterest Period, the rate appearing on Page 3750 of the Dow Jones MarketService (or on any successor or substitute page of such Service, or anysuccessor to or substitute for such Service, providing rate quotationscomparable to those currently provided on such page of such Service, asdetermined by the Administrative Agent from time to time for purposes ofproviding quotations of interest rates applicable to dollar deposits in theLondon interbank market) at approximately 11:00 a.m., London time, twoBusiness Days prior to the commencement of such Interest Period, as the ratefor dollar deposits with a maturity comparable to such Interest Period.  In the event that such rate is not availableat such time for any reason, then the “**LIBO Rate**” with respectto such Eurodollar Borrowing for such Interest Period shall be the rate atwhich dollar deposits of $5,000,000 and for a maturity comparable to suchInterest Period are offered by the principal London office of theAdministrative Agent in immediately available funds in the London interbankmarket at approximately 11:00 a.m., London time, two Business Days priorto the commencement of such Interest Period.

 

“**Lien**”means any interest in Property securing an obligation owed to, or a claim by, aPerson other than the owner of the Property, whether such interest is based onthe common law, statute or contract, and whether such obligation or claim isfixed or contingent, and including but not limited to (a) the lien orsecurity interest arising from a mortgage, encumbrance, pledge, securityagreement, conditional sale or trust receipt or a lease, consignment orbailment for security purposes or (b) production payments and the likepayable out of Oil and Gas Properties. The term “**Lien**” shallinclude easements, restrictions, servitudes, permits, conditions, covenants,exceptions or reservations. For the purposes of this Agreement, the Borrowerand its Subsidiaries, as applicable, shall be deemed to be the owner of anyProperty which they have acquired or hold subject to a conditional saleagreement, or leases under a financing lease or other arrangement pursuant towhich title to the Property has been retained by or vested in some other Personin a transaction intended to create a financing.

 

“**LoanDocuments**” means this Agreement, the Notes, the Letter of CreditAgreements, the Title Indemnity Agreement, the Affidavit of Payment of TradeBills, the Property Certificate, the Reconciliation Schedule, the Apache TitleIndemnity Agreement, the Apache Affidavit of Payment of Trade Bills, the ApacheProperty Certificate, the Apache Reconciliation Schedule, and the SecurityInstruments.

 

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

 

“**MajorityLenders**” means, at any time, Lenders having Loans, LC Exposureand unused Commitments representing more than 75% of the sum of all Loansoutstanding, LC Exposure and unused Commitments at such time (without regard toany sale by a Lender of a participation in any Loan under Section 12.04(c)).

 

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“**MaterialAdverse Effect**” means a material adverse change in, or materialadverse effect on (a) the business, operations, Property, condition(financial or otherwise) or prospects of the Borrower and the Subsidiariestaken as a whole, (b) the ability of the Borrower, any Subsidiary or anyGuarantor to perform any of its obligations under any Loan Document, (c) thevalidity or enforceability of any Loan Document or (d) the rights andremedies of or benefits available to the Administrative Agent, any other Agent,the Issuing Bank or any Lender under any Loan Document.

 

“**Material Gas Imbalance**” means,with respect to all gas balancing agreements to which the Borrower or anySubsidiary is a party or by which any mineral interest owned by the Borrower orany Subsidiary is bound, a net gas imbalance to the Borrower or any Subsidiary,individually or taken as a whole in excess of **$2,000,000. Gas imbalances will be determined based on written agreements, if any,specifying the method of calculation thereof, or, alternatively, if no suchagreements are in existence, gas imbalances will be calculated by multiplying (x) thevolume of gas imbalance as of the date of calculation (expressed in thousandcubic feet) by (y) the heating value in btu’s per thousand cubic feet, *times* the Henry Hubb average daily spot price for the monthimmediately preceding the date of calculation.**

 

“**MaterialIndebtedness**” means Debt (other than the Loans and Letters ofCredit but including obligations in respect of one or more Swap Agreements) ofany one or more of the Borrower and its Subsidiaries in an aggregate principalamount exceeding $2,000,000.  Forpurposes of determining Material Indebtedness, the “principal amount” of theobligations of the Borrower or any Subsidiary in respect of any Swap Agreementat any time shall be the Swap Termination Value.

 

“**MaturityDate**” means March 31, 2011.

 

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

 

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

 

“**MortgagedProperty**” means any Property owned by the Borrower or anyGuarantor which is subject to the Liens existing and to exist under the termsof the Security Instruments.

 

“**Mortgages**”means the mortgages, deeds of trust, leasehold mortgages, assignments of leasesand rents, assignments of proceeds of production, security documents and thelike (including all amendments, modifications and supplements thereto)delivered pursuant to this Agreement in order to grant Liens in Oil and GasProperties of the Borrower and its Subsidiaries.

 

“**MultiemployerPlan**” means a Plan which is a multiemployer plan as defined in Section 3(37)or 4001 (a)(3) of ERISA.

 

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

 

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

 

“**NRC**” means Nami ResourcesCompany L.L.C., a Kentucky limited liability company.

 

“**Oiland Gas Properties**” means (a) Hydrocarbon Interests; (b) theProperties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) allpresently existing or future unitization, pooling agreements and declarationsof pooled units and the units created thereby (including without limitation allunits created under orders, regulations and rules of any GovernmentalAuthority) which may affect all or any portion of the Hydrocarbon Interests; (d) alloperating agreements, contracts and other agreements, including productionsharing contracts and agreements, which relate to any of the HydrocarbonInterests or the production, sale, purchase, exchange or processing ofHydrocarbons from or attributable to such Hydrocarbon Interests; (e) allHydrocarbons in and under and which may be produced and saved or attributableto the Hydrocarbon Interests, including all oil in tanks, and all rents,issues, profits, proceeds, products, revenues and other incomes from orattributable to the Hydrocarbon Interests; (f) all tenements,hereditaments, appurtenances and Properties in any manner appertaining,belonging, affixed or incidental to the Hydrocarbon Interests and (g) allProperties, rights, titles, interests and estates described or referred toabove, including any and all Property, real or personal, now owned orhereinafter acquired and situated upon, used, held for use or useful inconnection with the operating, working or development of any of suchHydrocarbon Interests or Property (excluding drilling rigs, automotiveequipment, rental equipment or other personal Property which may be on suchpremises for the purpose of drilling a well or for other similar temporary uses)and including any and all oil wells, gas wells, injection wells or other wells,buildings, structures, fuel separators, liquid extraction plants, plantcompressors, pumps, pumping units, field gathering systems, tanks and tankbatteries, fixtures, valves, fittings, machinery and parts, engines, boilers,meters, apparatus, equipment, appliances, tools, implements, cables, wires,towers, casing, tubing and rods, surface leases, rights-of-way, easements andservitudes together with all additions, substitutions, replacements, accessionsand attachments to any and all of the foregoing.  Unless otherwise indicated herein, eachreference to the term “**Oil and Gas Properties**”shall mean Oil and Gas Properties of the Borrower and its Subsidiaries.

 

“**OrganizationalDocuments**” mean, (a) with respect to any corporation, thecertificate or articles of incorporation and the bylaws (or equivalent orcomparable constitutive documents with respect to any non US jurisdiction); (b) withrespect to any limited liability company, the certificate or articles offormation or organization and operating agreement; and (c) with respect toany partnership, joint venture, trust or other form of business entity, thepartnership, joint venture or other applicable agreement of formation ororganization and any agreement, instrument, filing or notice with respectthereto filed in connection with its formation or organization with theapplicable Governmental Authority in the jurisdiction of its formation ororganization and, if applicable, any certificate or articles of formation ororganization of such entity.

 

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**“Original Second Amendment to Credit Agreement”**means thatcertain Second Amendment to Credit Agreement dated as of April 13, 2007,among the Borrower and Citibank, N.A., as Administrative Agent, and Citibank,N.A. and BNP Paribas as Lenders.

 

“**OtherTaxes**” means any and all present or future stamp or documentarytaxes or any other excise or Property taxes, charges or similar levies arisingfrom any payment made hereunder or from the execution, delivery or enforcementof, or otherwise with respect to, this Agreement and any other Loan Document.

 

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

 

“**PBGC**”means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

“**Person**”means any natural person, corporation, limited liability company, trust, jointventure, association, company, partnership, Governmental Authority or otherentity.

 

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

 

“**PrimeRate**” means the rate of interest per annum publicly announcedfrom time to time by Citibank as its prime rate for loans in dollars; eachchange in the Prime Rate shall be effective from and including the date suchchange is publicly announced as being effective.  Such rate is set by Citibank as a generalreference rate of interest, taking into account such factors as Citibank maydeem appropriate; it being understood that many of Citibank’s commercial orother loans are priced in relation to such rate, that it is not necessarily thelowest or best rate actually charged to any customer and that Citibank may makevarious commercial or other loans at rates of interest having no relationshipto such rate.

 

“**Production Payment**” has themeaning assigned such term in Section 7.16(f).

 

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

 

“**Property Certificate**” means,collectively, those certain Property Certificates executed by NRC, Ariana andTEC, all dated as of January 3, 2007.

 

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

 

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

 

“**Purchase Agreement**” has themeaning assigned such term in Section 7.16(f).

 

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“**Reconciliation Schedule**” meansthat certain Reconciliation Schedule executed by NRC, Ariana and TEC to theAdministrative Agent in connection with the Original Credit Agreement.

 

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

 

“**RedeterminationDate**” means, with respect to any Scheduled Redetermination orany Interim Redetermination, the date that the redetermined Borrowing Baserelated thereto becomes effective pursuant to Section 2.07(d).

 

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

 

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

 

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

 

“**RemedialWork**” has the meaning assigned such term in Section 8.10(a).

 

“**ReserveReport**” means the Initial Reserve Report and each other report,in form and substance satisfactory to the Administrative Agent, setting forth,as of each December 31st or June 30th (or suchother date in the event of an Interim Redetermination) the oil and gas reservesattributable to the Oil and Gas Properties of the Borrower and theSubsidiaries, together with a projection of the rate of production and futurenet income, taxes, operating expenses and Capital Expenditures with respectthereto as of such date, based upon the economic and pricing assumptionsconsistent with the Administrative Agent’s lending requirements at the time.

 

“**ResponsibleOfficer**” means, as to any Person, the chief executive officer,the president, any Financial Officer or any vice president of such Person.  Unless otherwise specified, all references toa Responsible Officer herein shall mean a Responsible Officer of the Borrower.

 

“**RestrictedPayment**” means any dividend or other distribution (whether incash, securities or other Property) with respect to any Equity Interests in theBorrower or any of its Subsidiaries, or any payment (whether in cash,securities or other Property), including any sinking fund or similar deposit,on account of the purchase, Redemption, retirement, acquisition, cancellationor termination of any such Equity Interests in the Borrower or any of itsSubsidiaries or any option, warrant or other right to acquire any such EquityInterests in the Borrower or any of its Subsidiaries.

 

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

 

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

 

“**ScheduledRedetermination**” has the meaning assigned such term in Section 2.07(b).

 

“**ScheduledRedetermination Date**” means the date on which a Borrowing Basethat has been redetermined pursuant to a Scheduled Redetermination becomeseffective as provided in Section 2.07(d).

 

“**SEC**”means the Securities and Exchange Commission or any successor GovernmentalAuthority.

 

“**SecurityInstruments**” means the Guaranty Agreements, the SubsidiaryPledge Agreements, the Mortgages, and other agreements, instruments orcertificates described or referred to in Exhibit E, and any and allother agreements, instruments, consents or certificates now or hereafterexecuted and delivered by the Borrower or any other Person (other than SwapAgreements with the Lenders or any Affiliate of a Lender or participation orsimilar agreements between any Lender and any other lender or creditor withrespect to any Indebtedness pursuant to this Agreement) in connection with, oras security for or to guarantee the payment or performance of the Indebtedness,the Notes, this Agreement, or reimbursement obligations under the Letters ofCredit, as such agreements may be amended, modified, supplemented or restatedfrom time to time.

 

“**Smith Employment Agreement**”means that certain Employment Agreement between Scott W. Smith and theBorrower dated as of October 9, 2006.

 

“**StatutoryReserve Rate**” means a fraction (expressed as a decimal), thenumerator of which is the number one and the denominator of which is the numberone minus the aggregate of the maximum reserve percentages (including anymarginal, special, emergency or supplemental reserves) expressed as a decimalestablished by the Board to which the Administrative Agent is subject, withrespect to the Adjusted LIBO Rate, for eurocurrency funding (currently referredto as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include thoseimposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding andto be subject to such reserve requirements without benefit of or credit forproration, exemptions or offsets that may be available from time to time to anyLender under such Regulation D or any comparable regulation.  The Statutory Reserve Rate shall be adjustedautomatically on and as of the effective date of any change in any reservepercentage.

 

“**Subsidiary**”means:  (a) any Person of which atleast a majority of the outstanding Equity Interests having by the termsthereof ordinary voting power to elect a majority of the board of directors,board of managers or other governing body of such Person (irrespective ofwhether or not at the time Equity Interests of any other class or classes of suchPerson shall have or might have voting power by reason of the happening of anycontingency) is at the time directly or indirectly owned or controlled by theBorrower or one or more of its Subsidiaries or by the Borrower and one or moreof its Subsidiaries and (b) any partnership of which the 

 

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Borrower or any of its Subsidiaries is a generalpartner.  Unless otherwise indicatedherein, each reference to the term “Subsidiary” shall mean a Subsidiaryof the Borrower.

 

“**Subsidiary Pledge Agreements**”means one or more pledge agreements in form and substance satisfactory to theAdministrative Agent pursuant to which the Equity Interests of a Subsidiary arepledged to the Administrative Agent for the ratable benefit of the Lenders tosecure the payment of the Indebtedness and the reimbursement of obligationsunder the Letters of Credit, as such agreements may be amended, modified orsupplemented from time to time.

 

“**SwapAgreement**” means any agreement with respect to any swap,forward, future or derivative transaction or option or similar agreement,whether exchange traded, “over-the-counter” or otherwise, involving, or settledby reference to, one or more rates, currencies, commodities, equity or debtinstruments or securities, or economic, financial or pricing indices ormeasures of economic, financial or pricing risk or value or any similartransaction or any combination of these transactions; provided that no phantomstock or similar plan providing for payments only on account of servicesprovided by current or former directors, managers, officers, employeesor consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

 

“**Swap Lender**” means any Personthat is a counterparty to a Swap Agreement with the Borrower or any Subsidiarythat is a Lender or an Affiliate of a Lender or was a Lender or an Affiliate ofa Lender at the time such Swap Agreement was entered into.

 

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

 

“**SyntheticLease**” means, as to any Person, any lease (including a leasethat may be terminated by the lessee at any time) of any Property (whetherreal, personal or mixed) (a) that is accounted for as an operating leaseunder GAAP and (b) in respect of which the lessee retains or obtainsownership of the Property so leased for U.S. Federal income tax purposes, otherthan any such lease under which such Person is the lessor.

 

“**Taxes**”means any and all present or future taxes, levies, imposts, duties, deductions,withholdings, assessments, fees or other charges imposed by any GovernmentalAuthority, including any interest additions to tax or penalties applicablethereto.

 

“**TEC**” means Trust EnergyCompany, a Kentucky limited liability company.

 

“**TerminationDate**” means the earlier of the Maturity Date and the date oftermination of the Commitments.

 

“**Title Indemnity Agreement**”means that certain Title Indemnity Agreement executed by NRC, Ariana and TECfor the benefit of Administrative Agent dated as of January 3, 2007.

 

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“**TotalDebt**” means, at any date, all Debt of the Borrower and theConsolidated Subsidiaries on a consolidated basis, excluding (i) non-cashobligations under FAS 133 and (ii) accounts payable and other accruedliabilities (for the deferred purchase price of Property or services) from timeto time incurred in the ordinary course of business which are not greater thansixty (60) days past the date of invoice or delinquent or which are beingcontested in good faith by appropriate action and for which adequate reservesare maintained in accordance with GAAP.

 

“**Transactions**”means, with respect to (a) the Borrower, the execution, delivery andperformance by the Borrower of this Agreement, and each other Loan Document towhich it is a party, the borrowing of Loans, the use of the proceeds thereofand the issuance of Letters of Credit hereunder, and the grant of Liens by theBorrower on Mortgaged Properties and other Properties pursuant to the SecurityInstruments and (b) each Guarantor, the execution, delivery andperformance by such Guarantor of each Loan Document to which it is a party, theguaranteeing of the Indebtedness and the other obligations under the GuarantyAgreement by such Guarantor and such Guarantor’s grant of the securityinterests and provision of collateral under the Security Instruments, and thegrant of Liens by such Guarantor on Mortgaged Properties and other Propertiespursuant to the Security Instruments.

 

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

 

“**Vanguard Permian**”****means Vanguard Permian, LLC, a Delaware limited liabilitycompany.

 

“**Wholly-OwnedSubsidiary**” means (a) any Subsidiary of which all of theoutstanding Equity Interests, on a fully-diluted basis, are owned by theBorrower or one or more of the Wholly-Owned Subsidiaries or are owned by theBorrower and one or more of the Wholly-Owned Subsidiaries or (b) anySubsidiary that is organized in a foreign jurisdiction and is required by theapplicable laws and regulations of such foreign jurisdiction to be partiallyowned by the government of such foreign jurisdiction or individual or corporatecitizens of such foreign jurisdiction, provided that the Borrower, directly orindirectly, owns the remaining Equity Interests in such Subsidiary and, bycontract or otherwise, controls the management and business of such Subsidiaryand derives economic benefits of ownership of such Subsidiary to substantiallythe same extent as if such Subsidiary were a Wholly-Owned Subsidiary.

 

## Section 1.03.                             Types of Loans andBorrowings.  Forpurposes of this Agreement, Loans and Borrowings, respectively, may beclassified and referred to by Type (e.g., a “**Eurodollar Loan**” or a “**EurodollarBorrowing**”).

##  

## Section 1.04.                             Terms Generally; Rules ofConstruction.  Thedefinitions of terms herein shall apply equally to the singular and pluralforms of the terms defined.  Whenever thecontext may require, any pronoun shall include the corresponding masculine,feminine and neuter forms.  The words “include”,“includes” and “including” shall be deemed to be followed by the phrase “withoutlimitation”.  The word “will” shall beconstrued to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) anydefinition of or reference to any agreement, instrument or other documentherein shall be construed as referring to such 

 

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##  

## agreement, instrument or other document as from time to time amended,supplemented or otherwise modified (subject to any restrictions on suchamendments, supplements or modifications set forth in the Loan Documents), (b) anyreference herein to any law shall be construed as referring to such law asamended, modified, codified or reenacted, in whole or in part, and in effectfrom time to time, (c) any reference herein to any Person shall beconstrued to include such Person’s successors and assigns (subject to therestrictions contained in the Loan Documents), (d) the words “herein”, “hereof”and “hereunder”, and words of similar import, shall be construed to refer tothis Agreement in its entirety and not to any particular provision hereof, (e) exceptas otherwise specified herein, with respect to the determination of any timeperiod, the word “from” means “from and including” and the word “to” means “toand including”, (f) any reference herein to Articles, Sections, Annexes,Exhibits and Schedules shall be construed to refer to Articles and Sections of,and Annexes, Exhibits and Schedules to, this Agreement and (g) the words “asset”and “property” shall be construed to have the same meaning and effect and torefer to any and all tangible and intangible assets and properties, including,cash, securities, accounts and contract rights. No provision of this Agreement or any other Loan Document shall beinterpreted or construed against any Person solely because such Person or itslegal representative drafted such provision.

##  

## Section 1.05.                             Accounting Terms andDeterminations; GAAP.  Unlessotherwise specified herein, all accounting terms used herein shall beinterpreted, all determinations with respect to accounting matters hereundershall be made, and all financial statements and certificates and reports as tofinancial matters required to be furnished to the Administrative Agent or theLenders hereunder shall be prepared, in accordance with GAAP, applied on abasis consistent with the Financial Statements except for changes in which theBorrower’s independent certified public accountants concur and which aredisclosed to Administrative Agent on the next date on which financialstatements are required to be delivered to the Lenders pursuant to Section 8.01(a);provided that, unless the Borrower and the Majority Lenders shall otherwiseagree in writing, no such change shall modify or affect the manner in whichcompliance with the covenants contained herein is computed such that all suchcomputations shall be conducted utilizing financial information presentedconsistently with prior periods.

##  

# **ARTICLE IIThe Credits**

# ** **

## Section 2.01.                             Commitments.  Subject to the terms and conditions andrelying upon the representations and warranties herein set forth, each Lenderagrees to make Loans to the Borrower during the Availability Period in anaggregate principal amount that will not result in (a) such Lender’sRevolving Credit Exposure exceeding such Lender’s Commitment or (b) thetotal Revolving Credit Exposures exceeding the total Commitments.  Within the foregoing limits and subject tothe terms and conditions set forth herein, the Borrower may borrow, repay andreborrow the Loans.

##  

## Section 2.02.                             Loans andBorrowings.

##  

### (a)                                  Borrowings;Several Obligations.  Each Loanshall be made as part of a Borrowing consisting of Loans made by the Lendersratably in accordance with their respective Commitments.  The failure of any Lender to make any Loanrequired to be made by it shall not 

 

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###  

### relieve any other Lender of its obligationshereunder; provided that the Commitments are several and no Lender shall beresponsible for any other Lender’s failure to make Loans as required.

###  

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

###  

### (c)                                  MinimumAmounts; Limitation on Number of Borrowings.  At the commencement of each Interest Periodfor any Eurodollar Borrowing, such Borrowing shall be in an aggregate amountthat is an integral multiple of $500,000 and not less than $2,500,000.  At the time that each ABR Borrowing is made,such Borrowing shall be in an aggregate amount that is an integral multiple of$100,000 and not less than $1,000,000; provided that an ABR Borrowing may be inan aggregate amount that is equal to the entire unused balance of the totalCommitments or that is required to finance the reimbursement of an LCDisbursement as contemplated by Section 2.08(e).  Borrowings of more than one Type may beoutstanding at the same time, provided that there shall not at any time be morethan a total of eight Eurodollar Borrowings outstanding.  Notwithstanding any other provision of thisAgreement, the Borrower shall not be entitled to request, or to elect toconvert or continue, any Borrowing if the Interest Period requested withrespect thereto would end after the Maturity Date.

###  

### (d)                                 Notes.  The Loans made by each Lender shall beevidenced by a single promissory note of the Borrower in substantially the formof Exhibit A, dated, in the case of (i) any Lender partyhereto as of the date of this Agreement, as of the date of this Agreement, or (ii) anyLender that becomes a party hereto pursuant to an Assignment and Assumption, asof the effective date of the Assignment and Assumption, payable to the order ofsuch Lender in a principal amount equal to its Maximum Credit Amount as ineffect on such date, and otherwise duly completed.  In the event that any Lender’s Maximum CreditAmount increases or decreases for any reason (whether pursuant to Section 2.06,Section 12.04(b) or otherwise), the Borrower shall deliver or causeto be delivered on the effective date of such increase or decrease, a new Notepayable to the order of such Lender in a principal amount equal to its MaximumCredit Amount after giving effect to such increase or decrease, and otherwiseduly completed.  The date, amount, Type,interest rate and, if applicable, Interest Period of each Loan made by eachLender, and all payments made on account of the principal thereof, shall berecorded by such Lender on its books for its Note, and, prior to any transfer,may be endorsed by such Lender on a schedule attached to such Note or anycontinuation thereof or on any separate record maintained by such Lender.  Failure to make any such notation or toattach a schedule shall not affect any Lender’s or the Borrower’s rights orobligations in respect of such Loans or affect the validity of such transfer byany Lender of its Note.

###  

## Section 2.03.                             Requests for Borrowings.  To request a Borrowing, the Borrower shallnotify the Administrative Agent of such request by telephone (a) in thecase of a Eurodollar Borrowing, not later than 11:00 a.m., Dallas, Texastime, three Business Days before the date of the proposed Borrowing or (b) inthe case of an ABR Borrowing, not later than 11:00 a.m., Dallas, Texastime, on the date of the proposed Borrowing; provided that no such notice shallbe 

 

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##  

## required for any deemed request of an ABR Borrowing to finance thereimbursement of an LC Disbursement as provided in Section 2.08(e).  Each such telephonic Borrowing Request shallbe irrevocable and shall be confirmed promptly by hand delivery or telecopy tothe Administrative Agent of a written Borrowing Request in substantially theform of Exhibit B and signed by the Borrower.  Each such telephonic and written BorrowingRequest shall specify the following information in compliance with Section 2.02:

##  

#### (i)                                     the aggregateamount of the requested Borrowing;

####  

#### (ii)                                  the date ofsuch Borrowing, which shall be a Business Day;

####  

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

####  

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

####  

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

####  

#### (vi)                              the locationand number of the Borrower’s account to which funds are to be disbursed, whichshall comply with the requirements of Section 2.05.

####  

If no election as to the Type of Borrowing isspecified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified withrespect to any requested Eurodollar Borrowing, then the Borrower shall bedeemed to have selected an Interest Period of one month’s duration.  Each Borrowing Request shall constitute arepresentation that the amount of the requested Borrowing shall not cause thetotal Revolving Credit Exposures to exceed the total Commitments (i.e., thelesser of the Aggregate Maximum Credit Amounts and the then effective BorrowingBase).

 

Promptly following receipt of a Borrowing Request inaccordance with this Section 2.03, the Administrative Agent shalladvise each Lender of the details thereof and of the amount of such Lender’sLoan to be made as part of the requested Borrowing.

 

## Section 2.04.                             InterestElections.

##  

### (a)                                  Conversion andContinuance.  EachBorrowing initially shall be of the Type specified in the applicable BorrowingRequest and, in the case of a Eurodollar Borrowing, shall have an initialInterest Period as specified in such Borrowing Request.  Thereafter, the Borrower may elect to convertsuch Borrowing to a different Type or to continue such Borrowing and, in thecase of a Eurodollar Borrowing, may elect Interest Periods therefor, all asprovided in this Section 2.04. The Borrower may elect different options with respect to differentportions of the affected Borrowing, in which case each such portion shall beallocated ratably among the Lenders holding the Loans comprising suchBorrowing, and the Loans comprising each such portion shall be considered aseparate Borrowing.

 

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###  

### (b)                                 InterestElection Requests.  To make anelection pursuant to this Section 2.04, the Borrower shall notifythe Administrative Agent of such election by telephone by the time that aBorrowing Request would be required under Section 2.03 if theBorrower were requesting a Borrowing of the Type resulting from such electionto be made on the effective date of such election.  Each such telephonic Interest ElectionRequest shall be irrevocable and shall be confirmed promptly by hand deliveryor telecopy to the Administrative Agent of a written Interest Election Requestin substantially the form of Exhibit C and signed by the Borrower.

###  

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

###  

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

####  

#### (ii)                                  the effectivedate of the election made pursuant to such Interest Election Request, whichshall be a Business Day;

####  

#### (iii)                               whether theresulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

####  

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

####  

If any such Interest Election Request requests aEurodollar Borrowing but does not specify an Interest Period, then the Borrowershall be deemed to have selected an Interest Period of one month’sduration.  If such Interest ElectionRequest does not specify a Type, then the Borrower shall be deemed to haveselected a Type of ABR Borrowing.

 

### (d)                                 Notice toLenders by the Administrative Agent.  Promptly following receipt of an InterestElection Request, the Administrative Agent shall advise each Lender of thedetails thereof and of such Lender’s portion of each resulting Borrowing.

###  

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

###  

### 25

### 

 

## Section 2.05.                             Fundingof Borrowings.

 

### (a)                                  Fundingby Lenders.  Each Lender shall makeeach Loan to be made by it hereunder on the proposed date thereof by wiretransfer of immediately available funds by 1:00 p.m., Dallas, Texas time,to the account of the Administrative Agent most recently designated by it forsuch purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrowerby promptly crediting the amounts so received, in like funds, to an account ofthe Borrower maintained with the Administrative Agent and designated by theBorrower in the applicable Borrowing Request; provided that ABR Loans made tofinance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shallbe remitted by the Administrative Agent to the Issuing Bank.  Nothing herein shall be deemed to obligateany Lender to obtain the funds for its Loan in any particular place or manneror to constitute a representation by any Lender that it has obtained or willobtain the funds for its Loan in any particular place or manner.

###  

### (b)                                 Presumptionof Funding by the Lenders.  Unlessthe Administrative Agent shall have received notice from a Lender prior to theproposed date of any Borrowing that such Lender will not make available to theAdministrative Agent such Lender’s share of such Borrowing, the AdministrativeAgent may assume that such Lender has made such share available on such date inaccordance with Section 2.05(a) and may, in reliance upon suchassumption, make available to the Borrower a corresponding amount.  In such event, if a Lender has not in factmade its share of the applicable Borrowing available to the AdministrativeAgent, then the applicable Lender and the Borrower severally agree to pay tothe Administrative Agent forthwith on demand such corresponding amount withinterest thereon, for each day from and including the date such amount is madeavailable to the Borrower to but excluding the date of payment to theAdministrative Agent, at (i) in the case of such Lender, the greater ofthe Federal Funds Effective Rate and a rate determined by the AdministrativeAgent in accordance with banking industry rules on interbank compensationand (ii) in the case of the Borrower, the interest rate applicable to ABRLoans.  If the Borrower and such Lender shall pay such interest to theAdministrative Agent for the same or an overlapping period, the AdministrativeAgent shall promptly remit to the Borrower the amount of such interest paid bythe Borrower for such period.  If suchLender pays its share of the applicable Borrowing to the Administrative Agent,then the amount so paid shall constitute such Lender’s Loan included in suchBorrowing.  Any payment by the Borrowershall be without prejudice to any claim the Borrower may have against a Lenderthat shall have failed to make such payment to the Administrative Agent.

 

## Section 2.06.                             Terminationand Reduction of Aggregate Maximum Credit Amounts.

 

### (a)                                  ScheduledTermination of Commitments.  Unlesspreviously terminated, the Commitments shall terminate on the MaturityDate.  If at any time the AggregateMaximum Credit Amounts or the Borrowing Base is terminated or reduced to zero,then the Commitments shall terminate on the effective date of such terminationor reduction.

 

### (b)                                 OptionalTermination and Reduction of Aggregate Credit Amounts.

 

#### (i)                                     TheBorrower may at any time terminate, or from time to time reduce, the AggregateMaximum Credit Amounts; provided that (A) each reduction of the 

 

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#### Aggregate Maximum CreditAmounts shall be in an amount that is an integral multiple of $500,000 and notless than $2,500,000 and (B) the Borrower shall not terminate or reducethe Aggregate Maximum Credit Amounts if, after giving effect to any concurrentprepayment of the Loans in accordance with Section 3.04(c), thetotal Revolving Credit Exposures would exceed the total Commitments.

 

#### (ii)                                  TheBorrower shall notify the Administrative Agent of any election to terminate orreduce the Aggregate Maximum Credit Amounts under Section 2.06(b)(i) atleast three Business Days prior to the effective date of such termination orreduction, specifying such election and the effective date thereof.  Promptly following receipt of any notice, theAdministrative Agent shall advise the Lenders of the contents thereof.  Each notice delivered by the Borrowerpursuant to this Section 2.06(b)(ii) shall beirrevocable.  Any termination orreduction of the Aggregate Maximum Credit Amounts shall be permanent and maynot be reinstated.  Each reduction of theAggregate Maximum Credit Amounts shall be made ratably among the Lenders inaccordance with each Lender’s Applicable Percentage.

 

## Section 2.07.                             BorrowingBase.

 

### (a)                                  BorrowingBase.  The term “**Borrowing Base**” means, as of the dateof the determination thereof, the designated loan value as calculated by theLenders in their sole discretion assigned to the discounted present value offuture net income accruing to the Mortgaged Property, based upon the Lenders’in-house evaluation of the Mortgaged Property. The Lenders’ determination of the Borrowing Base will be made inaccordance with then-current practices, economic and pricing parameters,methodology, assumptions, and customary procedures and standards established byeach Lender from time to time for its petroleum industry customers.  The Borrower acknowledges that thedetermination of the Borrowing Base contains an equity cushion (market value inexcess of loan amount) which the Borrower acknowledges to be essential for theadequate protection of the Lenders.  Forthe period from and including the date hereof but excluding the nextRedetermination Date, the amount of the Borrowing Base shall be $110,500,000;provided, however, that upon the satisfaction of the conditions set forth in Section 6.03,the amount of the Borrowing Base shall be $150,000,000.  Notwithstanding the foregoing, the BorrowingBase may be subject to further adjustments from time to time pursuant to Section 8.13(c).

 

### (b)                                 Scheduledand Interim Redeterminations.  TheBorrowing Base shall be redetermined semi-annually in accordance with this Section 2.07(a “**ScheduledRedetermination**”), and, subject to Section 2.07(d),such redetermined Borrowing Base shall become effective and applicable to theBorrower, the Agents, the Issuing Bank and the Lenders on April 1st and October 1stof each year, commencing April 1, 2008. In addition, the Borrower may, by notifying the Administrative Agentthereof, not more than two (2) times during any 12-month period, and theAdministrative Agent may at any time, at the direction of the Majority Lenders,by notifying the Borrower thereof, each elect to cause the Borrowing Base to beredetermined between Scheduled Redeterminations (an “**Interim Redetermination**”)in accordance with this Section 2.07.

 

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### (c)                                  Scheduledand Interim  Redetermination Procedure.

 

#### (i)                                     EachScheduled Redetermination and each Interim Redetermination shall be effectuatedas follows:  Upon receipt by theAdministrative Agent of (A) the Reserve Report and the certificaterequired to be delivered by the Borrower to the Administrative Agent, in thecase of a Scheduled Redetermination, pursuant to Section 8.12(a) and(c), and, in the case of an Interim Redetermination, pursuant to Section 8.12(b) and(c), and (B) such other reports, data and supplemental information,including, without limitation, the information provided pursuant to Section 8.12(c),as may, from time to time, be reasonably requested by the Majority Lenders (theReserve Report, such certificate and such other reports, data and supplementalinformation being the “**Engineering Reports**”), the Administrative Agent shallevaluate the information contained in the Engineering Reports and shall, ingood faith, propose a new Borrowing Base (the “**Proposed Borrowing Base**”)based upon such information and such other information (including, withoutlimitation, the status of title information with respect to the Oil and GasProperties as described in the Engineering Reports and the existence of anyother Debt) as the Administrative Agent deems appropriate in its solediscretion and consistent with its normal oil and gas lending criteria as itexists at the particular time.  In noevent shall the Proposed Borrowing Base exceed the Aggregate Maximum CreditAmounts.

 

#### (ii)                                  TheAdministrative Agent shall notify the Borrower and the Lenders of the ProposedBorrowing Base (the “**Proposed Borrowing Base Notice**”):

 

##### (A)                              inthe case of a Scheduled Redetermination (1) if the Administrative Agentshall have received the Engineering Reports required to be delivered by theBorrower pursuant to Section 8.12(a) and (c) in atimely and complete manner, then on or before the March 1st and September 1stof such year following the date of delivery or (2) if the AdministrativeAgent shall not have received the Engineering Reports required to be deliveredby the Borrower pursuant to Section 8.12(a) and (c) in atimely and complete manner, then promptly after the Administrative Agent hasreceived complete Engineering Reports from the Borrower and has had areasonable opportunity to determine the Proposed Borrowing Base in accordancewith Section 2.07(c)(i), and in any event, with thirty (30) daysafter the Administrative Agent has received the required Engineering Reports;and

 

##### (B)                                inthe case of an Interim Redetermination, promptly, and in any event, withinfifteen (15) days after the Administrative Agent has received the requiredEngineering Reports.

 

#### (iii)                               AnyProposed Borrowing Base that would increase the Borrowing Base then in effectmust be approved by all of the Lenders as provided in this Section 2.07(c)(iii);and any Proposed Borrowing Base that would decrease or maintain the BorrowingBase then in effect must be approved by the Majority Lenders as provided inthis Section 2.07(c)(iii). Upon receipt of the Proposed Borrowing Base Notice, each Lender shallhave fifteen (15) days to agree with the Proposed Borrowing Base or disagreewith the Proposed Borrowing Base by proposing an alternate Borrowing Base.  If, at the end of such fifteen (15) days, anyLender has not communicated its approval or disapproval in writing to theAdministrative Agent, such silence shall be deemed to be disapproval of theProposed Borrowing Base.  If, at the endof such 15-day period, all of the Lenders, in the case of a Proposed 

 

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#### Borrowing Base that wouldincrease the Borrowing Base then in effect, or the Majority Lenders, in thecase of a Proposed Borrowing Base that would decrease or maintain the BorrowingBase then in effect, have approved, as aforesaid, then the Proposed BorrowingBase shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).  If, however, at the end of such 15-day period,all of the Lenders or the Majority Lenders, as applicable, have not approved,as aforesaid, the Proposed Borrowing Base, then the Administrative Agent shallpoll the Lenders to ascertain the highest Borrowing Base then acceptable to allof the Lenders or the Majority Lenders, as applicable, and, such amount shallbecome the new Borrowing Base, effective on the date specified in Section 2.07(d).

 

#### (iv)                              Ifany Lender disagrees with the Proposed Borrowing Base that would increase thethen existing Borrowing Base (each, a “**DissentingLender**”), then, if a Borrowing Base is agreed to that is lowerthan such Proposed Borrowing Base or no new Borrowing Base is agreed to, theBorrower may, at its sole expense and effort, upon notice to a DissentingLender and the Administrative Agent, require such Dissenting Lender to assignand delegate, without recourse (in accordance with and subject to therestrictions contained in Section 12.04(b)), all of its interests,rights and obligations under this Agreement to an assignee that shall assumesuch obligations (which assignee may be another Lender, if a Lender acceptssuch assignment); provided that, (A) the Borrower shall have received theprior written consent of the Administrative Agent and the Issuing Bank, whichconsent in each case shall not unreasonably be withheld or delayed and (B) suchLender shall have received payment of an amount equal to the outstandingprincipal of its Loans and participations in LC Disbursements, accruedinterest thereon, accrued fees and all other amounts payable to it hereunder,from the assignee (to the extent of such outstanding principal and accruedinterest and fees) or the Borrower (in the case of all other amounts).

 

### (d)                                 Effectivenessof a Redetermined Borrowing Base. After a redetermined Borrowing Base is approved by all of the Lenders orthe Majority Lenders, as applicable, pursuant to Section 2.07(c)(iii),the Administrative Agent shall notify the Borrower and the Lenders of theamount of the redetermined Borrowing Base (the “**New Borrowing Base Notice**”),and such amount shall become the new Borrowing Base, effective and applicableto the Borrower, the Administrative Agent, the Issuing Bank and the Lenders:

 

#### (i)                                     inthe case of a Scheduled Redetermination, (A) if the Administrative Agentshall have received the Engineering Reports required to be delivered by theBorrower pursuant to Section 8.12(a) and (c) in atimely and complete manner, then on the April 1st or October 1st, asapplicable, following such notice, or (B) if the Administrative Agentshall not have received the Engineering Reports required to be delivered by theBorrower pursuant to Section 8.12(a) and (c) in atimely and complete manner, then on the Business Day next succeeding deliveryof such notice; and

 

#### (ii)                                  inthe case of an Interim Redetermination, on the Business Day next succeedingdelivery of such notice.

 

Such amount shall then become the Borrowing Base untilthe next Scheduled Redetermination Date, the next Interim Redetermination Dateor the next adjustment to the Borrowing Base under Section 8.13(c),whichever occurs first.  Notwithstandingthe foregoing, no Scheduled 

 

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Redetermination or Interim Redetermination shallbecome effective until the New Borrowing Base Notice related thereto isreceived by the Borrower.

 

## Section 2.08.                             Lettersof Credit.

 

### (a)                                  General.  Subject to the terms and conditions set forthherein, the Borrower may request the issuance of dollar denominated Letters ofCredit for its own account or for the account of any of its Subsidiaries, in aform reasonably acceptable to the Administrative Agent and the Issuing Bank, atany time and from time to time during the Availability Period; provided thatthe Borrower may not request the issuance, amendment, renewal or extension ofLetters of Credit hereunder if a Borrowing Base Deficiency exists at such timeor would exist as a result thereof.  Inthe event of any inconsistency between the terms and conditions of thisAgreement and the terms and conditions of any form of letter of creditapplication or other agreement submitted by the Borrower to, or entered into bythe Borrower with, the Issuing Bank relating to any Letter of Credit, the termsand conditions of this Agreement shall control.

 

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

####  

#### (i)                                     requestingthe issuance of a Letter of Credit or identifying the Letter of Credit to beamended, renewed or extended;

####  

#### (ii)                                  specifyingthe date of issuance, amendment, renewal or extension (which shall be aBusiness Day);

####  

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

####  

#### (iv)                              specifyingthe amount of such Letter of Credit;

####  

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

####  

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

 

Each notice shall constitute a representation thatafter giving effect to the requested issuance, amendment, renewal or extension,as applicable, (i) the LC Exposure shall not exceed the LC 

 

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Commitment and (ii) the total Revolving CreditExposures shall not exceed the total Commitments (i.e. the lesser of theAggregate Maximum Credit Amounts and the then effective Borrowing Base).

 

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

###  

### (c)                                  ExpirationDate.  Each Letter of Credit shallexpire at or prior to the close of business on the earlier of (i) the dateone year after the date of the issuance of such Letter of Credit (or, in thecase of any renewal or extension thereof, one year after such renewal orextension) and (ii) the date that is five Business Days prior to the MaturityDate; provided, however, that a Letter of Credit may, upon the request of theBorrower, include a provision whereby such Letter of Credit shall be renewedautomatically for additional consecutive periods of 12 months or less (but notbeyond the date that is five Business Days prior to the Maturity Date) unlessthe Issuing Bank notifies the beneficiary thereof at least 30 days (or suchlonger period as may be specified in such Letter of Credit) prior to thethen-applicable expiration date that such Letter of Credit will not be renewed.

###  

### (d)                                 Participations.  By the issuance of a Letter of Credit (or anamendment to a Letter of Credit increasing the amount thereof) and without anyfurther action on the part of the Issuing Bank or the Lenders, the Issuing Bankhereby grants to each Lender, and each Lender hereby acquires from the IssuingBank, a participation in such Letter of Credit equal to such Lender’sApplicable Percentage of the aggregate amount available to be drawn under suchLetter of Credit.  In consideration andin furtherance of the foregoing, each Lender hereby absolutely andunconditionally agrees to pay to the Administrative Agent, for the account ofthe Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursementmade by the Issuing Bank and not reimbursed by the Borrower on the date due asprovided in Section 2.08(e), or of any reimbursement paymentrequired to be refunded to the Borrower for any reason.  Each Lender acknowledges and agrees that itsobligation to acquire participations pursuant to this Section 2.08(d) inrespect of Letters of Credit is absolute and unconditional and shall not beaffected by any circumstance whatsoever, including any amendment, renewal orextension of any Letter of Credit or the occurrence and continuance of aDefault, the existence of a Borrowing Base Deficiency or reduction ortermination of the Commitments, and that each such payment shall be madewithout any offset, abatement, withholding or reduction whatsoever.

###  

### (e)                                  Reimbursement.  If the Issuing Bank shall make any LCDisbursement in respect of a Letter of Credit, the Borrower shall reimbursesuch LC Disbursement by paying to the Administrative Agent an amount equal tosuch LC Disbursement not later than 12:00 noon, New York City time, on the datethat such LC Disbursement is made, if the Borrower shall have received noticeof such LC Disbursement prior to 10:00 a.m., New York City time, on suchdate, or, if such notice has not been received by the Borrower prior to suchtime on such date, then not later than 12:00 noon, New York City time, on (i) theBusiness Day that the Borrower receives such notice, if such notice is receivedprior to 10:00 a.m., New York City time, on the day of receipt, or (ii) theBusiness Day immediately following the day that the Borrower receives suchnotice, if such notice is not received prior to such time on the day ofreceipt; provided that if such LC Disbursement is not less than $1,000,000, theBorrower shall, subject to the conditions to Borrowing set forth herein, bedeemed to have requested, and the Borrower does hereby request 

 

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### under such circumstances, thatsuch payment be financed with an ABR Borrowing in an equivalent amount and, tothe extent so financed, the Borrower’s obligation to make such payment shall bedischarged and replaced by the resulting ABR Borrowing.  If the Borrower fails to make such paymentwhen due, the Administrative Agent shall notify each Lender of the applicableLC Disbursement, the payment then due from the Borrower in respect thereof andsuch Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to theAdministrative Agent its Applicable Percentage of the payment then due from theBorrower, in the same manner as provided in Section 2.05 withrespect to Loans made by such Lender (and Section 2.05 shall apply,mutatis mutandis, to thepayment obligations of the Lenders), and the Administrative Agent shallpromptly pay to the Issuing Bank the amounts so received by it from theLenders.  Promptly following receipt bythe Administrative Agent of any payment from the Borrower pursuant to this Section 2.08(e),the Administrative Agent shall distribute such payment to the Issuing Bank or,to the extent that Lenders have made payments pursuant to this Section 2.08(e) toreimburse the Issuing Bank, then to such Lenders and the Issuing Bank as theirinterests may appear.  Any payment madeby a Lender pursuant to this Section 2.08(e) to reimburse theIssuing Bank for any LC Disbursement (other than the funding of ABR Loans ascontemplated above) shall not constitute a Loan and shall not relieve theBorrower of its obligation to reimburse such LC Disbursement.

###  

### (f)                                    ObligationsAbsolute.  The Borrower’s obligationto reimburse LC Disbursements as provided in Section 2.08(e) shallbe absolute, unconditional and irrevocable, and shall be performed strictly inaccordance with the terms of this Agreement under any and all circumstanceswhatsoever and irrespective of (i) any lack of validity or enforceabilityof any Letter of Credit, any Letter of Credit Agreement or this Agreement, orany term or provision therein, (ii) any draft or other document presentedunder a Letter of Credit proving to be forged, fraudulent or invalid in anyrespect or any statement therein being untrue or inaccurate in any respect, (iii) paymentby the Issuing Bank under a Letter of Credit against presentation of a draft orother document that does not comply with the terms of such Letter of Credit orany Letter of Credit Agreement, or (iv) any other event or circumstancewhatsoever, whether or not similar to any of the foregoing, that might, but forthe provisions of this Section 2.08(f), constitute a legal orequitable discharge of, or provide a right of setoff against, the Borrower’sobligations hereunder.  Neither theAdministrative Agent, the Lenders nor the Issuing Bank, nor any of theirRelated Parties shall have any liability or responsibility by reason of or inconnection with the issuance or transfer of any Letter of Credit or any paymentor failure to make any payment thereunder (irrespective of any of thecircumstances referred to in the preceding sentence), or any error, omission,interruption, loss or delay in transmission or delivery of any draft, notice orother communication under or relating to any Letter of Credit (including anydocument required to make a drawing thereunder), any error in interpretation oftechnical terms or any consequence arising from causes beyond the control ofthe Issuing Bank; provided that the foregoing shall not be construed to excusethe Issuing Bank from liability to the Borrower to the extent of any directdamages (as opposed to consequential damages, claims in respect of which arehereby waived by the Borrower to the extent permitted by applicable law)suffered by the Borrower that are caused by the Issuing Bank’s failure toexercise care when determining whether drafts and other documents presentedunder a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, inthe absence of gross negligence or willful misconduct on the part of theIssuing Bank (as finally determined by a court of competent jurisdiction), theIssuing Bank shall be deemed to have exercised all requisite care in each suchdetermination.  In furtherance of the 

 

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### foregoing and without limitingthe generality thereof, the parties agree that, with respect to documentspresented which appear on their face to be in substantial compliance with theterms of a Letter of Credit, the Issuing Bank may, in its sole discretion,either accept and make payment upon such documents without responsibility forfurther investigation, regardless of any notice or information to the contrary,or refuse to accept and make payment upon such documents if such documents arenot in strict compliance with the terms of such Letter of Credit.

###  

### (g)                                 DisbursementProcedures.  The Issuing Bank shall,promptly following its receipt thereof, examine all documents purporting torepresent a demand for payment under a Letter of Credit.  The Issuing Bank shall promptly notify theAdministrative Agent and the Borrower by telephone (confirmed by telecopy) ofsuch demand for payment and whether the Issuing Bank has made or will make anLC Disbursement thereunder; provided that any failure to give or delay ingiving such notice shall not relieve the Borrower of its obligation toreimburse the Issuing Bank and the Lenders with respect to any such LCDisbursement.

###  

### (h)                                 InterimInterest.  If the Issuing Bank shallmake any LC Disbursement, then, until the Borrower shall have reimbursed theIssuing Bank for such LC Disbursement (either with its own funds or a Borrowingunder Section 2.08(e)), the unpaid amount thereof shall bearinterest, for each day from and including the date such LC Disbursement is madeto but excluding the date that the Borrower reimburses such LC Disbursement, atthe rate per annum then applicable to ABR Loans.  Interest accrued pursuant to this Section 2.08(h) shallbe for the account of the Issuing Bank, except that interest accrued on andafter the date of payment by any Lender pursuant to Section 2.08(e) toreimburse the Issuing Bank shall be for the account of such Lender to theextent of such payment.

###  

### (i)                                     Replacementof the Issuing Bank.  The IssuingBank may be replaced at any time by written agreement among the Borrower, theAdministrative Agent, the replaced Issuing Bank and the successor IssuingBank.  The Administrative Agent shallnotify the Lenders of any such replacement of the Issuing Bank.  At the time any such replacement shall becomeeffective, the Borrower shall pay all unpaid fees accrued for the account ofthe replaced Issuing Bank pursuant to Section 3.05(b).  From and after the effective date of any suchreplacement, (i) the successor Issuing Bank shall have all the rights andobligations of the Issuing Bank under this Agreement with respect to Letters ofCredit to be issued thereafter and (ii) references herein to the term “IssuingBank” shall be deemed to refer to such successor or to any previous IssuingBank, or to such successor and all previous Issuing Banks, as the context shallrequire.  After the replacement of theIssuing Bank hereunder, the replaced Issuing Bank shall remain a party heretoand shall continue to have all the rights and obligations of the Issuing Bankunder this Agreement with respect to Letters of Credit issued by it prior tosuch replacement, but shall not be required to issue additional Letters ofCredit.

###  

### (j)                                     CashCollateralization.  If (i) anyEvent of Default shall occur and be continuing and the Borrower receives noticefrom the Administrative Agent or the Majority Lenders demanding the deposit ofcash collateral pursuant to this Section 2.08(j), or (ii) theBorrower is required to pay to the Administrative Agent the excess attributableto an LC Exposure in connection with any prepayment pursuant to Section 3.04(c),then the Borrower shall deposit, in an account with the Administrative Agent(the “**LCCollection Account**”), in the name of the Administrative Agentand for the benefit of the Lenders, an amount in cash equal 

 

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### to, in the case of an Event ofDefault, the LC Exposure, and in the case of a payment required by Section 3.04(c),the amount of such excess as provided in Section 3.04(c), as ofsuch date plus any accrued and unpaid interest thereon; provided that theobligation to deposit such cash collateral shall become effective immediately,and such deposit shall become immediately due and payable, without demand orother notice of any kind, upon the occurrence of any Event of Default withrespect to the Borrower or any Subsidiary described in Section 10.01(h) orSection 10.01(i).  TheBorrower hereby grants to the Administrative Agent, for the benefit of theIssuing Bank and the Lenders, an exclusive first priority and continuingperfected security interest in and Lien on the LC Collection Account and allcash, checks, drafts, certificates and instruments, if any, from time to timedeposited or held in the LC Collection Account, all deposits or wire transfersmade thereto, any and all investments purchased with funds deposited in suchaccount, all interest, dividends, cash, instruments, financial assets and otherProperty from time to time received, receivable or otherwise payable in respectof, or in exchange for, any or all of the foregoing, and all proceeds,products, accessions, rents, profits, income and benefits therefrom, and anysubstitutions and replacements therefor. The Borrower’s obligation to deposit amounts pursuant to this Section 2.08(j) shallbe absolute and unconditional, without regard to whether any beneficiary of anysuch Letter of Credit has attempted to draw down all or a portion of suchamount under the terms of a Letter of Credit, and, to the fullest extentpermitted by applicable law, shall not be subject to any defense or be affectedby a right of set-off, counterclaim or recoupment which the Borrower or any ofits Subsidiaries may now or hereafter have against any such beneficiary, theIssuing Bank, the Administrative Agent, the Lenders or any other Person for anyreason whatsoever.  Such deposit shall beheld as collateral securing the payment and performance of the Borrower’s andthe Guarantors’ obligations under this Agreement and the other LoanDocuments.  The Administrative Agentshall have exclusive dominion and control, including the exclusive right ofwithdrawal, over the LC Collection Account. Other than any interest earned on the investment of such deposits, whichinvestments shall be made at the option and sole discretion of theAdministrative Agent and at the Borrower’s risk and expense, such depositsshall not bear interest.  Interest orprofits, if any, on such investments shall accumulate in the LC CollectionAccount.  Moneys in the LC CollectionAccount shall be applied by the Administrative Agent to reimburse the IssuingBank for LC Disbursements for which it has not been reimbursed and, to theextent not so applied, shall be held for the satisfaction of the reimbursementobligations of the Borrower for the LC Exposure at such time or, if thematurity of the Loans has been accelerated, be applied to satisfy otherobligations of the Borrower and the Guarantors under this Agreement or theother Loan Documents.  If the Borrower isrequired to provide an amount of cash collateral hereunder as a result of theoccurrence of an Event of Default, and the Borrower is not otherwise requiredto pay to the Administrative Agent the excess attributable to an LC Exposure inconnection with any prepayment pursuant to Section 3.04(c), thensuch amount (to the extent not applied as aforesaid) shall be returned to theBorrower within three Business Days after all Events of Default have been curedor waived.  If the Borrower is requiredto provide an amount in cash collateral hereunder as a result of any prepaymentpursuant to Section 3.04(c) and the Borrower is not otherwiserequired to pay to the Administrative Agent an amount equal to the LC Exposureas a result of the occurrence of an Event of Default, then if the totalRevolving Credit Exposure is reduced (whether pursuant to Section 3.04(a),the expiration of Letters of Credit or otherwise) and/or the Borrowing Base isincreased in accordance with Section 2.07, as a result of which aBorrowing Base Deficiency no longer exists and so long no Default has occurredand is continuing, the Administrative Agent 

 

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### shall return to the Borrowersuch amount but only to the extent that the then effective Borrowing Baseexceeds the total Revolving Credit Exposures by not less than $1,000,000.

 

## Section 2.09.                             Collateral.

###  

### (a)                                  MortgagedProperty.  The payment andperformance of the Notes and all of the other Indebtedness hereunder and underthe Loan Documents, and under the Swap Agreements, and the reimbursementobligations under the Letters of Credit, shall be secured by a first andsuperior Lien against the entire interest of the Borrower and each Subsidiaryand NRC in substantially all of their Oil and Gas Properties, pursuant to theterms of one or more Mortgages in favor of the Administrative Agent for theratable benefit of the Lenders and the Swap Lenders, which Mortgages shall besatisfactory in form and substance to the Administrative Agent.

###  

### (b)                                 Guaranteesand Pledges of Equity Interests.  Thepayment and performance of the Notes and all of the other Indebtednesshereunder, under the Loan Documents, and under the Swap Agreements, and thereimbursement obligations under the Letters of Credit, (A) shall beunconditionally guaranteed by each Subsidiary pursuant to one or more GuarantyAgreements, and (B) shall be secured by a first priority Lien against theEquity Interests of each Subsidiary pursuant to a Subsidiary PledgeAgreement.  Reference is made to Section 8.14of this Agreement for further provisions with respect to additional Guarantorsand additional collateral.

###  

### (c)                                  Releaseof 60% Interest in Asher PUD Properties. The Administrative Agent shall release its lien against a 60% interestin the Asher PUD Properties and shall release NRC from its Guaranty Agreementupon the occurrence of all of the following: (i) receipt of consent from Asher Land and Mineral, Ltd. and therecorded assignment of the Asher PD Properties and the Asher PUD Properties byNRC to TEC; (ii) receipt of supplemental Mortgages or other documents executed by TEC as the Administrative Agentmay require to confirm that the Lien granted by NRC against the Asher PDProperties and the remaining 40% interest in the Asher PUD Properties continuesto secure all of the Indebtedness of Borrower hereunder following transfer oftitle to such properties to TEC; (iii) payment of all expenses of theAdministrative Agent in connection with such release, including withoutlimitation, the expenses and reasonable fees of counsel for the AdministrativeAgent; and (iv) no Default shall then be continuing.  The terms “Asher PD Properties” and “AsherPUD Properties” as used in the preceding sentence have the same meanings asprovided in the Original Second Amendment to Credit Agreement.

 

# **ARTICLE IIIPayments of Principal and Interest; Prepayments; Fees**

 

## Section 3.01.                             Repaymentof Loans.  The Borrower herebyunconditionally promises to pay to the Administrative Agent for the account ofeach Lender the then unpaid principal amount of each Loan on the TerminationDate.

 

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## Section 3.02.                             Interest.

###  

### (a)                                  ABRLoans.  The Loans comprising each ABRBorrowing shall bear interest at the Alternate Base Rate plus the ApplicableMargin, but in no event to exceed the Highest Lawful Rate.

###  

### (b)                                 EurodollarLoans.  The Loans comprising eachEurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for theInterest Period in effect for such Borrowing plus the Applicable Margin, but inno event to exceed the Highest Lawful Rate.

###  

### (c)                                  Post-DefaultRate.  Notwithstanding the foregoing,(i) if an Event of Default has occurred and is continuing, or if anyprincipal of or interest on any Loan or any fee or other amount payable by theBorrower or any Guarantor hereunder or under any other Loan Document is notpaid when due, whether at stated maturity, upon acceleration or otherwise, andincluding any payments in respect of a Borrowing Base Deficiency under Section 3.04(c),then all Loans outstanding, in the case of an Event of Default, and suchoverdue amount, in the case of a failure to pay amounts when due, shall bearinterest, after as well as before judgment, at a rate per annum equal to threepercent (3%) plus the rate applicable to ABR Loans as provided in Section 3.02(a),but in no event to exceed the Highest Lawful Rate, and (ii)  during anyBorrowing Base Deficiency (after the expiration of the 30-day or 90-day periodprovided in Section 3.04(c)(ii), as applicable), all Loansoutstanding at such time shall bear interest, after as well as before judgment,at the rate then applicable to such Loans, plus the Applicable Margin, if any,plus an additional three percent (3%), but in no event to exceed the HighestLawful Rate.

###  

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

###  

### (e)                                  InterestRate Computations.  All interesthereunder shall be computed on the basis of a year of 360 days, unless suchcomputation would exceed the Highest Lawful Rate, in which case interest shallbe computed on the basis of a year of 365 days (or 366 days in a leap year),except that interest computed by reference to the Alternate Base Rate at timeswhen the Alternate Base Rate is based on the Prime Rate shall be computed onthe basis of a year of 365 days (or 366 days in a leap year), and in each caseshall be payable for the actual number of days elapsed (including the first daybut excluding the last day).  Theapplicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall bedetermined by the Administrative Agent, and such determination shall beconclusive absent manifest error, and be binding upon the parties hereto.

 

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Section 3.03.          AlternateRate of Interest.  If prior to thecommencement of any Interest Period for a Eurodollar Borrowing:

###  

### (a)           the AdministrativeAgent determines (which determination shall be conclusive absent manifesterror) that adequate and reasonable means do not exist for ascertaining theAdjusted LIBO Rate or the LIBO Rate for such Interest Period; or

###  

### (b)           the AdministrativeAgent is advised by the Majority Lenders that the Adjusted LIBO Rate or LIBORate, as applicable, for such Interest Period will not adequately and fairlyreflect the cost to such Lenders of making or maintaining their Loans includedin such Borrowing for such Interest Period;

 

then the Administrative Agent shall give noticethereof to the Borrower and the Lenders by telephone or telecopy as promptly aspracticable thereafter and, until the Administrative Agent notifies theBorrower and the Lenders that the circumstances giving rise to such notice nolonger exist, (i) any Interest Election Request that requests theconversion of any Borrowing to, or continuation of any Borrowing as, aEurodollar Borrowing shall be ineffective (and shall be deemed to be a requestfor an ABR Borrowing), and (ii) if any Borrowing Request requests aEurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.

 

## Section 3.04.          Prepayments.

###  

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

###  

### (b)           Notice and Terms ofOptional Prepayment.  The Borrowershall notify the Administrative Agent by telephone (confirmed by telecopy) ofany prepayment hereunder (i) in the case of prepayment of a EurodollarBorrowing, not later than 11:00 a.m., Dallas, Texas time, three BusinessDays before the date of prepayment, or (ii) in the case of prepayment ofan ABR Borrowing, not later than 11:00 a.m. Dallas, Texas time, oneBusiness Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepaymentdate and the principal amount of each Borrowing or portion thereof to beprepaid.  Promptly following receipt ofany such notice relating to a Borrowing, the Administrative Agent shall advisethe Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount thatwould be permitted in the case of an advance of a Borrowing of the same Type asprovided in Section 2.02.  Eachprepayment of a Borrowing shall be applied ratably to the Loans included in theprepaid Borrowing.  Prepayments shall beaccompanied by accrued interest to the extent required by Section 3.02.

###  

### (c)           MandatoryPrepayments.

####  

#### (i)             If, after givingeffect to any termination or reduction of the Aggregate Maximum Credit Amountspursuant to Section 2.06(b), the total Revolving Credit Exposuresexceeds the total Commitments, then the Borrower shall (A) prepay theBorrowings on the date of such termination or reduction in an aggregateprincipal amount equal to such excess, and (B) if any excess remains afterprepaying all of the Borrowings as a result of an LC 

 

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#### Exposure, pay to theAdministrative Agent on behalf of the Lenders an amount equal to such excess tobe held as cash collateral as provided in Section 2.08(j).

####  

#### (ii)            If, upon anyredetermination of or adjustment to the amount of the Borrowing Base inaccordance with Section 2.07 or pursuant to Section 8.13(c),a Borrowing Base Deficiency exists, then the Borrower shall either prepay the Borrowingsin an aggregate principal amount equal to such deficiency, or provideadditional Mortgaged Property to secure Indebtedness having a fair market valueequal to or greater than the amount of such deficiency (or the remainingbalance of such deficiency after any prepayments), and if any deficiencyremains after prepaying all of the Borrowings or providing additional MortgagedProperty as a result of any LC Exposure, the Borrower shall pay to theAdministrative Agent on behalf of the Lenders an amount equal to suchdeficiency to be held as cash collateral as provided in Section 2.08(j).  The Borrower shall be obligated to make anysuch principal prepayment or deposit of cash collateral in an amount equal tosuch deficiency within 30 days, or in six monthly installments beginning within30 days, following its receipt of the New Borrowing Base Notice in accordancewith Section 2.07(d) or the date the adjustment occurs, and/orto provide additional Mortgaged Property within 90 days following its receiptof such New Borrowing Base Notice or the date such adjustment occurs; providedthat all payments and/or deposits required to be made pursuant to this Section 3.04(c)(ii) mustbe made on or prior to the Termination Date.

####  

#### (iii)           Each prepayment ofBorrowings pursuant to this Section 3.04(c) shall be applied,first, ratably to any ABR Borrowings then outstanding, and, second, to anyEurodollar Borrowings then outstanding, and if more than one EurodollarBorrowing is then outstanding, to each such Eurodollar Borrowing in order ofpriority beginning with the Eurodollar Borrowing with the least number of daysremaining in the Interest Period applicable thereto and ending with theEurodollar Borrowing with the most number of days remaining in the InterestPeriod applicable thereto.

####  

#### (iv)           Each prepayment ofBorrowings pursuant to this Section 3.04(c) shall be appliedratably to the Loans included in the prepaid Borrowings.  Prepayments pursuant to this Section 3.04(c) shallbe accompanied by accrued interest to the extent required by Section 3.02.

###  

### (d)           No Premium orPenalty.  Prepayments permitted orrequired under this Section 3.04 shall be without premium orpenalty, except as required under Section 5.02.

###  

### (e)           No Effect on SwapAgreements.  Prepayments permitted orrequired under this Section 3.04 shall not affect the Borrower’sobligation to continue making payments under any Swap Agreement, which shallremain in full force and effect notwithstanding such prepayment, subject to theterms of such Swap Agreement.

##  

## Section 3.05.          Fees.

###  

### (a)           Commitment Fees.  The Borrower agrees to pay to theAdministrative Agent for the account of each Lender a commitment fee, whichshall accrue at the applicable Commitment Fee Rate on the average daily amountof the unused amount of the Commitment of such Lender during the period fromand including the Effective Date to but excluding the 

 

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### Termination Date.  Accrued commitment fees shall be payable inarrears on the last day of March, June, September and December ofeach year and on the Termination Date, commencing on the first such date tooccur after the date hereof.  Allcommitment fees shall be computed on the basis of a year of 360 days, unlesssuch computation would exceed the Highest Lawful Rate, in which case interestshall be computed on the basis of a year of 365 days (or 366 days in a leapyear), and shall be payable for the actual number of days elapsed (includingthe first day but excluding the last day).

###  

### (b)           Letter of Credit Fees.  The Borrower agrees to pay (i) to theAdministrative Agent for the account of each Lender a participation fee withrespect to its participations in Letters of Credit, which shall accrue at thesame Applicable Margin used to determine the interest rate applicable toEurodollar Loans on the average daily amount of such Lender’s LC Exposure(excluding any portion thereof attributable to unreimbursed LC Disbursements)during the period from and including the Effective Date to but excluding thelater of the date on which such Lender’s Commitment terminates and the date onwhich such Lender ceases to have any LC Exposure, (ii) to the Issuing Banka fronting fee, which shall accrue at the rate of 0.125% per annum on theaverage daily amount of the LC Exposure (excluding any portion thereofattributable to unreimbursed LC Disbursements) during the period from andincluding the Effective Date to but excluding the later of the date oftermination of the Commitments and the date on which there ceases to be any LCExposure, provided that in no event shall such fee be less than $500 during anyquarter, and (iii) to the Issuing Bank, for its own account, its standardfees with respect to the issuance, amendment, renewal or extension of anyLetter of Credit or processing of drawings thereunder.  Participation fees and fronting fees accruedthrough and including the last day of March, June, September and December ofeach year shall be payable on the third Business Day following such last day,commencing on the first such date to occur after the Effective Date; providedthat all such fees shall be payable on the Termination Date and any such feesaccruing after the Termination Date shall be payable on demand.  Any other fees payable to the Issuing Bankpursuant to this Section 3.05(b) shall be payable within 10days after demand.  All participationfees and fronting fees shall be computed on the basis of a year of 360 days,unless such computation would exceed the Highest Lawful Rate, in which caseinterest shall be computed on the basis of a year of 365 days (or 366 days in aleap year), and shall be payable for the actual number of days elapsed(including the first day but excluding the last day).

###  

### (c)           Administrative AgentFees.  The Borrower agrees to pay tothe Administrative Agent, for its own account, fees payable in the amounts andat the times separately agreed upon between the Borrower and the AdministrativeAgent.

# ** **

# **ARTICLE IVPayments; Pro Rata Treatment; Sharing of Set-offs**

##  

## Section 4.01.          PaymentsGenerally; Pro Rata Treatment; Sharing of Set-offs.

###  

### (a)           Payments by theBorrower.  The Borrower shall makeeach payment required to be made by it hereunder (whether of principal,interest, fees or reimbursement of LC Disbursements, or of amounts payableunder Section 5.01, Section 5.02, Section 5.03or otherwise) prior to 12:00 noon, New York City time, on the date when due, inimmediately 

 

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### available funds, withoutdefense, deduction, recoupment, set-off or counterclaim.  Fees, once paid, shall be fully earned andshall not be refundable under any circumstances.  Any amounts received after such time on anydate may, in the discretion of the Administrative Agent, be deemed to have beenreceived on the next succeeding Business Day for purposes of calculatinginterest thereon.  All such paymentsshall be made to the Administrative Agent at its offices specified in Section 12.01,except payments to be made directly to the Issuing Bank as expressly providedherein and except that payments pursuant to Section 5.01, Section 5.02,Section 5.03 and Section 12.03 shall be made directlyto the Persons entitled thereto.  TheAdministrative Agent shall distribute any such payments received by it for theaccount of any other Person to the appropriate recipient promptly followingreceipt thereof.  If any paymenthereunder shall be due on a day that is not a Business Day, the date forpayment shall be extended to the next succeeding Business Day, and, in the caseof any payment accruing interest, interest thereon shall be payable for theperiod of such extension.  All paymentshereunder shall be made in dollars.

###  

### (b)           Application ofInsufficient Payments.  If at anytime insufficient funds are received by and available to the Administrative Agentto pay fully all amounts of principal, unreimbursed LC Disbursements, interestand fees then due hereunder, such funds shall be applied (i) first,towards payment of interest and fees then due hereunder, ratably among theparties entitled thereto in accordance with the amounts of interest and feesthen due to such parties, and (ii) second, towards payment of principaland unreimbursed LC Disbursements then due hereunder, ratably among the partiesentitled thereto in accordance with the amounts of principal and unreimbursedLC Disbursements then due to such parties.

###  

### (c)           Sharing of Paymentsby Lenders.  If any Lender shall, byexercising any right of set-off or counterclaim or otherwise, obtain payment inrespect of any principal of or interest on any of its Loans or participationsin LC Disbursements resulting in such Lender receiving payment of a greaterproportion of the aggregate amount of its Loans and participations in LCDisbursements and accrued interest thereon than the proportion received by anyother Lender, then the Lender receiving such greater proportion shall notifythe Administrative Agent of such fact and purchase (for cash at face value)participations in the Loans and participations in LC Disbursements of otherLenders to the extent necessary so that the benefit of all such payments shallbe shared by the Lenders ratably in accordance with the aggregate amount ofprincipal of and accrued interest on their respective Loans and participationsin LC Disbursements; provided that (i) if any such participations arepurchased and all or any portion of the payment giving rise thereto isrecovered, such participations shall be rescinded and the purchase pricerestored to the extent of such recovery, without interest, and (ii) theprovisions of this Section 4.01(c) shall not be construed toapply to any payment made by the Borrower pursuant to and in accordance withthe express terms of this Agreement or any payment obtained by a Lender asconsideration for the assignment of or sale of a participation in any of itsLoans or participations in LC Disbursements to any assignee or Participant,other than to the Borrower or any Subsidiary or Affiliate thereof (as to whichthe provisions of this Section 4.01(c) shall apply).  The Borrower consents to the foregoing andagrees, to the extent it may effectively do so under applicable law, that anyLender acquiring a participation pursuant to the foregoing arrangements mayexercise against the Borrower rights of set-off and counterclaim with respectto such participation as fully as if such Lender were a direct creditor of theBorrower in the amount of such participation.

 

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

##  

## Section 4.03.          Certain Deductions bythe Administrative Agent.  If anyLender shall fail to make any payment required to be made by it pursuant to Section 2.05(a),Section 2.08(d), Section 2.08(e) or Section 4.02then the Administrative Agent may, in its discretion (notwithstanding anycontrary provision hereof), apply any amounts thereafter received by theAdministrative Agent for the account of such Lender to satisfy such Lender’sobligations under such Sections until all such unsatisfied obligations arefully paid.

##  

## Section 4.04.          Disposition ofProceeds.  The Security Instrumentscontain an assignment by the Borrower and/or the Guarantors unto and in favorof the Administrative Agent for the benefit of the Lenders of all of theBorrower’s or each Guarantor’s interest in and to production and all proceedsattributable thereto which may be produced from or allocated to the MortgagedProperty.  The Security Instrumentsfurther provide in general for the application of such proceeds to thesatisfaction of the Indebtedness and other obligations described therein andsecured thereby.  Notwithstanding theassignment contained in such Security Instruments, until the occurrence of anEvent of Default, (a) the Administrative Agent and the Lenders agree thatthey will neither notify the purchaser or purchasers of such production nortake any other action to cause such proceeds to be remitted to the AdministrativeAgent or the Lenders, but the Lenders will instead permit such proceeds to bepaid to the Borrower and its Subsidiaries and (b) the Lenders herebyauthorize the Administrative Agent to take such actions as may be necessary tocause such proceeds to be paid to the Borrower and/or such Subsidiaries.

**ARTICLE VIncreased Costs; Break Funding Payments; Taxes; Illegality**

 

## Section 5.01.          Increased Costs.

###  

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

####  

#### (i)            impose, modify or deemapplicable any reserve, special deposit, compulsory loan, insurance charge orsimilar requirement against assets of, deposits with or for the account of, orcredit extended by, any Lender or the Issuing Bank (except  any such reserve requirement reflected in theAdjusted LIBO Rate);

 

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#### (ii)           subject any Lender or the Issuing Bank to any tax of any kindwhatsoever with respect to this Agreement, any Letter of Credit, anyparticipation in a Letter of Credit or any Eurodollar Loan made by it, orchange the basis of taxation of payments to such Lender or the Issuing Bank inrespect thereof (except for Indemnified Taxes or Other Taxes covered by Section 5.03and the imposition of, or any change in the rate of, any Excluded Tax payableby such Lender or the Issuing Bank); or

####  

#### (iii)          impose on any Lender orthe Issuing Bank or the London interbank market any other condition affectingthis Agreement or Eurodollar Loans made by such Lender or any Letter of Creditor participation therein;

 

and the result of any of the foregoing shall be toincrease the cost to such Lender of making or maintaining any Eurodollar Loan(or of maintaining its obligation to make any such Loan) or to increase thecost to such Lender or the Issuing Bank of participating in, issuing ormaintaining any Letter of Credit or to reduce the amount of any sum received orreceivable by such Lender or the Issuing Bank (whether of principal, interestor otherwise), then the Borrower will pay to such Lender or the Issuing Bank,as applicable, such additional amount or amounts as will compensate such Lenderor Issuing Bank, as applicable, for such additional costs incurred or reductionsuffered.

###  

### (b)           CapitalRequirements.  If any Lender or theIssuing Bank determines that any Change in Law regarding capital requirementshas or would have the effect of reducing the rate of return on such Lender’s orthe Issuing Bank’s capital or on the capital of such Lender’s or the IssuingBank’s holding company, if any, as a consequence of this Agreement or the Loansmade by, or participations in Letters of Credit held by, such Lender, or theLetters of Credit issued by the Issuing Bank, to a level below that which suchLender or the Issuing Bank or such Lender’s or the Issuing Bank’s holdingcompany could have achieved but for such Change in Law (taking intoconsideration such Lender’s or the Issuing Bank’s policies and the policies ofsuch Lender’s or the Issuing Bank’s holding company with respect to capitaladequacy), then from time to time the Borrower will pay to such Lender or theIssuing Bank, as the case may be, such additional amount or amounts as willcompensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’sholding company for any such reduction suffered.

###  

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

###  

### (d)           Effectof Failure or Delay in Requesting Compensation.  Failure or delay on the part of any Lender orthe Issuing Bank to demand compensation pursuant to this Section 5.01shall not constitute a waiver of such Lender’s or the Issuing Bank’s right todemand such compensation; provided that the Borrower shall not be required tocompensate a Lender or the Issuing Bank pursuant to this Section 5.01for any increased costs or reductions incurred more than 270 days prior to thedate that such Lender or the Issuing Bank, as the case may be, notifies theBorrower of the Change in Law giving rise to such increased costs or reductionsand 

 

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### of such Lender’s or the IssuingBank’s intention to claim compensation therefor; provided further that, if theChange in Law giving rise to such increased costs or reductions is retroactive,then such period of retroactivity shall be added to such 270 day period for thepurpose of determining the earliest such cost or reduction which may be compensated.

###  

### (e)           Protection Absolute.  The protection of this Section shall beavailable to each Lender and the Issuing Bank regardless of any possiblecontention of the invalidity or inapplicability of the Change in Law that shallhave occurred or been imposed.

##  

## Section 5.02.          BreakFunding Payments.  In the event of (a) thepayment of any principal of any Eurodollar Loan other than on the last day ofan Interest Period applicable thereto (including as a result of an Event ofDefault), (b) the conversion of any Eurodollar Loan into an ABR Loan otherthan on the last day of the Interest Period applicable thereto, (c) thefailure to borrow, convert, continue or prepay any Eurodollar Loan on the datespecified in any notice delivered pursuant hereto, or (d) the assignmentof any Eurodollar Loan other than on the last day of the Interest Periodapplicable thereto as a result of a request by the Borrower pursuant to Section 5.04(b),then, in any such event, the Borrower shall compensate each Lender for theloss, cost and expense attributable to such event.  In the case of a Eurodollar Loan, such loss,cost or expense to any Lender shall be deemed to include an amount determinedby such Lender to be the excess, if any, of (i) the amount of interestwhich would have accrued on the principal amount of such Loan had such eventnot occurred, at the Adjusted LIBO Rate that would have been applicable to suchLoan, for the period from the date of such event to the last day of the thencurrent Interest Period therefor (or, in the case of a failure to borrow,convert or continue, for the period that would have been the Interest Periodfor such Loan), over (ii) the amount of interest which would accrue onsuch principal amount for such period at the interest rate which such Lenderwould bid were it to bid, at the commencement of such period, for dollardeposits of a comparable amount and period from other banks in the eurodollarmarket.

 

A certificate of any Lender setting forth any amount or amounts thatsuch Lender is entitled to receive pursuant to this Section 5.02 shallbe delivered to the Borrower and shall be conclusive absent manifesterror.  The Borrower shall pay suchLender the amount shown as due on any such certificate within 10 days afterreceipt thereof.

##  

## Section 5.03.          Taxes.

###  

### (a)           Payments Free ofTaxes.  Any and all payments by or onaccount of any obligation of the Borrower or any Guarantor under any LoanDocument shall be made free and clear of and without deduction for anyIndemnified Taxes or Other Taxes; provided that if the Borrower or anyGuarantor shall be required to deduct any Indemnified Taxes or Other Taxes fromsuch payments, then (i) the sum payable shall be increased as necessary sothat after making all required deductions (including deductions applicable toadditional sums payable under this Section 5.03(a)), theAdministrative Agent, Lender or Issuing Bank (as the case may be) receives anamount equal to the sum it would have received had no such deductions beenmade, (ii) the Borrower or such Guarantor shall make such deductions and (iii) theBorrower or such Guarantor shall pay the full amount deducted to the relevantGovernmental Authority in accordance with applicable law.

 

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### (b)           Paymentof Other Taxes by the Borrower.  TheBorrower shall pay any Other Taxes to the relevant Governmental Authority inaccordance with applicable law.

###  

### (c)           Indemnificationby the Borrower.  The Borrower shallindemnify the Administrative Agent, each Lender and the Issuing Bank, within 10days after written demand therefor, for the full amount of any IndemnifiedTaxes or Other Taxes paid by the Administrative Agent, such Lender or theIssuing Bank, as the case may be, on or with respect to any payment by or onaccount of any obligation of the Borrower or any Guarantor hereunder or anyother Loan Document (including Indemnified Taxes or Other Taxes imposed orasserted on or attributable to amounts payable under this Section 5.03)and any penalties, interest and reasonable expenses arising therefrom or withrespect thereto, whether or not such Indemnified Taxes or Other Taxes werecorrectly or legally imposed or asserted by the relevant GovernmentalAuthority.  A certificate of theAdministrative Agent, a Lender or the Issuing Bank as to the amount of suchpayment or liability under this Section 5.03 shall be delivered tothe Borrower and shall be conclusive absent manifest error.

###  

### (d)           Evidenceof Payments.  As soon as practicableafter any payment of Indemnified Taxes or Other Taxes by the Borrower or aGuarantor to a Governmental Authority, the Borrower shall deliver to theAdministrative Agent the original or a certified copy of a receipt issued bysuch Governmental Authority evidencing such payment, a copy of the returnreporting such payment or other evidence of such payment reasonablysatisfactory to the Administrative Agent.

###  

### (e)           Foreign Lenders.  Any Foreign Lender that is entitled to anexemption from or reduction of withholding tax under the law of thejurisdiction in which the Borrower is located, or any treaty to which suchjurisdiction is a party, with respect to payments under this Agreement or anyother Loan Document shall deliver to the Borrower (with a copy to theAdministrative Agent), at the time or times prescribed by applicable law, suchproperly completed and executed documentation prescribed by applicable law orreasonably requested by the Borrower as will permit such payments to be madewithout withholding or at a reduced rate. In addition, any Lender, ifrequested by the Borrower or the Administrative Agent, shall deliver such otherdocumentation prescribed by applicable law or reasonably requested by theBorrower or the Administrative Agent as will enable the Borrower or theAdministrative Agent to determine whether or not such Lender is subject tobackup withholding or information reporting requirements.

 

Without limiting thegenerality of the foregoing, in the event that the Borrower is resident for taxpurposes in the United States of America, any Foreign Lender shall deliver tothe Borrower and the Administrative Agent (in such number of copies as shall berequested by the recipient) on or prior to the date on which such ForeignLender becomes a Lender under this Agreement (and from time to time thereafterupon the request of the Borrower or the Administrative Agent, but only if suchForeign Lender is legally entitled to do so), whichever of the following isapplicable:

####  

#### (i)            duly completed copiesof Internal Revenue Service Form W-8BEN claiming eligibility for benefitsof an income tax treaty to which the United States of America is a party,

 

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#### (ii)           duly completed copiesof Internal Revenue Service Form W-8ECI,

####  

#### (iii)          in the case of a ForeignLender claiming the benefits of the exemption for portfolio interest undersection 881(c) of the Code, (x) a certificate to the effect that suchForeign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) ofthe Code, (B) a “10 percent shareholder” of the Borrower within themeaning of section 881(c)(3)(B) of the Code, or (C) a “controlledforeign corporation” described in section 881(c)(3)(C) of the Code and (y) dulycompleted copies of  Internal RevenueService Form W-8BEN, or

####  

#### (iv)          any other formprescribed by applicable law as a basis for claiming exemption from or areduction in United States Federal withholding tax duly completed together withsuch supplementary documentation as may be prescribed by applicable law topermit the Borrower to determine the withholding or deduction required to bemade.

###  

### (f)            Treatmentof Certain Refunds.  If theAdministrative Agent, a Lender or the Issuing Bank determines, in its solediscretion, that it has received a refund of any Taxes or Other Taxes as towhich it has been indemnified by the Borrower or with respect to which theBorrower has paid additional amounts pursuant to this Section, it shall pay tothe Borrower an amount equal to such refund (but only to the extent ofindemnity payments made, or additional amounts paid, by the Borrower under thisSection with respect to the Taxes or Other Taxes giving rise to suchrefund), net of all out-of-pocket expenses of the Administrative Agent, suchLender or the Issuing Bank, as the case may be, and without interest (other thanany interest paid by the relevant Governmental Authority with respect to suchrefund), provided that the Borrower, upon the request of theAdministrative Agent, such Lender or the Issuing Bank, agrees to repay theamount paid over to the Borrower (plus any penalties, interest or other chargesimposed by the relevant Governmental Authority) to the Administrative Agent,such Lender or the Issuing Bank in the event the Administrative Agent, suchLender or the Issuing Bank is required to repay such refund to suchGovernmental Authority.  This paragraphshall not be construed to require the Administrative Agent, any Lender or theIssuing Bank to make available its tax returns (or any other informationrelating to its taxes that it deems confidential) to the Borrower or any otherPerson.

##  

## Section 5.04.          MitigationObligations; Replacement of Lenders.

###  

### (a)           Designationof Different Lending Office.  If anyLender requests compensation under Section 5.01, or gives a noticepursuant to Section 5.05,  orif the Borrower is required to pay any additional amount to any Lender orany Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lendershall use reasonable efforts to designate a different lending office forfunding or booking its Loans hereunder or to assign its rights and obligationshereunder to another of its offices, branches or affiliates, if, in thejudgment of such Lender, such designation or assignment (i) wouldeliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may be,in the future and (ii) would not subject such Lender to any unreimbursedcost or expense and would not otherwise be disadvantageous to such Lender.  The Borrower hereby agrees to pay allreasonable costs and expenses incurred by any Lender in connection with anysuch designation or assignment.

 

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### (b)           Replacement of Lenders.  If (i) any Lender requests compensationunder Section 5.01, (ii) the Borrower is required to pay anyadditional amount to any Lender or any Governmental Authority for the accountof any Lender pursuant to Section 5.03, or (iii) any Lenderdefaults in its obligation to fund Loans hereunder, then the Borrower may, atits sole expense and effort, upon notice to such Lender and the AdministrativeAgent, require such Lender to assign and delegate, without recourse (inaccordance with and subject to the restrictions contained in Section 12.04(b)),all its interests, rights and obligations under this Agreement to an assigneethat shall assume such obligations (which assignee may be another Lender, if aLender accepts such assignment); provided that (i) the Borrower shall havereceived the prior written consent of the Administrative Agent, (ii) suchLender shall have received payment of an amount equal to the outstandingprincipal of its Loans and participations in LC Disbursements, accrued interestthereon, accrued fees and all other amounts payable to it hereunder, from theassignee (to the extent of such outstanding principal and accrued interest andfees) or the Borrower (in the case of all other amounts) (iii) in the caseof any such assignment resulting from a claim for compensation under Section 5.01or payments required to be made pursuant to Section 5.03, suchassignment will result in a reduction in such compensation or paymentsthereafter, and (iv) such assignment does not conflict with the applicablelaw.  A Lender shall not be required tomake any such assignment and delegation if, prior thereto, as a result of awaiver by such Lender or otherwise, the circumstances entitling the Borrower torequire such  assignment and delegationcease to apply.

##  

## Section 5.05.          Illegality.  Notwithstanding any other provision of thisAgreement, in the event that it becomes unlawful for any Lender or itsapplicable lending office to honor its obligation to make or maintainEurodollar Loans either generally or having a particular Interest Periodhereunder, then (a) such Lender shall promptly notify the Borrower and theAdministrative Agent thereof and such Lender’s obligation to make suchEurodollar Loans shall be suspended (the “**Affected Loans**”) untilsuch time as such Lender may again make and maintain such Eurodollar Loans and (b) allAffected Loans which would otherwise be made by such Lender shall be madeinstead as ABR Loans (and, if such Lender so requests by notice to the Borrowerand the Administrative Agent, all Affected Loans of such Lender thenoutstanding shall be automatically converted into ABR Loans on the datespecified by such Lender in such notice) and, to the extent that Affected Loansare so made as (or converted into) ABR Loans, all payments of principal whichwould otherwise be applied to such Lender’s Affected Loans shall be appliedinstead to its ABR Loans.

# ** **

# **ARTICLE VIConditions Precedent**

##  

## Section 6.01.          Effectiveness.  The obligations of the Lenders to make Loansand of the Issuing Bank to issue Letters of Credit under the Original CreditAgreement became effective  upon theEffective Date.  This Agreement shallbecome effective on the date on which each of the following conditions issatisfied (or waived in accordance with Section 12.02):

###  

### (a)           The AdministrativeAgent shall have received to the extent invoiced, reimbursement or payment ofall out-of-pocket expenses required to be reimbursed or paid by the Borrowerhereunder (including, without limitation, the fees and expenses of Winstead PC,counsel to the Administrative Agent).

 

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### (b)                                 TheAdministrative Agent shall have received a certificate of the Secretary, anAssistant Secretary or other duly authorized officer satisfactory to theAdministrative Agent of the Borrower (or the managing member thereof)and each Guarantor setting forth (i) resolutions of its board of directorsor board of managers (or equivalent body) or its managing member authorizingthe execution, delivery and performance of the Loan Documents to which each isa party and, in the case of the Borrower, the borrowings hereunder, and thatsuch resolutions have not been modified, rescinded or amended and are in fullforce and effect, (ii) the officers of the Borrower (or any managingmember thereof) or such Guarantor (y) who are authorized to sign the LoanDocuments to which the Borrower or such Guarantor is a party and (z) whowill, until replaced by another officer or officers duly authorized for thatpurpose, act as its representative for the purposes of signing documents andgiving notices and other communications in connection with this Agreement andthe transactions contemplated hereby, (iii) specimen signatures of suchauthorized officers, and (iv) the articles or certificate of incorporationand bylaws or certificate of formation and partnership agreement or certificateof formation and limited liability company agreement (as the case may be) ofthe Borrower, and each Guarantor, certified as being true and complete.  The Administrative Agent and the Lenders mayconclusively rely on such certificate until the Administrative Agent receivesnotice in writing from the Borrower to the contrary.

###  

### (c)                                  TheAdministrative Agent shall have received certificates of the appropriate Stateagencies with respect to the existence, qualification and good standing of theBorrower and each Guarantor.

###  

### (d)                                 TheAdministrative Agent shall have received from each party hereto counterparts(in such number as may be requested by the Administrative Agent) of thisAgreement signed on behalf of such party.

###  

### (e)                                  TheAdministrative Agent shall have received duly executed Notes payable to theorder of each Lender in a principal amount equal to its Maximum Credit Amountdated as of the date hereof.

###  

### (f)                                    TheAdministrative Agent shall have received from Vanguard Permian duly executedcounterparts (in such number as may be requested by the Administrative Agent)of Mortgages covering the Apache Properties, which Mortgages shall be in formand substance satisfactory to the Administrative Agent.  In connection with the execution and deliveryof such Mortgages, the Administrative Agent shall be satisfied the suchMortgages create first priority, perfected Liens on the Apaches Properties(subject only to Excepted Liens identified in clauses (a), (b), (c) and (f) ofthe definition thereof, but subject to the provisos at the end of suchdefinition.

###  

### (g)                                 TheAdministrative Agent shall have received from Vanguard Permian duly executedcounterparts (in such number as may be requested by the Administrative Agent)of the Apache Title Indemnity Agreement.

###  

### (h)                                 TheAdministrative Agent shall have received from Vanguard Permian duly executedcounterparts (in such number as may be requested by the Administrative Agent)of 

 

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### its Guaranty Agreement, whichGuaranty Agreement shall be in form and substance satisfactory to theAdministrative Agent.

###  

### (i)                                     TheAdministrative Agent shall have received from the Borrower duly executedcounterparts (in such number as may be requested by the Administrative Agent)of such amendments to and/or confirmations of the Security Instruments executed and delivered priorto the date hereof as may be required by the Administrative Agent, whichamendments and/or confirmations shall be in form and substance satisfactory tothe Administrative Agent.

###  

### (j)                                     Eachof the Loan Documents shall be in full force and effect.

###  

### (k)                                  TheBorrower and the Guarantors shall have executed a notice in compliance with theprovisions of Section 26.02 of the Texas Business and Commerce Code.

###  

### (l)                                     TheAdministrative Agent shall have received an opinion of Wyatt, Tarrant &Combs, LLP, counsel to the Borrower and the Guarantors, acceptable to theAdministrative Agent covering such matters with respect to the Loan Documentsas the Administrative Agent may reasonably request, including withoutlimitation those matters described in Sections 7.01 and 7.02(other than the second sentence of Section 7.02 which shall beaddressed in the opinion described in Section 6.04).

###  

### (m)                               TheAdministrative Agent shall have received a certificate of insurance coverage ofthe Borrower and/or Vanguard Permian evidencing that the Borrower and/orVanguard Permian is carrying insurance in accordance with Section 7.13with respect to the Apache Properties.

###  

### (n)                                 TheAdministrative Agent shall have received satisfactory evidence that no event,development or circumstance has occurred or shall then exist that has resultedin, or could reasonably be expected to have, a Material Adverse Effect.

###  

### (o)                                 Therepresentations and warranties of the Borrower and the Guarantors set forth inthis Agreement and in the other Loan Documents shall be true and correct,except to the extent any such representations and warranties are expresslylimited to an earlier date, in which case, such representations and warrantiesshall continue to be true and correct as of such specified earlier date.

##  

## Section 6.02.                             EachCredit Event.  The obligation of eachLender to make a Loan on the occasion of any Borrowing (including the initialfunding), and of the Issuing Bank to issue, amend, renew or extend any Letterof Credit, is subject to the satisfaction of the following conditions:

###  

### (a)                                  Atthe time of and immediately after giving effect to such Borrowing or theissuance, amendment, renewal or extension of such Letter of Credit, asapplicable, no Default shall have occurred and be continuing.

###  

### (b)                                 Atthe time of and immediately after giving effect to such Borrowing or theissuance, amendment, renewal or extension of such Letter of Credit, asapplicable, no event, 

 

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### development or circumstance hasoccurred or shall then exist that has resulted in, or could reasonably beexpected to have, a Material Adverse Effect.

###  

### (c)                                  Therepresentations and warranties of the Borrower and the Guarantors set forth inthis Agreement and in the other Loan Documents shall be true and correct on andas of the date of such Borrowing or the date of issuance, amendment, renewal orextension of such Letter of Credit, as applicable, except to the extent any suchrepresentations and warranties are expressly limited to an earlier date, inwhich case, on and as of the date of such Borrowing or the date of issuance,amendment, renewal or extension of such Letter of Credit, as applicable, suchrepresentations and warranties shall continue to be true and correct as of suchspecified earlier date.

###  

### (d)                                 Themaking of such Loan or the issuance, amendment, renewal or extension of suchLetter of Credit, as applicable, would not conflict with, or cause any Lenderor the Issuing Bank to violate or exceed, any applicable GovernmentalRequirement, and no Change in Law shall have occurred, and no litigation shallbe pending or threatened, which does or, with respect to any threatenedlitigation, seeks to, enjoin, prohibit or restrain, the making or repayment ofany Loan, the issuance, amendment, renewal, extension or repayment of anyLetter of Credit or any participations therein or the consummation of thetransactions contemplated by this Agreement or any other Loan Document.

###  

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

 

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

##  

## Section 6.03.                             Effectivenessof Borrowing Base Increase.  Theincrease of the Borrowing Base to $150,000,000 contemplated by Section 2.07(a) shallbecome effective on the date on which each of the following conditions issatisfied (or waived in accordance with Section 12.02):

###  

### (a)                                  TheAdministrative Agent shall have received a Borrowing Base increase fee in theamount of $79,000 (for the benefit of Wachovia Bank, National Association andThe Bank of Nova Scotia).

###  

### (b)                                 Borroweror Vanguard Premium shall have delivered to the Administrative Agent title informationand data acceptable to the Administrative Agent relating title to the ApacheProperties.  These title assurances shallinclude such post closing title work as Administrative Agent may request.

###  

### (c)                                  TheAdministrative Agent shall have received from Vanguard Permian duly executedcounterparts (in such number as may be requested by the Administrative Agent)of the Apache Affidavit of Payment of Trade Bills.

##  

## Section 6.04.                             CertainMatters to be Completed After Closing. The parties agree that the matters described below in this Section 6.04shall be completed to the satisfaction of the 

 

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## Administrative Agent on the dates specifiedbelow for each item, or else an Event of Default shall be deemed to have occurredwith respect to that particular item under Section 10.01(d) withno further grace period being applicable:

###  

### (a)                                    On or before February 22, 2008, theBorrower shall provide the Administrative Agent with an opinion of counsel ofDoherty & Doherty, special Texas counsel to the Borrower and theGuarantors, acceptable to the Administrative Agent covering such matters withrespect to the Loan Documents as the Administrative Agent may reasonablyrequest, including without limitation those matters set forth in the secondsentence of Section 7.02.

###  

### (b)                                 Onor before February 22, 2008, Vanguard Permian shall have provided theAdministrative Agent duly executed counterparts (in such number as may berequested by the Administrative Agent) of the Apache Property Certificate andthe Apache Reconciliation Schedule.

###  

### (c)                                  Onor before February 29, 2008, the Mortgages executed by TEC shall have beenamended, supplemented or restated, as the Administrative Agent shall determine,to add thereto the properties conveyed to TEC by NRC pursuant to the collateralrestructure plan set forth in the Original Second Amendment to Credit Agreementand to reflect the changes in the name of the Borrower, the amount of debtsecured and the address of TEC for notice and UCC purposes.

###  

### (d)                                 Onor before February 29, 2008, the Mortgages executed by Ariana shall havebeen amended or supplemented, as the Administrative Agent shall determine, toreflect changes in the name of the Borrower, the amount of debt secured and theaddress of Ariana for notice and UCC purposes (such amendments or supplementsto be made after the release of the Wartburg Field pursuant to the collateralrestructure plan set forth in the Original Second Amendment to CreditAgreement).

# ** **

# **ARTICLE VIIRepresentations and Warranties**

 

The Borrower represents and warrants to theAdministrative Agent, the Issuing Bank and the Lenders that:

##  

## Section 7.01.                             Organization;Powers.  Each of the Borrower and theSubsidiaries is duly organized, validly existing and in good standing under thelaws of the jurisdiction of its organization, has all requisite power andauthority, and has all material governmental licenses, authorizations, consentsand approvals necessary, to own its assets and to carry on its business as nowconducted, and is qualified to do business in, and is in good standing in,every jurisdiction where such qualification is required, except where failureto have such power, authority, licenses, authorizations, consents, approvalsand qualifications could not reasonably be expected to have a Material AdverseEffect.

##  

## Section 7.02.                             Authority;Enforceability.  The Transactions arewithin the Borrower’s and each Guarantor’s limited liability company,partnership, and corporate powers (as applicable) and have been duly authorizedby all necessary limited liability company and, if required, member 

 

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## action (including, without limitation, anyaction required to be taken by any class of managers,**directors or * *partners (as applicable) of theBorrower or any other Person, whether interested or disinterested, in order toensure the due authorization of the Transactions).  Each Loan Document to which the Borrower andeach Guarantor is a party has been duly executed and delivered by the Borrowerand such Guarantor and constitutes a legal, valid and binding obligation of theBorrower and such Guarantor, as applicable, enforceable in accordance with itsterms, subject to applicable bankruptcy, insolvency, reorganization, moratoriumor other laws affecting creditors’ rights generally and subject to generalprinciples of equity, regardless of whether considered in a proceeding inequity or at law.

##  

## Section 7.03.                             Approvals;No Conflicts.  The Transactions (a) donot require any consent or approval of, registration or filing with, or anyother action by, any Governmental Authority or any other third Person(including members or any class of managers, whether interested ordisinterested, of the Borrower or any other Person), nor is any such consent,approval, registration, filing or other action necessary for the validity orenforceability of any Loan Document or the consummation of the transactionscontemplated thereby, except such as have been obtained or made and are in fullforce and effect other than (i) the recording and filing of the SecurityInstruments as required by this Agreement, (ii) those third partyapprovals or consents which, if not made or obtained, would not cause a Defaulthereunder, could not reasonably be expected to have a Material Adverse Effector do not have an adverse effect on the enforceability of the Loan Documents,and (iii) consents by, required notices to, or other actions by state andfederal governmental entities in connection with the assignment of state andfederal oil and gas leases or other interests therein that are customarilyobtained subsequent to such assignments, (b) will not violate anyapplicable law or Organizational Documents of the Borrower or any Subsidiary orany order of any Governmental Authority, (c) will not violate or result ina default under any indenture, agreement or other instrument binding upon theBorrower or any Subsidiary or its Properties, or give rise to a rightthereunder to require any payment to be made by the Borrower or such Subsidiaryand (d) will not result in the creation or imposition of any Lien on anyProperty of the Borrower or any Subsidiary (other than the Liens created by theLoan Documents).

##  

## Section 7.04.                             FinancialCondition; No Material Adverse Change.

###  

### (a)                                  TheBorrower has heretofore furnished to the Lenders its consolidated balance sheetand statements of income, members’ equity and cash flows (A) as of and forthe fiscal year ended December 31, 2006, reported on by UHY LLP,independent public accountant and (B) as of and for the fiscal quarter andthe portion of the fiscal year ended September 30, 2007, certified by itschief financial officer.  Such financialstatements present fairly, in all material respects, the financial conditionand results of operations and cash flows of the Borrower and its ConsolidatedSubsidiaries as of such dates and for such periods in accordance with GAAP,subject to year-end audit adjustments and the absence of footnotes in the caseof the unaudited quarterly financial statements.  Such balance sheets and the notes theretodisclose all material liabilities, direct or contingent, of the Borrower andits Consolidated Subsidiaries as of the dates thereof.

###  

### (b)                                 SinceSeptember 30, 2007, (i) there has been no event, development orcircumstance that has had or could reasonably be expected to have a MaterialAdverse Effect and 

 

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### (ii) the business of theBorrower and its Subsidiaries has been conducted only in the ordinary courseconsistent with past business practices.

###  

### (c)                                  Neitherthe Borrower nor any Subsidiary has on the date hereof any material Debt(including Disqualified Capital Stock) or any contingent liabilities,off-balance sheet liabilities or partnerships, liabilities for taxes, unusualforward or long-term commitments or unrealized or anticipated losses from anyunfavorable commitments, except as referred to or reflected or provided for inthe Financial Statements.

##  

## Section 7.05.                             Litigation.

###  

### (a)                                  Exceptas set forth on Schedule 7.05, there are no actions, suits,investigations or proceedings by or before any arbitrator or GovernmentalAuthority pending against or, to the knowledge of the Borrower, threatenedagainst or affecting the Borrower or any Subsidiary  (i) not fully covered by insurance(except for normal deductibles) as to which there is a reasonable possibilityof an adverse determination that, if adversely determined, could reasonably beexpected, individually or in the aggregate, to result in a Material AdverseEffect, (ii) that involve any Loan Document or the Transactions or (iii) thatcould impair the consummation of the Acquisition on the time and in the mannercontemplated by the Acquisition Documents.

###  

### (b)                                 Sincethe date of this Agreement, there has been no change in the status of thematters disclosed in Schedule 7.05 that, individually or in theaggregate, has resulted in, or materially increased the likelihood of, aMaterial Adverse Effect.

##  

## Section 7.06.                             EnvironmentalMatters.  Except as set forth in Schedule7.06 and as could not be reasonably expected to have a Material AdverseEffect (or with respect to (c), (d) and (e) below, where the failureto take such actions could not be reasonably expected to have a MaterialAdverse Effect):

###  

### (a)                                  neitherany Property of the Borrower or any Subsidiary nor the operations conductedthereon violate any order or requirement of any court or Governmental Authorityor any Environmental Laws.

###  

### (b)                                 noProperty of the Borrower or any Subsidiary nor the operations currentlyconducted thereon or, to the knowledge of the Borrower, by any prior owner oroperator of such Property or operation, are in violation of or subject to anyexisting, pending or threatened action, suit, investigation, inquiry orproceeding by or before any court or Governmental Authority or to any remedialobligations under Environmental Laws.

###  

### (c)                                  allnotices, permits, licenses, exemptions, approvals or similar authorizations, ifany, required to be obtained or filed in connection with the operation or useof any and all Property of the Borrower and each Subsidiary, including, withoutlimitation, past or present treatment, storage, disposal or release of ahazardous substance, oil and gas waste or solid waste into the environment,have been duly obtained or filed, and the Borrower and each Subsidiary are incompliance with the terms and conditions of all such notices, permits, licensesand similar authorizations.

 

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### (d)                                 allhazardous substances, solid waste and oil and gas waste, if any, generated atany and all Property of the Borrower or any Subsidiary have in the past beentransported, treated and disposed of in accordance with Environmental Laws andso as not to pose an imminent and substantial endangerment to public health orwelfare or the environment, and, to the knowledge of the Borrower, all suchtransport carriers and treatment and disposal facilities have been and areoperating in compliance with Environmental Laws and so as not to pose animminent and substantial endangerment to public health or welfare or theenvironment, and are not the subject of any existing, pending or threatenedaction, investigation or inquiry by any Governmental Authority in connectionwith any Environmental Laws.

###  

### (e)                                  theBorrower has taken all steps reasonably necessary to determine and hasdetermined that no oil, hazardous substances, solid waste or oil and gas waste,have been disposed of or otherwise released and there has been no threatenedrelease of any oil, hazardous substances, solid waste or oil and gas waste onor to any Property of the Borrower or any Subsidiary except in compliance withEnvironmental Laws and so as not to pose an imminent and substantialendangerment to public health or welfare or the environment.

###  

### (f)                                    neitherthe Borrower nor any Subsidiary has any known contingent liability or RemedialWork in connection with any release or threatened release of any oil, hazardoussubstance, solid waste or oil and gas waste into the environment.

##  

## Section 7.07.                             Compliancewith the Laws and Agreements; No Defaults.

###  

### (a)                                  Eachof the Borrower and each Subsidiary is in compliance with all GovernmentalRequirements applicable to it or its Property and all agreements and otherinstruments binding upon it or its Property, and possesses all licenses,permits, franchises, exemptions, approvals and other governmentalauthorizations necessary for the ownership of its Property and the conduct ofits business, except where the failure to do so, individually or in theaggregate, could not reasonably be expected to result in a Material AdverseEffect.

###  

### (b)                                 Neitherthe Borrower nor any Subsidiary is in default nor has any event or circumstanceoccurred which, but for the expiration of any applicable grace period or thegiving of notice, or both, would constitute a default or would require theBorrower or a Subsidiary to Redeem or make any offer to Redeem under anyindenture, note, credit agreement or instrument pursuant to which any MaterialIndebtedness is outstanding or by which the Borrower or any Subsidiary or anyof their Properties is bound.

###  

### (c)                                  NoDefault has occurred and is continuing.

##  

## Section 7.08.                             InvestmentCompany Act.  Neither the Borrowernor any Subsidiary is an “investment company” or a company “controlled” by an “investmentcompany,” within the meaning of, or subject to regulation under, the InvestmentCompany Act of 1940, as amended.

##  

## Section 7.09.                             Taxes.  Each of the Borrower and its Subsidiaries hastimely filed or caused to be filed all Tax returns and reports required to havebeen filed and has paid or caused to be paid all Taxes required to have beenpaid by it, except (a) Taxes that are being contested in good faith byappropriate proceedings and for which the Borrower or such Subsidiary, asapplicable, has set aside on its books adequate reserves in accordance withGAAP or (b) to the 

 

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## extent that the failure to do so could notreasonably be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on thebooks of the Borrower and its Subsidiaries in respect of Taxes and othergovernmental charges are adequate.  NoTax Lien has been filed and, to the knowledge of the Borrower, no claim isbeing asserted with respect to any such Tax or other such governmental charge.

##  

## Section 7.10.                             ERISA.

###  

### (a)                                  TheBorrower, the Subsidiaries and each ERISA Affiliate have complied in allmaterial respects with ERISA and, where applicable, the Code regarding eachPlan.

###  

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

###  

### (c)                                  Noact, omission or transaction has occurred which could result in imposition onthe Borrower, any Subsidiary or any ERISA Affiliate (whether directly orindirectly) of (i) either a civil penalty assessed pursuant to subsections(c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant toChapter 43 of Subtitle D of the Code or (ii) breach of fiduciary dutyliability damages under section 409 of ERISA.

###  

### (d)                                 NoPlan (other than a defined contribution plan) or any trust created under anysuch Plan has been terminated since September 2, 1974.  No liability to the PBGC (other than for thepayment of current premiums which are not past due) by the Borrower, anySubsidiary or any ERISA Affiliate has been or is expected by the Borrower, anySubsidiary or any ERISA Affiliate to be incurred with respect to any Plan.  No ERISA Event with respect to any Plan hasoccurred.

###  

### (e)                                  Fullpayment when due has been made of all amounts which the Borrower, theSubsidiaries or any ERISA Affiliate is required under the terms of each Plan orapplicable law to have paid as contributions to such Plan as of the datehereof, and no accumulated funding deficiency (as defined in section 302 ofERISA and section 412 of the Code), whether or not waived, exists with respectto any Plan.

###  

### (f)                                    Theactuarial present value of the benefit liabilities under each Plan which issubject to Title IV of ERISA does not, as of the end of the Borrower’smost recently ended fiscal year, exceed the current value of the assets(computed on a plan termination basis in accordance with Title IV ofERISA) of such Plan allocable to such benefit liabilities.  The term “actuarial present value of thebenefit liabilities” shall have the meaning specified in section 4041 of ERISA.

###  

### (g)                                 Neitherthe Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains, orcontributes to an employee welfare benefit plan, as defined in section 3(1) ofERISA, including, without limitation, any such plan maintained to providebenefits to former employees of such entities, that may not be terminated bythe Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at anytime without any material liability.

 

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### (h)                                 Neitherthe Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains orcontributes to, or has at any time in the six-year period preceding the datehereof sponsored, maintained or contributed to, any Multiemployer Plan.

###  

### (i)                                     Neitherthe Borrower, the Subsidiaries nor any ERISA Affiliate is required to providesecurity under section 401(a)(29) of the Code due to a Plan amendment thatresults in an increase in current liability for the Plan.

##  

## Section 7.11.                             Disclosure;No Material Misstatements.  TheBorrower has disclosed to the Administrative Agent and the Lenders allagreements, instruments and corporate or other restrictions to which it or anyof its Subsidiaries is subject, and all other matters known to it, that, individuallyor in the aggregate, could reasonably be expected to result in a MaterialAdverse Effect.  None of the otherreports, financial statements, certificates or other information furnished byor on behalf of the Borrower or any Subsidiary to the Administrative Agent orany Lender or any of their Affiliates in connection with the negotiation ofthis Agreement or any other Loan Document or delivered hereunder or under anyother Loan Document (as modified or supplemented by other information sofurnished) contains any material misstatement of fact or omits to state anymaterial fact necessary to make the statements therein, in the light of thecircumstances under which they were made, not misleading; provided that, withrespect to projected financial information, the Borrower represents only thatsuch information was prepared in good faith based upon assumptions believed tobe reasonable at the time.  There is nofact peculiar to the Borrower or any Subsidiary which could reasonably beexpected to have a Material Adverse Effect or in the future is reasonablylikely to have a Material Adverse Effect and which has not been set forth inthis Agreement or the Loan Documents or the other documents, certificates andstatements furnished to the Administrative Agent or the Lenders by or on behalfof the Borrower or any Subsidiary prior to, or on, the date hereof inconnection with the transactions contemplated hereby.  There are no statements or conclusions in anyReserve Report which are based upon or include misleading information or failto take into account material information regarding the matters reportedtherein, it being understood that projections concerning volumes attributableto the Oil and Gas Properties and production and cost estimates contained ineach Reserve Report are necessarily based upon professional opinions, estimatesand projections and that the Borrower and the Subsidiaries do not warrant thatsuch opinions, estimates and projections will ultimately prove to have beenaccurate.

##  

## Section 7.12.                             Insurance.  Schedule 7.12 sets forth a true,complete and correct description of all insurance maintained by the Borrower orby the Borrower for its Subsidiaries or by each Subsidiary for itself, as thecase may be, as of the date hereof.  TheBorrower has, and has caused all of its Subsidiaries to have, (a) allinsurance policies sufficient for the compliance by each of them with allmaterial Governmental Requirements and all material agreements and (b) insurancecoverage in at least amounts and against such risk (including, withoutlimitation, public liability) that are commercially reasonable and usuallyinsured against by companies similarly situated and engaged in the same or asimilar business for the assets and operations of the Borrower and its Subsidiaries.  The Administrative Agent has been named as anadditional insured in respect of such liability insurance policies, and theAdministrative Agent has been named as loss payee with respect to Property lossinsurance.

 

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## Section 7.13.                             Restriction on Liens.  Neither the Borrower nor any of theSubsidiaries is a party to any material agreement or arrangement (other thanCapital Leases creating Liens permitted by Section 9.03(c), butthen only on the Property subject of such Capital Lease), or subject to anyorder, judgment, writ or decree, which either restricts or purports to restrictits ability to grant Liens to the Administrative Agent and the Lenders on or inrespect of their Properties to secure the Indebtedness and the Loan Documents.

##  

## Section 7.14.                             Subsidiaries.  Except as set forth on Schedule 7.14or as disclosed in writing to the Administrative Agent (which shall promptlyfurnish a copy to the Lenders), which shall be a supplement to Schedule 7.14,the Borrower has no Subsidiaries and the Borrower has no ForeignSubsidiaries.  Each Subsidiary on suchschedule is a Wholly-Owned Subsidiary and a disregarded entity for federalincome tax purposes.

##  

## Section 7.15.                             Location of Business andOffices.  The Borrower’s jurisdiction oforganization is Kentucky; the name of the Borrower as listed in the publicrecords of its jurisdiction of organization is Vanguard Natural Gas, LLC; andthe organizational identification number of the Borrower in its jurisdiction oforganization is 0601349 (or, in each case, as set forth in a notice deliveredto the Administrative Agent pursuant to Section 8.01(n) inaccordance with Section 12.01). The Borrower’s principal place of business is located at the address inLondon, Kentucky specified in Section 12.01 (or as set forth in anotice delivered pursuant to Section 8.01(n) and Section 12.01(c)),and its chief executive offices is located at the San Felipe street address inHouston, Texas specified in Section 12.01 (or as set forth in anotice delivered pursuant to Section 8.01(n) and Section 12.01(c)).  Each Subsidiary’s jurisdiction oforganization, name as listed in the public records of its jurisdiction oforganization, organizational identification number in its jurisdiction oforganization, and the location of its principal place of business and chiefexecutive office is stated on Schedule 7.14 (or as set forth in a noticedelivered pursuant to Section 8.01(n)).

##  

## Section 7.16.                             Properties;Titles, Etc.

###  

### (a)                                  Each of theBorrower and the Subsidiaries has good and defensible title to the Oil and GasProperties evaluated in the most recently delivered Reserve Report and goodtitle to all its personal Properties, in each case, free and clear of all Liensexcept Liens permitted by Section 9.03.  After giving full effect to the ExceptedLiens, the Borrower or the Subsidiary specified as the owner owns the netinterests in production attributable to the Hydrocarbon Interests as reflectedin the most recently delivered Reserve Report, and the ownership of suchProperties shall not in any material respect obligate the Borrower or suchSubsidiary to bear the costs and expenses relating to the maintenance,development and operations of each such Property in an amount in excess of theworking interest of each Property set forth in the most recently deliveredReserve Report that is not offset by a corresponding proportionate increase inthe Borrower’s or such Subsidiary’s net revenue interest in such Property.  The ownership by the Borrower or anySubsidiary of the Hydrocarbons and the undivided interests therein specified onthe exhibits to the Mortgages are the same interests reflected in the mostrecently delivered Reserve Report.

###  

### (b)                                 All materialleases and agreements necessary for the conduct of the business of the Borrowerand the Subsidiaries are valid and subsisting, in full force and effect, 

###  

### 56

### 

###  

### and there exists no default or event orcircumstance which with the giving of notice or the passage of time or bothwould give rise to a default under any such lease or leases, which couldreasonably be expected to have a Material Adverse Effect.

###  

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

###  

### (d)                                 All of theProperties of the Borrower and the Subsidiaries which are reasonably necessaryfor the operation of their businesses are in good working condition and aremaintained in accordance with prudent business standards.

###  

### (e)                                  The Borrowerand each Subsidiary owns, or is licensed to use, all trademarks, tradenames,copyrights, patents and other intellectual Property material to its business,and the use thereof by the Borrower and such Subsidiary does not infringe uponthe rights of any other Person, except for any such infringements that, in theaggregate, could not reasonably be expected to result in a Material AdverseEffect.  The Borrower and itsSubsidiaries either own or have valid licenses or other rights to use alldatabases, geological data, geophysical data, engineering data, seismic data,maps, interpretations and other technical information used in their businessesas presently conducted, subject to the limitations contained in the agreementsgoverning the use of the same, which limitations are customary for companiesengaged in the business of the exploration and production of Hydrocarbons, withsuch exceptions as could not reasonably be expected to have a Material AdverseEffect.

###  

### (f)                                    With regard tothe Volumetric Production Payment (the “**ProductionPayment**”) and the Natural Gas Purchase Agreement (the “**Purchase Agreement**”) (both as furtherdescribed in Exhibit A to the Mortgage and Security Agreement dated March 23,2001 and recorded, *inter alia*, atMortgage Book 104, Page 228 in the Office of the McCreary CountyClerk):  (i) the Production Paymentand the Purchase Agreement have expired in accordance with their terms, (ii) neitherO.G. Investment, L.L.C., nor Joint Investment and Development, L.L.C. anylonger have any interest in the Production Payment and/or the PurchaseAgreement; and (iii) all of the rights of any party to receive gas, or thepayment therefor, pursuant to the Production Payment or the Purchase Agreementhave terminated and have reverted to the Borrower or to an Affiliate of theBorrower which is giving security pursuant to this Agreement.

##  

## Section 7.17.                             Maintenance of Properties.  Except for such acts or failures to act ascould not be reasonably expected to have a Material Adverse Effect, and subjectto the prior rights and limitations of Borrower as an owner of non-operatedworking interests, the Oil and Gas Properties (and Properties unitizedtherewith) of the Borrower and its Subsidiaries have been maintained, operatedand developed in a good and workmanlike manner and in conformity with allGovernmental Requirements and in conformity with the provisions of all leases,subleases or other contracts comprising a part of the Hydrocarbon Interests andother contracts and agreements forming a part of the Oil and Gas Properties ofthe Borrower and its Subsidiaries. Specifically in connection with the foregoing, except for those as couldnot be reasonably expected to have a Material Adverse Effect, (i) no Oiland Gas Property of the Borrower or any 

 

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##  

## Subsidiary is subject to having allowable production reduced below thefull and regular allowable (including the maximum permissible tolerance)because of any overproduction (whether or not the same was permissible at thetime) and (ii) none of the wells comprising a part of the Oil and GasProperties (or Properties unitized therewith) of the Borrower or any Subsidiaryis deviated from the vertical more than the maximum permitted by GovernmentalRequirements (except with respect to horizontal wells permitted by GovernmentalAuthority), and such wells are, in fact, bottomed under and are producing from,and the well bores are wholly within, the Oil and Gas Properties (or in thecase of wells located on Properties unitized therewith, such unitizedProperties) of the Borrower or such Subsidiary. All pipelines, wells, gas processing plants, platforms and othermaterial improvements, fixtures and equipment owned in whole or in part by theBorrower or any of its Subsidiaries that are necessary to conduct normaloperations are being maintained in a state adequate to conduct normaloperations, and with respect to such of the foregoing which are operated by theBorrower or any of its Subsidiaries, in a manner consistent with the Borrower’sor its Subsidiaries’ past practices (other than those the failure of which tomaintain in accordance with this Section 7.18 could not reasonablybe expected to have a Material Adverse Effect).

##  

## Section 7.18.                             Gas Imbalances, Prepayments.  Except as set forth on Schedule 7.18or on the most recent certificate delivered pursuant to Section 8.12(c),on a net basis there are no Material Gas Imbalances, take or pay or otherprepayments which would require the Borrower or any of its Subsidiaries todeliver Hydrocarbons produced from the Oil and Gas Properties at some futuretime without then or thereafter receiving full payment therefor.

##  

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

##  

## Section 7.20.                             Swap Agreements.  Schedule 7.20, as of the date hereof, andafter the date hereof, each report required to be delivered by the Borrowerpursuant to Section 8.01(f), sets forth, a true and complete listof all Swap Agreements of the Borrower and each Subsidiary, the material termsthereof (including the type, term, effective date, termination date andnotional amounts or volumes), the net mark to market value thereof, all creditsupport agreements relating thereto (including any margin required or supplied)and the counterparty to each such agreement.

##  

## Section 7.21.                             Use of Loans and Letters ofCredit.  The proceeds of the Loans andthe Letters of Credit shall be used (a) to provide working capital forexploration and production operations, (b) to pay fees and expensesrelated to the Transaction, (c) for general corporate purposes, and (d) to**purchase assets from Apache Corporation pursuant to the provisions ofthe 

 

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##  

## Apache Acquisition Agreement.  In addition, the Borrower may use theproceeds of Loans to make Restricted Payments to the holders of its EquityInterests provided (i) the aggregate amount of the Restricted Payment doesnot exceed the Borrower’s EBITDA for the immediately preceding fiscal quarter;and (ii) the Restricted Payment is otherwise permitted by Section 9.04(e).

 

The Borrower and its Subsidiaries are not engagedprincipally, or as one of its or their important activities, in the business ofextending credit for the purpose, whether immediate, incidental or ultimate, ofbuying or carrying margin stock (within the meaning of Regulation T, U or X ofthe Board).  No part of the proceeds ofany Loan or Letter of Credit will be used for any purpose which violates theprovisions of Regulations T, U or X of the Board.

##  

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

##  

## Section 7.23.                             Sanctioned Persons.  Neither the Borrower or any Subsidiary nor,to the knowledge of the Borrower, any director, officer, agent, employee orAffiliate of the Borrower or any Subsidiary is currently subject to any U.S.sanctions administered by the Office of Foreign Assets Control of the U.S.Treasury Department (“**OFAC**”);and the Borrower will not directly or indirectly use the proceeds of the Loansor the Letters of Credit or otherwise make available such proceeds to anyPerson or entity, for the purpose of financing the activities of any Personcurrently subject to any U.S. sanctions administered by OFAC.

##  

## Section 7.24.                             Security Instruments.  The Mortgages are effective to create infavor of the Administrative Agent, for the ratable benefit of the Lenders, alegal, valid and enforceable Lien on all of the Borrower’s and each Guarantor’sright, title and interest in and to the Mortgaged Property thereunder and theproceeds thereof.  The Mortgages (otherthan the Mortgages covering the Apache Properties), having been filed in theoffices specified on Schedule 7.24, constitute a fully perfectedLien on, and security interest in, all right, title and interest of theBorrower and each Guarantor in such Mortgaged Property and the proceedsthereof, in each case prior and superior in right to any other Person, otherthan with respect to the rights of persons pursuant to Liens expressly permittedby Section 9.03.  When theMortgages covering the Apache Properties are filed in the offices specified on Schedule7.24, such Mortgages shall constitute a fully perfected Lien on, andsecurity interest in, all right, title and interest of the Borrower and eachGuarantor in the Mortgaged Property thereunder and the proceeds thereof, in 

 

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## each case prior and superior in right to any other Person, other thanwith respect to the rights of persons pursuant to Liens expressly permitted by Section 9.03.

# ** **

# **ARTICLE VIIIAffirmative Covenants**

 

Until the Commitments have expired or been terminated and the principalof and interest on each Loan and all fees payable hereunder and all otheramounts payable under the Loan Documents shall have been paid in full and allLetters of Credit shall have expired or terminated and all LC Disbursementsshall have been reimbursed, the Borrower covenants and agrees with the Lendersthat:

##  

## Section 8.01.                             FinancialStatements; Other Information.  The Borrower will furnish to theAdministrative Agent and each Lender:

###  

### (a)                                  AnnualFinancial Statements.  As soon asavailable, but in any event in accordance with then applicable law and notlater than 90 days after the end of each fiscal year of the Borrower, itsaudited consolidated balance sheet and related statements of operations,stockholders’ equity and cash flows as of the end of and for such year, settingforth in each case in comparative form the figures for the previous fiscalyear, all reported on by an independent public accountant of recognizednational standing (without a “going concern” or like qualification or exceptionand without any qualification or exception as to the scope of such audit) tothe effect that such consolidated financial statements present fairly in allmaterial respects the financial condition and results of operations of theBorrower and its Consolidated Subsidiaries on a consolidated basis inaccordance with GAAP consistently applied.

###  

### (b)                                 QuarterlyFinancial Statements.  As soon asavailable, but in any event in accordance with then applicable law and notlater than 45 days after the end of each of the first three fiscal quarters ofeach fiscal year of the Borrower (beginning with the first quarter of 2007),its consolidated balance sheet and related statements of operations,stockholders’ equity and cash flows as of the end of and for such fiscalquarter and the then elapsed portion of the fiscal year, setting forth in eachcase in comparative form the figures for the corresponding period or periods of(or, in the case of the balance sheet, as of the end of) the previous fiscalyear, all certified by one of its Financial Officers as presenting fairly inall material respects the financial condition and results of operations of theBorrower and its Consolidated Subsidiaries on a consolidated basis inaccordance with GAAP consistently applied, subject to normal year-end auditadjustments and the absence of footnotes.

###  

### (c)                                  Certificate ofFinancial Officer — Compliance.  Concurrently with any delivery of financialstatements under Section 8.01(a) or Section 8.01(b),a certificate of a Financial Officer in substantially the form of Exhibit Dhereto (i) certifying as to whether a Default has occurred and, if aDefault has occurred, specifying the details thereof and any action taken orproposed to be taken with respect thereto, (ii) setting forth reasonablydetailed calculations demonstrating compliance with Section 8.13(b) andSection 9.01 and (iii) stating whether any change in GAAP orin the application thereof has occurred since the date of the audited financialstatements referred to in Section 7.04 (or, if later, the mostrecently delivered 

 

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### audited financial statements pursuant to Section 8.01(a))and, if any such change has occurred, specifying the effect of such change onthe financial statements accompanying such certificate.

###  

### (d)                                 Certificate ofAccounting Firm — Defaults.  Concurrently with any delivery of financialstatements under Section 8.01(a), a certificate of the accountingfirm that reported on such financial statements stating whether they obtainedknowledge during the course of their examination of such financial statementsof any Default (which certificate may be limited to the extent required byaccounting rules or guidelines).

###  

### (e)                                  Certificate ofFinancial Officer — Consolidating Information.  If, at any time, all of the ConsolidatedSubsidiaries of the Borrower are not Consolidated Subsidiaries, thenconcurrently with any delivery of financial statements under Section 8.01(a) orSection 8.01(b), a certificate of a Financial Officer setting forthconsolidating spreadsheets that show all Consolidated Subsidiaries and theeliminating entries, in such form as would be presentable to the auditors ofthe Borrower.

###  

### (f)                                    Certificate ofFinancial Officer — Swap Agreements.  Concurrently with any delivery of financialstatements under Section 8.01(a) and Section 8.01(b),a certificate of a Financial Officer, in form and substance satisfactory to theAdministrative Agent, setting forth as of the last Business Day of such fiscalquarter or fiscal year, a true and complete list of all Swap Agreements of theBorrower and each Subsidiary, the material terms thereof (including the type,term, effective date, termination date and notional amounts or volumes), thenet mark-to-market value therefor, any new credit support agreements relatingthereto, any margin required or supplied under any credit support document, andthe counterparty to each such agreement.

###  

### (g)                                 Certificate ofInsurer — Insurance Coverage.  Concurrently with any delivery of financialstatements under Section 8.01(a), a certificate of insurancecoverage from each insurer with respect to the insurance required by Section 8.07,in form and substance satisfactory to the Administrative Agent, and, ifrequested by the Administrative Agent or any Lender, all copies of theapplicable policies.

###  

### (h)                                 OtherAccounting Reports.  Promptlyupon receipt thereof, a copy of each other report or letter submitted to theBorrower or any of its Subsidiaries by independent accountants in connectionwith any annual, interim or special audit made by them of the books of theBorrower or any such Subsidiary, and a copy of any response by the Borrower orany such Subsidiary, or the board of managers of the Borrower or any suchSubsidiary, to such letter or report.

###  

### (i)                                     SEC and OtherFilings; Reports to Shareholders.  If the Borrower or one of its Subsidiaries orAffiliates seeks to become a publicly traded company, a copy of its S-1Registration Statement simultaneously with its filing with the SEC andthereafter promptly after the same become publicly available, copies of allperiodic and other reports, proxy statements and other materials filed by theBorrower or any Subsidiary or Affiliate with the SEC, or with any nationalsecurities exchange, or distributed by the Borrower to its shareholdersgenerally, as the case may be.  Documentsrequired to be delivered pursuant to this clause (i) may be deliveredelectronically and if so delivered shall be deemed to have been delivered onthe date (x) on which the Borrower posts such documents, or provides alink thereto on the Borrower’s website 

 

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### on the Internet; or (ii) on which suchdocuments are posted on the Borrower’s behalf on IntraLinks/SyndTrak or anotherrelevant website, if any, to which each Lender and the Administrative Agenthave access (whether a commercial, third-party website or whether sponsored bythe Administrative Agent); provided that: (i) upon written request by the Administrative Agent, the Borrowershall deliver paper copies of such documents to the Administrative Agent forfurther distribution to each Lender until a written request to cease deliveringpaper copies is given by the Administrative Agent and (ii) the Borrowershall notify (which may be by facsimile or electronic mail) the AdministrativeAgent of the posting of any such documents and provide to the AdministrativeAgent by electronic mail electronic versions (i.e., soft copies) of suchdocuments.

###  

### (j)                                     Notices UnderMaterial Instruments.  Promptlyafter the furnishing thereof, copies of any financial statement, report ornotice furnished to or by any Person pursuant to the terms of any preferredstock designation, indenture, loan or credit or other similar agreement, otherthan this Agreement and not otherwise required to be furnished to the Lenderspursuant to any other provision of this Section 8.01.

###  

### (k)                                  Lists ofPurchasers. Concurrently with the delivery of any Reserve Report to theAdministrative Agent pursuant to Section 8.12, a list of the namesand addresses of all Persons purchasing Hydrocarbons from the Borrower or anySubsidiary.

###  

### (l)                                     Notice of Salesof Oil and Gas Properties.  Inthe event the Borrower or any Subsidiary intends to sell, transfer, assign orotherwise dispose of any Oil or Gas Properties or any Equity Interests in anySubsidiary in accordance with Section 9.12, prior written notice ofsuch disposition, the price thereof and the anticipated date of closing and anyother details thereof requested by the Administrative Agent or any Lender.

###  

### (m)                               Notice ofCasualty Events.  Promptwritten notice, and in any event within three Business Days, of the occurrenceof any Casualty Event or the commencement of any action or proceeding thatcould reasonably be expected to result in a Casualty Event.

###  

### (n)                                 InformationRegarding Borrower and Guarantors.  Prompt written notice (and in any event withinthirty (30) days prior thereto) of any change (i) in the Borrower or anyGuarantor’s corporate name or in any trade name used to identify such Person inthe conduct of its business or in the ownership of its Properties, (ii) inthe location of the Borrower or any Guarantor’s chief executive office orprincipal place of business, (iii) in the Borrower or any Guarantor’sidentity or corporate structure or in the jurisdiction in which such Person isincorporated or formed, (iv) in the Borrower or any Guarantor’sjurisdiction of organization or such Person’s organizational identificationnumber in such jurisdiction of organization, and (v) in the Borrower orany Guarantor’s federal taxpayer identification number, if any.

###  

### (o)                                 ProductionReports and Lease Operating Statements.  Within 45 days after the end of each fiscalquarter, a report setting forth, for each calendar month during the thencurrent fiscal year to date, (i) the volume of production and salesattributable to production (and the prices at which such sales were made andthe revenues derived from such sales) for each such calendar month from the Oiland Gas Properties, individually and in the aggregate, and (ii) 

 

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### the related ad valorem, severance andproduction taxes and lease operating expenses attributable thereto and incurredfor each such calendar month.

###  

### (p)                                 Gas BalancingReports.  Within 45 days after the endof each fiscal quarter, a report setting forth, for the quarter during the thencurrent fiscal year to date, the existence of any Material Gas Imbalanceslisted on a property-by-property basis.

###  

### (q)                                 Notices ofCertain Changes.  Promptly,but in any event within five (5) Business Days after the executionthereof, copies of any amendment, modification or supplement to theOrganizational Documents of the Borrower or any Subsidiary.

###  

### (r)                                    Ratings Change.  If the Borrower or one of its Affiliatesbecomes a publicly traded company, promptly after Moody’s or S&P shall haveannounced a change in the rating of the Borrower or one of its Affiliates,written notice of such rating change.

###  

### (s)                                  PATRIOT Act.  Promptly after the request by any Lender, alldocumentation and other information that such Lender reasonably requests inorder to comply with its ongoing obligations under applicable “know yourcustomer” and anti-money laundering rules and regulations, including theUSA PATRIOT Act.

###  

### (t)                                    Other RequestedInformation.  Promptlyfollowing any request therefor, such other information regarding the operations,business affairs and financial condition of the Borrower or any Subsidiary orAffiliates (including, without limitation, any Plan or Multiemployer Plan andany reports or other information required to be filed under ERISA), orcompliance with the terms of this Agreement or any other Loan Document, as theAdministrative Agent or any Lender may reasonably request.

##  

## Section 8.02.                             Notices ofMaterial Events.  TheBorrower will furnish to the Administrative Agent and each Lender promptwritten notice of the following:

###  

### (a)                                  the occurrenceof any Default;

###  

### (b)                                 the filing orcommencement of, or the threat in writing of, any action, suit, proceeding,investigation or arbitration by or before any arbitrator or GovernmentalAuthority against or affecting the Borrower or any Affiliate thereof notpreviously disclosed in writing to the Lenders or any material adversedevelopment in any action, suit, proceeding, investigation or arbitration(whether or not previously disclosed to the Lenders) that, in either case, ifadversely determined, could reasonably be expected to result in a MaterialAdverse Effect;

###  

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

###  

### (d)                                 any otherdevelopment that results in, or could reasonably be expected to result in, aMaterial Adverse Effect.

 

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

##  

## Section 8.03.                             Existence; Conduct ofBusiness.  TheBorrower will, and will cause each Subsidiary to, do or cause to be done allthings necessary to preserve, renew and keep in full force and effect its legalexistence and the rights, licenses, permits, privileges and franchises materialto the conduct of its business and maintain, if necessary, its qualification todo business in each other jurisdiction in which its Oil and Gas Properties islocated or the ownership of its Properties requires such qualification, exceptwhere the failure to so qualify could not reasonably be expected to have aMaterial Adverse Effect; provided that the foregoing shall not prohibit anymerger, consolidation, liquidation or dissolution permitted under Section 9.11.

##  

## Section 8.04.                             Payment of Obligations.  The Borrower will, and will cause eachSubsidiary to, pay its obligations, including Tax liabilities of the Borrowerand all of its Subsidiaries before the same shall become delinquent or indefault, except where (a) the validity or amount thereof is beingcontested in good faith by appropriate proceedings, (b) the Borrower orsuch Subsidiary has set aside on its books adequate reserves with respectthereto in accordance with GAAP and (c) the failure to make paymentpending such contest could not reasonably be expected to result in a MaterialAdverse Effect or result in the seizure or levy of any Property of the Borroweror any Subsidiary.

##  

## Section 8.05.                             Performance of Obligationsunder Loan Documents.  TheBorrower will pay the Notes according to the reading, tenor and effect thereof,and the Borrower will, and will cause each Subsidiary to, do and perform everyact and discharge all of the obligations to be performed and discharged by themunder the Loan Documents, including, without limitation, this Agreement, at thetime or times and in the manner specified.

##  

## Section 8.06.                             Operation andMaintenance of Properties.  TheBorrower, at its own expense, will, and will cause each Subsidiary to:

###  

### (a)                                  operate its Oiland Gas Properties and other material Properties or cause such Oil and GasProperties and other material Properties to be operated in a careful andefficient manner in accordance with the practices of the industry and incompliance with all applicable contracts and agreements and in compliance withall Governmental Requirements, including, without limitation, applicable proration requirements and Environmental Laws, and all applicable laws, rules andregulations of every other Governmental Authority from time to time constitutedto regulate the development and operation of its Oil and Gas Properties and theproduction and sale of Hydrocarbons and other minerals therefrom, except, ineach case, in those circumstances where a reasonably prudent operator undersimilar circumstances and in accordance with customary industry practice wouldbe prudent not to do so, and the failure to comply could not reasonably beexpected to have a Material Adverse Effect.

###  

### (b)                                 operate andmaintain in a careful and efficient manner in accordance with the practices ofthe industry and in compliance with all applicable contracts and agreements andin compliance with all Governmental Requirements, including, withoutlimitation, all applicable laws, rules and regulations of every otherGovernmental Authority from time to time constituted 

 

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### to regulate the gathering, transportation orprocessing of Hydrocarbons and other minerals therefrom, except, in each case,in those circumstances where a reasonably prudent operator under similarcircumstances and in accordance with customary industry practice would beprudent not to do so, and the failure to comply could not reasonably beexpected to have a Material Adverse Effect, all pipelines, compressor stations,wells, gas or crude oil processing facilities, field gathering systems, tanks,tank batteries, pumps, pumping units, fixtures, valves, fittings, machinery,parts, engines, boilers, meters, apparatus, appliances, tools, implements,casing, tubing, rods, cables, wires, towers, surface and other materialimprovements, fixtures and equipment owned in whole or in part by the Borroweror any of its Subsidiaries that are useful or necessary to conduct normaloperations relating to gathering, transportation, processing or removal ofHydrocarbons and other minerals or CO2 therefrom.

###  

### (c)                                  keep andmaintain all Property material to the conduct of its business in good workingorder and condition, ordinary wear and tear excepted, and preserve, maintainand keep in good repair, working order and efficiency (ordinary wear and tearexcepted) all of its material Oil and Gas Properties, all gas or crude oilprocessing facilities and other material Properties, including, withoutlimitation, all equipment, machinery and facilities.

###  

### (d)                                 promptly payand discharge, or make reasonable and customary efforts to cause to be paid anddischarged, all delay rentals, royalties, expenses and indebtedness accruingunder the leases or other agreements affecting or pertaining to its Oil and GasProperties or gas or crude oil processing facilities and will do all otherthings necessary to keep unimpaired their rights with respect thereto andprevent any forfeiture thereof or default thereunder.

###  

### (e)                                  promptlyperform or make reasonable and customary efforts to cause to be performed, inaccordance with industry standards, the obligations required by each and all ofthe assignments, deeds, leases, sub-leases, contracts and agreements affectingits interests in its Oil and Gas Properties, all gas or crude oil processingfacilities and other material Properties.

###  

### (f)                                    operate its Oiland Gas Properties, all gas or crude oil processing facilities and othermaterial Properties or cause or make reasonable and customary efforts to causesuch Oil and Gas Properties, gas or crude oil processing facilities and othermaterial Properties to be operated in accordance with the practices of theindustry and in material compliance with all applicable contracts andagreements and in compliance in all material respects with all GovernmentalRequirements.

 

Tothe extent the Borrower is not the operator of any Property, the Borrower shalluse reasonable efforts to cause the operator to comply with this Section 8.06.

##  

## Section 8.07.                             Insurance.  The Borrower will, and will cause eachSubsidiary to, maintain, with financially sound and reputable insurancecompanies, insurance in such amounts and against such risks as are customarilymaintained by companies engaged in the same or similar businesses operating inthe same or similar locations.  The losspayable clauses or provisions in said insurance policy or policies insuring anyof the collateral for the Loans shall be endorsed in favor of and made payableto the Administrative Agent as its interests may appear and such policies shallname the Administrative Agent and the Lenders as “additional insureds” 

 

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##  

## and provide that the insurer will endeavor to give at least 30 daysprior notice of any cancellation to the Administrative Agent.

##  

## Section 8.08.                             Books and Records;Inspection Rights.  TheBorrower will, and will cause each Subsidiary to, keep proper books of recordand account in which full, true and correct entries are made of all dealingsand transactions in relation to its business and activities.  The Borrower will, and will cause eachSubsidiary to, permit any representatives designated by the AdministrativeAgent or any Lender, upon reasonable prior notice, to visit and inspect itsProperties, to examine and make extracts from its books and records, and todiscuss its affairs, finances and condition with its officers and independentaccountants, all at such reasonable times and as often as reasonably requested.

##  

## Section 8.09.                             Compliance with Laws.  The Borrower will, and will cause eachSubsidiary to, comply with all laws, rules, regulations and orders of anyGovernmental Authority applicable to it or its Property, except where thefailure to do so, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect.

##  

## Section 8.10.                             EnvironmentalMatters.

###  

### (a)                                  The Borrowershall at its sole expense:  (i) comply,and shall cause its Properties and operations and each Subsidiary and eachSubsidiary’s Properties and operations to comply, with all applicableEnvironmental Laws, the breach of which could be reasonably expected to have aMaterial Adverse Effect; (ii) not dispose of or otherwise release, andshall cause each Subsidiary not to dispose of or otherwise release, any oil,oil and gas waste, hazardous substance, or solid waste on, under, about or fromany of the Borrower’s or its Subsidiaries’ Properties or any other Property tothe extent caused by the Borrower’s or any of its Subsidiaries’ operationsexcept in compliance with applicable Environmental Laws, the disposal orrelease of which could reasonably be expected to have a Material AdverseEffect; (iii) timely obtain or file, and shall cause each Subsidiary totimely obtain or file, all notices, permits, licenses, exemptions, approvals,registrations or other authorizations, if any, required under applicableEnvironmental Laws to be obtained or filed in connection with the operation oruse of the Borrower’s or its Subsidiaries’ Properties, which failure to obtainor file could reasonably be expected to have a Material Adverse Effect; (iv) promptlycommence and diligently prosecute to completion, and shall cause eachSubsidiary to promptly commence and diligently prosecute to completion, anyassessment, evaluation, investigation, monitoring, containment, cleanup,removal, repair, restoration, remediation or other remedial obligations(collectively, the “**Remedial Work**”) in the event any Remedial Work isrequired or reasonably necessary under applicable Environmental Laws because ofor in connection with the actual or suspected past, present or future disposalor other release of any oil, oil and gas waste, hazardous substance or solidwaste on, under, about or from any of the Borrower’s or its Subsidiaries’Properties, which failure to commence and diligently prosecute to completioncould reasonably be expected to have a Material Adverse Effect; and (v) establishand implement, and shall cause each Subsidiary to establish and implement, suchprocedures as may be necessary to continuously determine and assure that theBorrower’s and its Subsidiaries’ obligations under this Section 8.10(a) aretimely and fully satisfied, which failure to establish and implement couldreasonably be expected to have a Material Adverse Effect.

###  

### 66

### 

###  

### (b)                                 The Borrowerwill promptly, but in no event later than five days of the occurrence of atriggering event, notify the Administrative Agent and the Lenders in writing ofany threatened action, investigation or inquiry by any Governmental Authorityor any threatened demand or lawsuit by any landowner or other third partyagainst the Borrower or its Subsidiaries or their Properties of which theBorrower has knowledge in connection with any Environmental Laws (excluding routinetesting and corrective action) if the Borrower reasonably anticipates that suchaction will result in liability (whether individually or in the aggregate) inexcess of $500,000, not fully covered by insurance, subject to normaldeductibles.

###  

### (c)                                  The Borrowerwill, and will cause each Subsidiary to, provide environmental audits and testsin accordance with American Society of Testing Materials standards upon requestby the Administrative Agent and the Lenders in connection with any futureacquisitions of Oil and Gas Properties or other Properties.

##  

## Section 8.11.                             FurtherAssurances.

###  

### (a)                                  The Borrower atits sole expense will, and will cause each Subsidiary to, promptly execute anddeliver to the Administrative Agent all such other documents, agreements andinstruments reasonably requested by the Administrative Agent to comply with,cure any defects or accomplish the conditions precedent, covenants andagreements of the Borrower or any Subsidiary, as the case may be, in the LoanDocuments, including the Notes, or to further evidence and more fully describethe collateral intended as security for the Indebtedness, or to correct anyomissions in this Agreement or the Security Instruments, or to state more fullythe obligations secured therein, or to perfect, protect or preserve any Lienscreated pursuant to this Agreement or any of the Security Instruments or thepriority thereof, or to make any recordings, file any notices or obtain anyconsents, all as may be reasonably necessary or appropriate, in the sole discretionof the Administrative Agent, in connection therewith.

###  

### (b)                                 The Borrowerhereby authorizes the Administrative Agent to file one or more financing orcontinuation statements, and amendments thereto, relative to all or any part ofthe Mortgaged Property or other Property covered by the Lien of the SecurityInstruments without the signature of the Borrower or any other Guarantor wherepermitted by law.  A carbon, photographicor other reproduction of the Security Instruments or any financing statementcovering the Mortgaged Property such other Property or any part thereof shallbe sufficient as a financing statement where permitted by law.

##  

## Section 8.12.                             Reserve Reports.

###  

### (a)                                  On or before March 1stand September 1st of each year, commencing March 1, 2008,the Borrower shall furnish to the Administrative Agent and the Lenders aReserve Report evaluating the Oil and Gas Properties of the Borrower and itsSubsidiaries as of the immediately preceding December 31st and June 30th.  The Reserve Report as of December 31 ofeach year shall be prepared by one or more Approved Petroleum Engineers, andthe June 30 Reserve Report of each year shall be prepared by or under thesupervision of the chief operating officer of the Borrower who shall certifysuch Reserve Report to be true and accurate and to have been prepared inaccordance with the procedures used in the immediately preceding June 30Reserve Report.

 

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### (b)                                 In the event ofan Interim Redetermination, the Borrower shall furnish to the AdministrativeAgent and the Lenders a Reserve Report prepared by or under the supervision ofthe chief operating officer of the Borrower who shall certify such Reserve Reportto be true and accurate and to have been prepared in accordance with theprocedures used in the immediately preceding December 31 ReserveReport.  For any Interim Redeterminationrequested by the Administrative Agent or the Borrower pursuant to Section 2.07(b),the Borrower shall provide such Reserve Report with an “as of” date as requiredby the Administrative Agent as soon as possible, but in any event no later thanthirty (30) days following the receipt of such request.

###  

### (c)                                  With thedelivery of each Reserve Report, the Borrower shall provide to theAdministrative Agent and the Lenders a certificate from a Responsible Officercertifying that:  (i) theinformation contained in the Reserve Report and any other information deliveredin connection therewith is true and correct in all material respects, (ii) theBorrower or its Subsidiaries own good and defensible title to the Oil and GasProperties evaluated in such Reserve Report and such Properties are free of allLiens except for Liens permitted by Section 9.03, (iii) exceptas set forth on an exhibit to the certificate, on a net basis there are noMaterial Gas Imbalances, take or pay or other prepayments in excess of thevolume specified in Section 7.19 with respect to its Oil and GasProperties evaluated in such Reserve Report which would require the Borrower orany Subsidiary to deliver Hydrocarbons either generally or produced from suchOil and Gas Properties at some future time without then or thereafter receivingfull payment therefor, (iv) none of their Oil and Gas Properties have beensold since the date of the last Borrowing Base determination except as setforth on an exhibit to the certificate, which certificate shall list all of itsOil and Gas Properties sold and in such detail as reasonably required by theAdministrative Agent, (v) attached to the certificate is a list of allmarketing agreements entered into subsequent to the later of the date hereof orthe most recently delivered Reserve Report which the Borrower could reasonablybe expected to have been obligated to list on Schedule 7.20 had suchagreement been in effect on the date hereof and (vi) attached thereto is aschedule of the Oil and Gas Properties evaluated by such Reserve Report thatare Mortgaged Properties and demonstrating the percentage of the total value ofthe Oil and Gas Properties that the value of such Mortgaged Propertiesrepresent in compliance with Section 8.14(a).

###  

## Section 8.13.                          TitleInformation.

##  

### (a)                                  On or beforethe delivery to the Administrative Agent and the Lenders of each Reserve Reportrequired by Section 8.12(a), the Borrower will deliver titleinformation in form and substance acceptable to the Administrative Agentcovering enough of the Oil and Gas Properties evaluated by such Reserve Reportthat were not included in the immediately preceding Reserve Report, so that theAdministrative Agent shall have received together with title informationpreviously delivered to the Administrative Agent, satisfactory titleinformation on at least 80% of the total value of the Oil and Gas Propertiesevaluated by such Reserve Report.

###  

### (b)                                 If the Borrowerhas provided title information for additional Properties under Section 8.13(a),the Borrower shall, within 60 days of notice from the Administrative Agent thattitle defects or exceptions exist with respect to such additional Properties,either 

###  

### 68

### 

###  

### (i) cure any such title defects orexceptions (including defects or exceptions as to priority) which are notpermitted by Section 9.03 raised by such information, (ii) substituteacceptable Mortgaged Properties with no title defects or exceptions except forExcepted Liens (other than Excepted Liens described in clauses (e), (g) and(h) of such definition) having an equivalent value or (iii) delivertitle information in form and substance acceptable to the Administrative Agentso that the Administrative Agent shall have received, together with titleinformation previously delivered to the Administrative Agent, satisfactorytitle information on at least 80% of the value of the Oil and Gas Propertiesevaluated by such Reserve Report.

###  

### (c)                                  If the Borroweris unable to cure any title defect requested by the Administrative Agent or theLenders to be cured within the 60-day period or the Borrower does not complywith the requirements to provide acceptable title information covering 80% ofthe value of the Oil and Gas Properties evaluated in the most recent ReserveReport, such default shall not be a Default, but instead the Administrative Agentand/or the Majority Lenders shall have the right to exercise the followingremedy in their sole discretion from time to time, and any failure to soexercise this remedy at any time shall not be a waiver as to future exercise ofthe remedy by the Administrative Agent or the Lenders.  To the extent that the Administrative Agentor the Majority Lenders are not satisfied with title to any Mortgaged Propertyafter the 60-day period has elapsed, such unacceptable Mortgaged Property shallnot count towards the 80% requirement, and the Administrative Agent may send anotice to the Borrower and the Lenders that the then outstanding Borrowing Baseshall be reduced by an amount as determined by the Majority Lenders to causethe Borrower to be in compliance with the requirement to provide acceptabletitle information on 80% of the value of the Oil and Gas Properties.  This new Borrowing Base shall becomeeffective immediately after receipt of such notice.

###  

## Section 8.14.                          AdditionalCollateral; Additional Guarantors.

##  

### (a)                                  In connectionwith each redetermination of the Borrowing Base, the Borrower shall review theReserve Report and the list of current Mortgaged Properties (as described in Section 8.12(c)(vi))to ascertain whether the Mortgaged Properties represent at least 90% of thetotal value of the Oil and Gas Properties evaluated in the most recentlycompleted Reserve Report after giving effect to exploration and productionactivities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties donot represent at least 90% of such total value, then the Borrower shall, andshall cause its Subsidiaries to, grant, within thirty (30) days of delivery ofthe certificate required under Section 8.12(c), to theAdministrative Agent as security for the Indebtedness a first-priority Lieninterest (provided that Excepted Liens of the type described in clauses (a) to(d) and (f) of the definition thereof may exist, but subject to theprovisos at the end of such definition) on additional Oil and Gas Propertiesnot already subject to a Lien of the Security Instruments such that aftergiving effect thereto, the Mortgaged Properties will represent at least 90% ofsuch total value.  All such Liens will becreated and perfected by and in accordance with the provisions of Mortgages,deeds of trust, security agreements and financing statements or other SecurityInstruments, all in form and substance reasonably satisfactory to theAdministrative Agent and in sufficient executed (and acknowledged wherenecessary or appropriate) counterparts for recording purposes.  In order to comply with the foregoing, if anySubsidiary places a Lien on its Oil and Gas Properties and such Subsidiary isnot a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b).

 

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###  

### (b)                                 The Borrowershall promptly cause each Subsidiary to guarantee the Indebtedness pursuant toa Guaranty Agreement.  In connection withany such guaranty, the Borrower shall, or shall cause such Subsidiary to, (A) pledgeall of the Equity Interests of such new Subsidiary pursuant to a SubsidiaryPledge Agreement (including, without limitation, delivery of original stockcertificates, if any, evidencing the Equity Interests of such Subsidiary,together with an appropriate undated stock powers for each certificate dulyexecuted in blank by the registered owner thereof) and (B) execute anddeliver such other additional closing documents, certificates and legalopinions as shall reasonably be requested by the Administrative Agent.

###  

### (c)                                  If the Borrowerelects to provide additional Mortgaged Properties in lieu of making anymandatory prepayment pursuant to Section 3.04(c), then the Borrowershall, or shall cause its Subsidiaries to, grant to the Administrative Agent assecurity for the Indebtedness a first-priority Lien interest (subject only toExcepted Liens) on additional Oil and Gas Properties not already subject to aLien of the Security Instruments.  Allsuch Liens will be created and perfected by and in accordance with theprovisions of Mortgages, deeds of trust, security agreements and financingstatements or other Security Instruments, all in form and substancesatisfactory to the Administrative Agent and in sufficient executed (andacknowledged where necessary or appropriate) counterparts for recordingpurposes.  In order to comply with theforegoing, if any Subsidiary places such a Lien on its Oil and Gas Propertiesand such Subsidiary is not a Guarantor, then it shall become a Guarantor andcomply with Section 8.14(b).

###  

### (d)                                 In theevent  that the Borrower or any DomesticSubsidiary becomes the owner of a Foreign Subsidiary which has total assets inexcess of $1,000,000, then the Borrower shall promptly, or shall cause suchDomestic Subsidiary to promptly, guarantee the Indebtedness pursuant to theGuaranty Agreement.  In connection withany such guaranty, the Borrower shall, or shall cause such Domestic Subsidiaryto, (i) execute and deliver a supplement to the Guaranty Agreement, (ii) pledge65% of all the Equity Interests of such Foreign Subsidiary (including, withoutlimitation, delivery of original stock certificates evidencing such EquityInterests of such Foreign Subsidiary, together with appropriate stock powersfor each certificate duly executed in blank by the registered owner thereof)and (iii) execute and deliver such other additional closing documents,certificates and legal opinions as shall reasonably be requested by theAdministrative Agent.

###  

## Section 8.15.                          ERISACompliance.  TheBorrower will promptly furnish and will cause the Subsidiaries and any ERISAAffiliate to promptly furnish to the Administrative Agent (i) promptlyafter the filing thereof with the United States Secretary of Labor, theInternal Revenue Service or the PBGC, copies of each annual and other reportwith respect to each Plan or any trust created thereunder, (ii) immediatelyupon becoming aware of the occurrence of any ERISA Event or of any “prohibitedtransaction,” as described in section 406 of ERISA or in section 4975 of theCode, in connection with any Plan or any trust created thereunder, a writtennotice signed by the President or the principal Financial Officer, theSubsidiary or the ERISA Affiliate, as the case may be, specifying the naturethereof, what action the Borrower, the Subsidiary or the ERISA Affiliate istaking or proposes to take with respect thereto, and, when known, any actiontaken or proposed by the Internal Revenue Service, the Department of Labor orthe PBGC with respect thereto, and (iii) immediately upon receipt thereof,copies of any notice of the PBGC’s intention to terminate or to have a trusteeappointed to administer any Plan.  Withrespect to each 

 

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##  

## Plan (other than a Multiemployer Plan), the Borrower will, and willcause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in atimely manner, without incurring any late payment or underpayment charge orpenalty and without giving rise to any lien, all of the contribution and fundingrequirements of section 412 of the Code (determined without regard tosubsections (d), (e), (f) and (k) thereof) and of section 302 ofERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,or cause to be paid, to the PBGC in a timely manner, without incurring any latepayment or underpayment charge or penalty, all premiums required pursuant tosections 4006 and 4007 of ERISA.

##  

## Section 8.16.                          Swap Agreementsand Put Option Contracts.  TheBorrower shall maintain in effect, and shall cause its Subsidiaries to maintainin effect, a commodity price hedge position establishing minimum fixed pricesacceptable to the Administrative Agent on a volume of Hydrocarbons set forth onSchedule 8.16 which is equal to approximately 85% of the projectedproduction from proved, developed, producing Oil and Gas Properties of theBorrower and its Subsidiaries for the years 2008, 2009, 2010 and 2011, through December 31,2011, with one or more Approved Counterparties. The Borrower shall maintain in effect, and cause its Subsidiaries tomaintain in effect, a production put option contract for the years 2008 and2009 at the production volumes or MMBtu equivalents and the minimum price setforth on Schedule 8.16, with one or more Approved Counterparties.  The Majority Lenders may direct theAdministrative Agent to cause an Interim Redetermination of the Borrowing Basein the event the Swap Agreements entered into pursuant to this Section 8.16are not hedged at prices sufficient to support, in the opinion of the MajorityLenders, the current Borrowing Base.

##  

## Section 8.17.                          AdministrativeAgent as Principal Depository.  The Borrower shall maintain theAdministrative Agent as its principal depository bank, including for themaintenance of business, cash management, operating and administrative depositaccounts

##  

## Section 8.18.                          Chief FinancialOfficer.  The Borrower shall keep theposition of chief financial officer filled through the Maturity Date.

##  

# **ARTICLE IXNegative Covenants**

# ** **

Until the Commitments have expired or terminated and the principal ofand interest on each Loan and all fees payable hereunder and all other amountspayable under the Loan Documents have been paid in full and all Letters ofCredit have expired or terminated and all LC Disbursements shall have beenreimbursed, the Borrower covenants and agrees with the Lenders that:

 

## Section 9.01.                          FinancialCovenants.

##  

### (a)                                  InterestCoverage Ratio.  TheBorrower will not, as of the last day of any fiscal quarter beginning with thefiscal quarter ending December 31, 2007, permit its ratio of EBITDA toInterest Expense for each four consecutive fiscal quarter period, to be lessthan 2.5 to 1.0.

 

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###  

### (b)                                 ConsolidatedLeverage Ratio.  TheBorrower will not, as of the last day of any fiscal quarter beginning with thefiscal quarter ending December 31, 2007, permit its Consolidated LeverageRatio to be greater than 4.0 to 1.0.

###  

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

###  

### (d)                                 MinimumLiquidity.  TheBorrower shall maintain at all times unencumbered liquid assets having anaggregate value of at least $2,000,000. The phrase ‘unencumbered liquid assets’ means the sum of (a) theunused availability of the Borrowing Base, plus (b) cash which is notsubject to any Lien or right of set-off.

###  

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

##  

### (a)                                  the Notes orother Indebtedness arising under the Loan Documents or any guaranty of orsuretyship arrangement for the Notes or other Indebtedness arising under theLoan Documents.

###  

### (b)                                 accountspayable and accrued expenses, liabilities or other obligations to pay thedeferred purchase price of Property or services, from time to time incurred inthe ordinary course of business which are not greater than sixty (60) days pastthe date of invoice or delinquent or which are being contested in good faith byappropriate action and for which adequate reserves have been maintained inaccordance with GAAP.

###  

### (c)                                  Debt underCapital Leases not to exceed $1,000,000.

###  

### (d)                                 Debt associatedwith bonds or surety obligations required by Governmental Requirements inconnection with the operation of the Oil and Gas Properties.

###  

### (e)                                  intercompanyDebt between the Borrower and any Subsidiary or between Subsidiaries to theextent permitted by Section 9.05(g); provided that such Debt is notheld, assigned, transferred, negotiated or pledged to any Person other than theBorrower or one of its Wholly-Owned Subsidiaries, and, provided further, thatany such Debt owed by either the Borrower or a Guarantor shall be subordinatedto the Indebtedness on terms satisfactory to the Administrative Agent.

###  

### (f)                                    endorsements ofnegotiable instruments for collection in the ordinary course of business.

###  

### (g)                                 other Debt,including purchase-money obligations, not to exceed $1,000,000 in the aggregateat any one time outstanding.

###  

### (h)                                 Debt arisingunder Swap Agreements permitted under Section 9.18 hereof.

 

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

##  

### (a)           Liens securing the paymentof any Indebtedness.

###  

### (b)           Excepted Liens.

###  

### (c)           Liens securing CapitalLeases permitted by Section 9.02(c) but only on the Propertyunder lease.

###  

### (d)           *Liens onany Property of the Borrower and its Subsidiaries existing on the date hereofand set forth on Schedule 9.03; provided that such Liens shall secureonly those obligations which they secure on the date hereof.*

###  

### (e)           Liens on Property notconstituting collateral for the Indebtedness and not otherwise permitted by theforegoing clauses of this Section 9.03; provided that the aggregateprincipal or face amount of all Debt secured under this Section 9.03(e) shallnot exceed $2,000,000 at any time.

###  

## Section 9.04.         Dividends, Distributions andRedemptions.   TheBorrower will not, and will not permit any of its Subsidiaries to, declare ormake, or agree to pay or make, directly or indirectly, any Restricted Payment,return any capital to its stockholders, members or partners or make anydistribution of its Property to its Equity Interest holders, except

##  

### (a)           the Borrower may declare andpay cash distributions to its Equity Interest holders to permit such holders topay federal and state taxes due with respect to the income of the Borrower;

###  

### (b)           the Borrower may declare andpay dividends with respect to its Equity Interests payable solely in additionalshares of its Equity Interests (other than Disqualified Capital Stock);

###  

### (c)           Subsidiaries may declare andpay dividends ratably with respect to their Equity Interests;

###  

### (d)           the Borrower may makeRestricted Payments pursuant to and in accordance with stock option plans orother benefit plans for management or employees of the Borrower and itsSubsidiaries; and

###  

### (e)           the Borrower may makeRestricted Payments to its Equity Interest holders provided that (i) noDefault has occurred and is continuing or would result from the making of suchRestricted Payment, and (ii) after giving effect to such RestrictedPayment, the Revolving Credit Exposure is less than 90% of the Borrowing Baseas of such date.

###  

## Section 9.05.         Investments, Loans andAdvances.  TheBorrower will not, and will not permit any Subsidiary to, make or permit toremain outstanding any Investments in or to any Person, except that theforegoing restriction shall not apply to:

##  

## 73

## 

###  

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

###  

### (b)           accounts receivable arisingin the ordinary course of business.

###  

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

###  

### (d)           commercial paper maturingwithin one year from the date of creation thereof rated in the highest grade byS&P or Moody’s.

###  

### (e)           deposits maturing within oneyear from the date of creation thereof with, including certificates of depositissued by, any Lender or any office located in the United States of any otherbank or trust company which is organized under the laws of the United States orany state thereof, has capital, surplus and undivided profits aggregating atleast $100,000,000 (as of the date of such bank or trust company’s most recentfinancial reports) and has a short term deposit rating of no lower than A2 orP2, as such rating is set forth from time to time, by S&P or Moody’s,respectively or, in the case of any Foreign Subsidiary, a bank organized in ajurisdiction in which the Foreign Subsidiary conducts operations having assetsin excess of $500,000,000 (or its equivalent in another currency).

###  

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

###  

### (g)           Investments (i) made bythe Borrower in or to the Guarantors, (ii) made by any Subsidiary in or tothe Borrower or any Guarantor and (iii) made by the Borrower or anySubsidiary in or to all other Domestic Subsidiaries which are not Guarantors inan aggregate amount at any one time outstanding not to exceed *$1,000,000*.

###  

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

###  

### (i)            Investments made by theBorrower or a Guarantor in direct ownership interests in additional Oil and GasProperties and gas gathering systems related thereto or related to farm-out,farm-in, joint operating, joint venture or area of mutual interest agreements,gathering systems, pipelines or other similar arrangements which are usual andcustomary in the oil and gas exploration and production business located withinthe geographic boundaries of the United States of America, provided that (A) theBorrower shall be in compliance, on a pro forma basis after giving effect toany such Investment, with the financial covenants set forth in Section 9.01 recomputed as at the last dayof the most recently ended fiscal quarter of the Borrower for 

 

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###  

### which financial statements are available, and(B) no Default shall have occurred and be continuing or would resulttherefrom.

###  

### (j)            Investments in stock,obligations or securities received in settlement of debts arising fromInvestments permitted under this Section 9.05 owing to the Borroweror any Subsidiary as a result of a bankruptcy or other insolvency proceeding ofthe obligor in respect of such debts or upon the enforcement of any Lien infavor of the Borrower or any of its Subsidiaries; provided that the Borrowershall give the Administrative Agent prompt written notice in the event that theaggregate amount of all Investments held at any one time under this Section 9.05(k) exceeds$1,000,000.

###  

### (k)           other Investments not toexceed $1,000,000 in the aggregate at any time.

###  

## Section 9.06.         Nature of Business;International Operations.  TheBorrower will not, and will not permit any Subsidiary to, allow any materialchange to be made in the character of its business as currently conducted by itand business activities reasonably incidental thereto as an independent oil andgas exploration and production company with operations in the continentalUnited States.  From and after the datehereof, the Borrower and its Subsidiaries will not acquire or make any otherexpenditure (whether such expenditure is capital, operating or otherwise) in orrelated to, any Oil and Gas Properties not located within the geographicalboundaries of the United States.

##  

## Section 9.07.         Limitation on Leases.  The Borrower will not, and will not permitany Subsidiary to, create, incur, assume or suffer to exist any obligation forthe payment of rent or hire of Property of any kind whatsoever (real orpersonal but excluding Capital Leases and leases of Hydrocarbon Interests),under leases or lease agreements which would cause the aggregate amount of allpayments made by the Borrower and the Subsidiaries pursuant to all such leasesor lease agreements, including, without limitation, any residual payments atthe end of any lease, to exceed $2,000,000 in any period of twelve consecutivecalendar months during the life of such leases.

##  

## Section 9.08.         Proceeds of Notes.  The Borrower will not permit the proceeds ofthe Notes to be used for any purpose other than those permitted by Section 7.21.  Neither the Borrower nor any Person acting onbehalf of the Borrower has taken or will take any action which might cause anyof the Loan Documents to violate Regulations T, U or X or any other regulationof the Board or to violate Section 7 of the Securities Exchange Act of1934 or any rule or regulation thereunder, in each case as now in effector as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrower will furnish tothe Administrative Agent and each Lender a statement to the foregoing effect inconformity with the requirements of FR Form U-1 or such other formreferred to in Regulation U, Regulation T or Regulation X of the Board, as thecase may be.

##  

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

##  

### (a)           engage in, or permit anyERISA Affiliate to engage in, any transaction in connection with which theBorrower, a Subsidiary or any ERISA Affiliate could be subjected to 

 

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###  

### either a civil penalty assessed pursuant tosubsections (c), (i) or (l) of section 502 of ERISA or a tax imposedby Chapter 43 of Subtitle D of the Code.

###  

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

###  

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

###  

### (d)           permit to exist, or allowany ERISA Affiliate to permit to exist, any accumulated funding deficiencywithin the meaning of section 302 of ERISA or section 412 of the Code, whetheror not waived, with respect to any Plan.

###  

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

###  

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

###  

### (g)           acquire, or permit any ERISAAffiliate to acquire, an interest in any Person that causes such Person tobecome an ERISA Affiliate with respect to the Borrower or a Subsidiary or withrespect to any ERISA Affiliate of the Borrower or a Subsidiary if such Personsponsors, maintains or contributes to, or at any time in the six-year periodpreceding such acquisition has sponsored, maintained, or contributed to, (1) anyMultiemployer Plan, or (2) any other Plan that is subject to Title IVof ERISA under which the actuarial present value of the benefit liabilitiesunder such Plan exceeds the current value of the assets (computed on a plantermination basis in accordance with Title IV of ERISA) of such Planallocable to such benefit liabilities.

###  

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

###  

### (i)            contribute to or assume anobligation to contribute to, or permit any ERISA Affiliate to contribute to orassume an obligation to contribute to, any employee welfare benefit plan, asdefined in section 3(1) of ERISA, including, without limitation, any suchplan maintained to provide benefits to former employees of such entities, thatmay not be terminated by such entities in their sole discretion at any timewithout any material liability.

 

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

###  

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

##  

## Section 9.11.         Mergers, Etc.  Neither the Borrower not any of itsSubsidiaries will merge into or with or consolidate with any other Person, orsell, lease or otherwise dispose of (whether in one transaction or in a seriesof transactions) all or substantially all of its Property to any other Person,except that any Wholly-Owned Subsidiary may merge with any other Wholly-OwnedSubsidiary and the Borrower may merge with any Wholly-Owned Subsidiary so longas the Borrower is the survivor.

##  

## Section 9.12.         Sale of Properties.  The Borrower will not, and will not permitany Subsidiary to, sell, assign, farm-out, convey or otherwise transfer anyProperty except for (a) the sale of Hydrocarbons in the ordinary course ofbusiness; (b) farmouts of undeveloped acreage and assignments inconnection with such farmouts; (c) the sale or transfer of equipment thatis no longer necessary for the business of the Borrower or such Subsidiary oris replaced by equipment of at least comparable value and use; and (d) salesand other dispositions of Property not regulated by Sections 9.01(a) through9.01(d) having a fair market value not in excess of 3% of theBorrowing Base (as determined by the Administrative Agent), individually or inthe aggregate during any 12-month period.

##  

## Section 9.13.         Environmental Matters.  The Borrower will not, and will not permitany Subsidiary to, cause or permit any of its Property which it or a Subsidiaryoperates to be in violation of, or do anything or permit anything to be donewhich will subject any such Property to any Remedial Work under anyEnvironmental Laws, assuming disclosure to the applicable GovernmentalAuthority of all relevant facts, conditions and circumstances, if any,pertaining to such Property where such violations or remedial obligations couldreasonably be expected to have a Material Adverse Effect.  The Borrower will use its reasonable effortsto cause the operator of Properties which the Borrower or any Subsidiary doesnot operate to comply with the terms and provisions of this Section 9.13.

##  

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

 

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##  

## Section 9.15.          Subsidiaries.  The Borrower will not, and will not permitany Subsidiary to, create or acquire any additional Subsidiary unless theBorrower gives written notice to the Administrative Agent of such creation oracquisition and complies with Section 8.14(b) and Section 8.14(c).  The Borrower shall not, and shall not permitany Subsidiary to, sell, assign or otherwise dispose of any Equity Interests inany Subsidiary except in compliance with Section 9.12(d).  Neither the Borrower nor any Subsidiary shallhave any Foreign Subsidiaries.

##  

## Section 9.16.          NegativePledge Agreements; Dividend Restrictions. The Borrower will not, and will not permit any Subsidiary to, create,incur, assume or suffer to exist any contract, agreement or understanding (otherthan this Agreement, the Security Instruments or Capital Leases creating Lienspermitted by Section 9.03(c)) which in any way prohibits orrestricts the granting, conveying, creation or imposition of any Lien on any ofits Property in favor of the Administrative Agent and the Lenders or restrictsany Subsidiary from paying dividends or making distributions to the Borrower orany Guarantor, or which requires the consent of or notice to other Persons inconnection therewith.

##  

## Section 9.17.          GasImbalances, Take-or-Pay or Other Prepayments.  The Borrower will not, and will not permitany Subsidiary to, (a) incur, become or remain liable for, any MaterialGas Imbalance, or (b) allow take-or-pay or other prepayments with respectto the Oil and Gas Properties of the Borrower or any Subsidiary that wouldrequire the Borrower or such Subsidiary to deliver Hydrocarbons at some futuretime without then or thereafter receiving full payment therefor.

##  

## Section 9.18.          SwapAgreements.  The Borrower will not,and will not permit any Subsidiary to, enter into any Swap Agreements with anyPerson other than (a) Swap Agreements in respect of commodities (i) withan Approved Counterparty and (ii) the notional volumes for which (whenaggregated with other commodity Swap Agreements then in effect other than basisdifferential swaps on volumes already hedged pursuant to other Swap Agreements)do not exceed, as of the date such Swap Agreement is executed, 95% of thereasonably anticipated projected production from proved, developed, producingOil and Gas Properties for each month during the period during which such SwapAgreement is in effect for each of crude oil and natural gas, calculatedseparately and (b) Swap Agreements in respect of interest rates with anApproved Counterparty with the purpose and effect of fixing interest rates on aprincipal amount of indebtedness of the Borrower that is accruing interest at avariable rate, provided that (i) the aggregate notional amount of suchcontracts never exceeds 75% of the anticipated outstanding principal balance ofthe indebtedness to be hedged by such contracts or an average of such principalbalances calculated by using a generally accepted method of matching interestswap contracts to declining principal balances, and (ii) the floating rateindex of each such contract generally matches the index used to determine thefloating rates of interest on the corresponding indebtedness to be hedged bysuch contract, and (c) Swap Agreements required by Section 8.16.  In no event shall any Swap Agreement containany requirement, agreement or covenant for the Borrower or any Subsidiary topost collateral (other than Letters of Credit) or margin to secure theirobligations under such Swap Agreement or to cover market exposures.

##  

## Section 9.19.          MarketingActivities.  The Borrower will not,and will not permit any of its Subsidiaries to, engage in marketing activitiesfor any Hydrocarbons or enter into any contracts related thereto other than (i) contractsfor the sale of Hydrocarbons scheduled or

##  

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## 

 

reasonably estimated to be produced from their proved Oil and GasProperties during the period of such contract, (ii) contracts for the saleof Hydrocarbons scheduled or reasonably estimated to be produced from provedOil and Gas Properties of third parties during the period of such contractassociated with the Oil and Gas Properties of the Borrower and its Subsidiariesthat the Borrower or one of its Subsidiaries has the right to market pursuantto joint operating agreements, unitization agreements or other similarcontracts that are usual and customary in the oil and gas business and (iii) othercontracts for the purchase and/or sale of Hydrocarbons of third parties (A) whichhave generally offsetting provisions (i.e. corresponding pricing mechanics,delivery dates and points and volumes) such that no “position” is taken and (B) forwhich appropriate credit support has been taken to alleviate the materialcredit risks of the counterparty thereto.

##  

## Section 9.20.          ManagementFees.  The Borrower will not, andwill not permit any Subsidiary to, enter into any agreement to pay a managementfee for the operation of its Properties without the prior approval of theAdministrative Agent.

##  

# **ARTICLE XEvents of Default; Remedies**

# ** **

## Section 10.01.        Eventsof Default.  One or more of thefollowing events shall constitute an “**Event of Default**”:

##  

### (a)           the Borrower shall fail to pay anyprincipal of any Loan or any reimbursement obligation in respect of any LCDisbursement when and as the same shall become due and payable (other than LCDisbursements which are repaid through an ABR Borrowing as permitted by Section 2.8(e) hereof),whether at the due date thereof or at a date fixed for prepayment thereof, byacceleration or otherwise.

###  

### (b)           the Borrower shall fail to pay anyinterest on any Loan or any fee or any other amount (other than an amountreferred to in Section 10.01(a)) payable under any Loan Document,when and as the same shall become due and payable, and such failure shallcontinue unremedied for a period of five (5) Business Days.

###  

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

###  

### (d)           the Borrower or any Subsidiary shallfail to observe or perform any covenant, condition or agreement contained in Section 8.01(j),Section 8.01(n), Section 8.01(q), Section 8.02,Section 8.03, Section 8.14, Section 8.15 orin ARTICLE IX.

###  

### (e)           the Borrower or any Subsidiary shallfail to observe or perform any covenant, condition or agreement contained inthis Agreement (other than those specified in Section 10.01(a), Section 10.01(b) orSection 10.01(d)) or any other Loan Document, and such failureshall continue unremedied for a period of 30 days after the earlier to occur of(A) notice

###  

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### 

###  

thereof from the AdministrativeAgent to the Borrower (which notice will be given at the request of any Lender)or (B) a Responsible Officer of the Borrower or such Subsidiary otherwisebecoming aware of such default.

###  

### (f)            the Borrower or any Subsidiary shallfail to make any payment (whether of principal or interest and regardless ofamount) in respect of any Material Indebtedness, when and as the same shallbecome due and payable (after giving effect to any applicable notice and cureperiod).

###  

### (g)           any event or condition occurs thatresults in any Material Indebtedness becoming due prior to its scheduledmaturity or that enables or permits (with or without the giving of notice, thelapse of time or both) the holder or holders of any Material Indebtedness orany trustee or agent on its or their behalf to cause any Material Indebtednessto become due, or to require the Redemption thereof or any offer to Redeem tobe made in respect thereof, prior to its scheduled maturity or require theBorrower or any Subsidiary to make an offer in respect thereof.

###  

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

###  

### (i)            the Borrower or any Subsidiary shall(i) voluntarily commence any proceeding or file any petition seekingliquidation, reorganization or other relief under any Federal, state or foreignbankruptcy, insolvency, receivership or similar law now or hereafter in effect,(ii) consent to the institution of, or fail to contest in a timely andappropriate manner, any proceeding or petition described in Section 10.01(h),(iii) apply for or consent to the appointment of a receiver, trustee,custodian, sequestrator, conservator or similar official for the Borrower orany Subsidiary or for a substantial part of its assets, (iv) file ananswer admitting the material allegations of a petition filed against it in anysuch proceeding, (v) make a general assignment for the benefit ofcreditors or (vi) take any action for the purpose of effecting any of theforegoing.

###  

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

###  

### (k)           (i) one or more judgments forthe payment of money in an aggregate amount in excess of *$1,000,000***(tothe extent not covered by independent third party insurance provided byinsurers of the highest claims paying rating or financial strength as to whichthe insurer does not dispute coverage and is not subject to an insolvencyproceeding) or (ii) any one or more non-monetary judgments that have, orcould reasonably be expected to have, individually or in the aggregate, aMaterial Adverse Effect, shall be rendered against the Borrower, any Subsidiaryor any combination thereof and the same shall remain undischarged for a periodof 30 consecutive days during which execution shall not be effectively stayed,or any 

 

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action shall be legally takenby a judgment creditor to attach or levy upon any assets of the Borrower or anySubsidiary to enforce any such judgment.

###  

### (l)            the Loan Documents after deliverythereof shall for any reason, except to the extent permitted by the termsthereof, cease to be in full force and effect and valid, binding and enforceablein accordance with their terms against the Borrower or a Guarantor partythereto or shall be repudiated by any of them, or cease to create a valid andperfected Lien of the priority required thereby on any of the collateralpurported to be covered thereby, except to the extent permitted by the terms ofthis Agreement, or the Borrower or any Subsidiary or any of their Affiliatesshall so state in writing.

###  

### (m)          an ERISA Event shall have occurredthat, in the opinion of the Majority Lenders, when taken together with allother ERISA Events that have occurred, could reasonably be expected to resultin liability of the Borrower and its Subsidiaries in an aggregate amountexceeding $1,000,000 in any year.

###  

### (n)           There occurs under any Swap Agreementan early Termination Date (as defined in such Swap Agreement) resulting from (i) anyevent of default under such Swap Agreement to which the Borrower or anySubsidiary is the Defaulting Party (as defined in such Swap Agreement), or (ii) anyTermination Event (as so defined) under such Swap Agreement as to which theBorrower or any Subsidiary is an Affected Party (as so defined) and, in eitherevent, the Swap Termination Value owed by the Borrower or such Subsidiary as aresult thereof constitutes Material Indebtedness.

###  

### (o)           a Change in Control shall occur.

###  

### (p)           (i) Thomas H. Blake shallcease for any reason to be a full time member of the board of managers of theBorrower, and a successor to the Mr. Blake acceptable to theAdministrative Agent has not been appointed within 60 days thereof, or (ii) Scott W.Smith shall cease for any reason to perform his duties pursuant to the termsand provisions of the Smith Employment Agreement, and a successor to Mr. Smithacceptable to the Administrative Agent has not been appointed within60 days.

###  

## Section 10.02.        Remedies.

##  

### (a)           In the case of an Event of Defaultother than one described in Section 10.01(h), Section 10.01(i) orSection 10.01(j), at any time thereafter during the continuance ofsuch Event of Default, the Administrative Agent may, and at the request of theMajority Lenders, shall, by notice to the Borrower, take either or both of thefollowing actions, at the same or different times:  (i) terminate the Commitments, andthereupon the Commitments shall terminate immediately, and (ii) declarethe Notes and the Loans then outstanding to be due and payable in whole (or inpart, in which case any principal not so declared to be due and payable maythereafter be declared to be due and payable), and thereupon the principal ofthe Loans so declared to be due and payable, together with accrued interestthereon and all fees and other obligations of the Borrower and the Guarantorsaccrued hereunder and under the Notes and the other Loan Documents (including,without limitation, the payment of cash collateral to secure the LC Exposure asprovided in Section 2.08(j)), shall become due and payable

 

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immediately, without presentment, demand, protest, notice of intent toaccelerate, notice of acceleration or other notice of any kind, all of whichare hereby waived by the Borrower and each Guarantor; and in case of an Eventof Default described in Section 10.01(h), Section 10.01(i) orSection 10.01(j), the Commitments shall automatically terminate andthe Notes and the principal of the Loans then outstanding, together withaccrued interest thereon and all fees and the other obligations of the Borrowerand the Guarantors accrued hereunder and under the Notes and the other LoanDocuments (including, without limitation, the payment of cash collateral tosecure the LC Exposure as provided in Section 2.08(j)), shallautomatically become due and payable, without presentment, demand, protest orother notice of any kind, all of which are hereby waived by the Borrower andeach Guarantor.

###  

### (b)           In the case of the occurrence of anEvent of Default, the Administrative Agent and the Lenders will have all otherrights and remedies available at law and equity.

###  

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

###  

#### (i)            *first*,to payment or reimbursement of that portion of the Indebtedness constitutingfees, expenses and indemnities payable to the Administrative Agent in itscapacity as such;

####  

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

####  

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

####  

#### (iv)          *fourth*,pro rata to payment of principal outstanding on the Loans and Indebtedness owedto any Swap Lender;

####  

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

####  

#### (vi)          *sixth*,to serve as cash collateral to be held by the Administrative Agent to securethe LC Exposure; and

####  

#### (vii)         *seventh*,any excess, after all of the Indebtedness shall have been indefeasibly paid infull in cash, shall be paid to the Borrower or as otherwise required by anyGovernmental Requirement.

####  

# **ARTICLE XIThe Agents**

# ** **

## Section 11.01.        Appointment;Powers.  Each of the Lenders and theIssuing Bank hereby irrevocably appoints the Administrative Agent as its agentand authorizes the Administrative Agent to take such actions on its behalf andto exercise such powers as are delegated to the Administrative Agent by theterms hereof and the other Loan Documents, together with such actions andpowers as are reasonably incidental thereto. The provisions of this Article aresolely for the benefit of the Administrative Agent, the Lenders and the IssuingBank, and neither the 

##  

## 82

## 

##  

Borrower nor any Subsidiaryshall have rights as a third party beneficiary of any of such provisions.

##  

## Section 11.02.        Dutiesand Obligations of Administrative Agent. The Administrative Agent shall not have any duties or obligations exceptthose expressly set forth in the Loan Documents.  Without limiting the generality of theforegoing, (a) the Administrative Agent shall not be subject to anyfiduciary or other implied duties, regardless of whether a Default has occurredand is continuing (the use of the term “agent” herein and in the other LoanDocuments with reference to the Administrative Agent is not intended to connoteany fiduciary or other implied (or express) obligations arising under agencydoctrine of any applicable law; rather, such term is used merely as a matter ofmarket custom, and is intended to create or reflect only an administrativerelationship between independent contracting parties), (b) theAdministrative Agent shall have no duty to take any discretionary action orexercise any discretionary powers, except as provided in Section 11.03,and (c) except as expressly set forth herein, the Administrative Agentshall not have any duty to disclose, and shall not be liable for the failure todisclose, any information relating to the Borrower or any of its Subsidiariesthat is communicated to or obtained by the bank serving as Administrative Agentor any of its Affiliates in any capacity. The Administrative Agent shallnot be liable for any action taken or not taken by it (i) with the consentor at the request of the Majority Lenders (or such other number or percentageof the Lenders as shall be necessary, or as the Administrative Agent shallbelieve in good faith shall be necessary, under the circumstances as providedin Sections 10.02 and 12.02) or (ii) in the absence ofits own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge ofany Default unless and until written notice thereof is given to theAdministrative Agent by the Borrower or a Lender, and shall not be responsiblefor or have any duty to ascertain or inquire into (i) any statement,warranty or representation made in or in connection with this Agreement or anyother Loan Document, (ii) the contents of any certificate, report or otherdocument delivered hereunder or under any other Loan Document or in connectionherewith or therewith, (iii) the performance or observance of any of thecovenants, agreements or other terms or conditions set forth herein or in anyother Loan Document, (iv) the validity, enforceability, effectiveness orgenuineness of this Agreement, any other Loan Document or any other agreement,instrument or document, (v) the satisfaction of any condition set forth inARTICLE VI or elsewhere herein, other than to confirm receipt of itemsexpressly required to be delivered to the Administrative Agent or as to thoseconditions precedent expressly required to be to the Administrative Agent’ssatisfaction, (vi) the existence, value, perfection or priority of anycollateral security or the financial or other condition of the Borrower and itsSubsidiaries or any other obligor or guarantor, or (vii) any failure bythe Borrower or any other Person (other than itself) to perform any of itsobligations hereunder or under any other Loan Document or the performance orobservance of any covenants, agreements or other terms or conditions set forthherein or therein.  For purposes ofdetermining compliance with the conditions specified in ARTICLE VI, each Lendershall be deemed to have consented to, approved or accepted or to be satisfiedwith, each document or other matter required thereunder to be consented to orapproved by or acceptable or satisfactory to a Lender unless the AdministrativeAgent shall have received written notice from such Lender prior to the proposedclosing date specifying its objection thereto.

##  

## Section 11.03.        Actionby Administrative Agent.  The AdministrativeAgent shall have no duty to take any discretionary action or exercise anydiscretionary powers, except discretionary

 

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rights and powers expressly contemplated hereby or by the other LoanDocuments that the Administrative Agent is required to exercise in writing asdirected by the Majority Lenders (or such other number or percentage of theLenders as shall be necessary under the circumstances as provided in Section 12.02)and in all cases the Administrative Agent shall be fully justified in failingor refusing to act hereunder or under any other Loan Documents unless it shall (a) receivewritten instructions from the Majority Lenders or the Lenders, as applicable,(or such other number or percentage of the Lenders as shall be necessary underthe circumstances as provided in Section 12.02) specifying theaction to be taken and (b) be indemnified to its satisfaction by theLenders against any and all liability and expenses which may be incurred by itby reason of taking or continuing to take any such action.  The instructions as aforesaid and any actiontaken or failure to act pursuant thereto by the Administrative Agent shall bebinding on all of the Lenders.  If aDefault has occurred and is continuing, then the Administrative Agent shalltake such action with respect to such Default as shall be directed by therequisite Lenders in the written instructions (with indemnities) described inthis Section 11.03, provided that, unless and until the AdministrativeAgent shall have received such directions, the Administrative Agent may (butshall not be obligated to) take such action, or refrain from taking suchaction, with respect to such Default as it shall deem advisable in the bestinterests of the Lenders.  In no event,however, shall the Administrative Agent be required to take any action whichexposes the Administrative Agent to personal liability or which is contrary tothis Agreement, the Loan Documents or applicable law.  The Administrative Agent shall not be liablefor any action taken or not taken by it with the consent or at the request ofthe Majority Lenders or the Lenders (or such other number or percentage of theLenders as shall be necessary under the circumstances as provided in Section 12.02),and otherwise the Administrative Agent shall not be liable for any action takenor not taken by it hereunder or under any other Loan Document or under anyother document or instrument referred to or provided for herein or therein orin connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE,except to the extent such liability is determined by a court of competentjurisdiction by final and non-appealable judgment to have resulted primarilyfrom its own gross negligence or willful misconduct.

##  

## Section 11.04.        Relianceby Administrative Agent.  TheAdministrative Agent shall be entitled to rely upon, and shall not incur anyliability for relying upon, any notice, request, certificate, consent,statement, instrument, document or other writing (including electronic message,Internet or intranet web posting or other distribution) believed by it to begenuine and to have been signed, sent or otherwise authenticated by the properPerson.  The Administrative Agent alsomay rely upon any statement made to it orally or by telephone and believed byit to be made by the proper Person, and shall not incur any liability forrelying thereon and each of the Borrower, the Lenders and the Issuing Bankhereby waives the right to dispute the Administrative Agent’s record of suchstatement, except in the case of gross negligence or willful misconduct by theAdministrative Agent.  In determining compliance with any conditionhereunder to the making of a Loan, or the issuance of a Letter of Credit, thatby its terms must be fulfilled to the satisfaction of a Lender or the IssuingBank, the Administrative Agent may presume that such condition is satisfactoryto such Lender or the Issuing Bank unless the Administrative Agent shall havereceived notice to the contrary from such Lender or the Issuing Bank prior tothe making of such Loan or the issuance of such Letter of Credit.  The Administrative Agent may consultwith legal counsel (who may be counsel for the Borrower), independentaccountants and other experts selected by it, and shall not be liable for anyaction taken or not taken by it in accordance with the advice of any suchcounsel, accountants or

 

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experts.  The Administrative Agent may deem and treatthe payee of any Note as the holder thereof for all purposes hereof unless anduntil a written notice of the assignment or transfer thereof permittedhereunder shall have been filed with the Administrative Agent.

##  

## Section 11.05.        Subagents.  The Administrative Agent may perform any andall its duties and exercise its rights and powers by or through any one or moresub-agents appointed by the Administrative Agent.  The Administrative Agent and any suchsub-agent may perform any and all its duties and exercise its rights and powersthrough their respective Related Parties. The exculpatory provisions of the preceding Sections of thisARTICLE XI shall apply to any such sub-agent and to the Related Parties ofthe Administrative Agent and any such sub-agent, and shall apply to theirrespective activities in connection with the syndication of the creditfacilities provided for herein as well as activities as Administrative Agent.

##  

## Section 11.06.        Resignationor Removal of Administrative Agent. Subject to the appointment and acceptance of a successor AdministrativeAgent as provided in this Section 11.06, the Administrative Agentmay resign at any time by notifying the Lenders, the Issuing Bank and theBorrower.  Upon any such resignation orremoval, the Majority Lenders shall have the right, in consultation with theBorrower, to appoint a successor; provided that, no consultation with theBorrower shall be required if an Event of Default has occurred and iscontinuing.  If no successor shall havebeen so appointed by the Majority Lenders and shall have accepted suchappointment within 30 days after the retiring Agent gives notice of itsresignation or removal of the retiring Administrative Agent, then the retiringAdministrative Agent may, on behalf of the Lenders and the Issuing Bank,appoint a successor AdministrativeAgent meeting the qualifications set forth above; provided that if the retiringAdministrative Agent shall notify the Borrower and the Lenders that noqualifying Person has accepted such appointment, then such resignation shallnonetheless become effective in accordance with such notice and (1) theretiring Administrative Agent shall be discharged from its duties andobligations hereunder and under the other Loan Documents and (2) allpayments, communications and determinations provided to be made by, to orthrough the Administrative Agent shall instead be made by or to each Lender andthe Issuing Bank directly, until such time as the Majority Lenders appoint asuccessor Administrative Agent as provided for above in this paragraph.  Upon the acceptance of its appointmentas Agent hereunder by a successor, such successor shall succeed to and becomevested with all the rights, powers, privileges and duties of the retiringAdministrative Agent, and the retiring Administrative Agent shall be dischargedfrom its duties and obligations hereunder (if not already discharged asprovided for above in this paragraph). The fees payable by the Borrower to a successor Administrative Agent shallbe the same as those payable to its predecessor unless otherwise agreed betweenthe Borrower and such successor.  Afterthe Administrative Agent’s resignation hereunder, the provisions of thisARTICLE XI and Section 12.03 shall continue in effect for thebenefit of such retiring Administrative Agent, its sub-agents and theirrespective Related Parties in respect of any actions taken or omitted to betaken by any of them while it was acting as Administrative Agent.

##  

## Section 11.07.        Agentsas Lenders.  The Person serving as the Administrative Agent hereunder shall have thesame rights and powers in its capacity as a Lender as any other Lender and mayexercise the same as though it were not the Administrative Agent and the term “Lender”or “Lenders” shall, unless otherwise expressly indicated or unless the contextotherwise requires, include the Person serving as the Administrative Agenthereunder in its individual capacity.

 

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Such Person and its Affiliatesmay accept deposits from, lend money to, act as the financial advisor or in anyother advisory capacity for and generally engage in any kind of business withthe Borrower or any Subsidiary or other Affiliate thereof as if such Personwere not the Administrative Agent hereunder and without any duty to accounttherefor to the Lenders.

##  

## Section 11.08.        NoReliance.

##  

### (a)           Each Lender acknowledges that it has,independently and without reliance upon the Administrative Agent, any otherAgent or any other Lender and based on such documents and information as it hasdeemed appropriate, made its own credit analysis and decision to enter intothis Agreement and each other Loan Document to which it is a party.  Each Lender also acknowledges that it will,independently and without reliance upon the Administrative Agent, any otherAgent or any other Lender and based on such documents and information as itshall from time to time deem appropriate, continue to make its own decisions intaking or not taking action under or based upon this Agreement, any other Loan Document,any related agreement or any document furnished hereunder or thereunder.  The Agents shall not be required to keepthemselves informed as to the performance or observance by the Borrower or anyof its Subsidiaries of this Agreement, the Loan Documents or any other documentreferred to or provided for herein or to inspect the Properties or books of theBorrower or its Subsidiaries.  Except fornotices, reports and other documents and information expressly required to befurnished to the Lenders by the Administrative Agent hereunder, no Agent or theArranger shall have any duty or responsibility to provide any Lender with anycredit or other information concerning the affairs, financial condition orbusiness of the Borrower (or any of its Affiliates) which may come into thepossession of such Agent or any of its Affiliates.  In this regard, each Lender acknowledges thatWinstead PC is acting in this transaction as special counsel to theAdministrative Agent only, except to the extent otherwise expressly stated inany legal opinion or any Loan Document. Each other party hereto will consult with its own legal counsel to theextent that it deems necessary in connection with the Loan Documents and thematters contemplated therein.

###  

### (b)           The Lenders acknowledge that theAdministrative Agent and the Arranger are acting solely in administrativecapacities with respect to the structuring and syndication of this facility andhave no duties, responsibilities or liabilities under this Agreement and theother Loan Documents other than their administrative duties, responsibilitiesand liabilities specifically as set forth in the Loan Documents and in theircapacity as Lenders hereunder.  Instructuring, arranging or syndicating this facility, each Lender acknowledgesthat the Administrative Agent and/or Arranger may be an agent or lender underthese Notes, other loans or other securities and waives any existing or futureconflicts of interest associated with the their role in such other debtinstruments.  If in its administration ofthis facility or any other debt instrument, the Administrative Agent determines(or is given written notice by any Lender) that a conflict exists, then itshall eliminate such conflict within 90 days or resign pursuant to Section 11.06and shall have no liability for action taken or not taken while such conflictexisted.

##  

## Section 11.09.        AdministrativeAgent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation,bankruptcy, reorganization, arrangement, adjustment, composition or otherjudicial proceeding relative to the Borrower or any of its Subsidiaries, theAdministrative Agent (irrespective of whether the principal of any Loan shall

 

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then be due and payable asherein expressed or by declaration or otherwise and irrespective of whether theAdministrative Agent shall have made any demand on the Borrower) shall beentitled and empowered, by intervention in such proceeding or otherwise:

##  

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

###  

### (b)           to collect and receive any monies orother property payable or deliverable on any such claims and to distribute thesame;

###  

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

 

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

 

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

##  

## Section 11.11.        TheArranger, Bookrunner, Etc.  Anythingherein to the contrary notwithstanding, none of the Arrangers, shall have anypowers, duties, responsibilities or liabilities under this Agreement and theother Loan Documents other than its powers, duties, responsibilities andliabilities in its capacity, as applicable, as the Administrative Agent, aLender or the Issuing Bank hereunder.

 

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# **ARTICLE XIIMiscellaneous**

# ** **

## Section 12.01.        Notices.

##  

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

###  

#### (i)            ifto the Borrower, to it at

####  

7700 San Felipe, Suite 485Houston, TX 77063Attention:  Mr. Richard Robert Telecopy:  832-327-2260Telephone:  832-327-2258

 

#### (ii)           ifto the Administrative Agent or the Issuing Bank, to it at

####  

Citibank, N.A.8401 N. Central Expressway, Suite 500Dallas, TX  75225Attention:  Mr. Steve BlackTelecopy:  972-419-3334Telephone:  972-419-3406

 

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

####  

Notices sent by hand or overnight courierservice, or mailed by certified or registered mail, shall be deemed to havebeen given when received; notices sent by telecopier shall be deemed to havebeen given when sent (except that, if not given during normal business hoursfor the recipient, shall be deemed to have been given at the opening ofbusiness on the next Business Day for the recipient).  Notices delivered through electroniccommunications to the extent provided in paragraph (b) below, shallbe effective as provided in said paragraph (b).

 

### (b)           Notices and othercommunications to the Lenders hereunder may be delivered or furnished byelectronic communications (including e-mail and Internet or intranet websites)pursuant to procedures approved by the Administrative Agent; provided that theforegoing shall not apply to notices pursuant to ARTICLE II,ARTICLE III, ARTICLE IV and ARTICLE V if such Lender or theIssuing Bank, as applicable, has notified the Administrative Agent that it isincapable of receiving notices under such Article by electroniccommunication.  The AdministrativeAgent or the Borrower may, in its discretion, agree to accept notices and othercommunications to it hereunder by electronic communications pursuant toprocedures approved by it; provided that approval of such procedures may belimited to particular notices or communications.

 

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Unless the Administrative Agentotherwise prescribes, (i) notices and other communications sent to ane-mail address shall be deemed received upon the sender’s receipt of anacknowledgement from the intended recipient (such as by the “return receiptrequested” function, as available, return e-mail or other writtenacknowledgement), provided that if such notice or other communication isnot sent during the normal business hours of the recipient, such notice orcommunication shall be deemed to have been sent at the opening of business onthe next Business Day for the recipient, and (ii) notices orcommunications posted to an Internet or intranet website shall be deemedreceived upon the deemed receipt by the intended recipient at its e-mailaddress as described in the foregoing clause (i) of notification thatsuch notice or communication is available and identifying the website addresstherefor.

 

### (c)           Any party hereto maychange its address or telecopy number for notices and other communicationshereunder by notice to the other parties hereto.  All notices and other communications given toany party hereto in accordance with the provisions of this Agreement shall bedeemed to have been given on the date of receipt.

###  

## Section 12.02.        Waivers;Amendments.

##  

### (a)           No failure on the partof the Administrative Agent, any other Agent, the Issuing Bank or any Lender toexercise and no delay in exercising, and no course of dealing with respect to,any right, power or privilege, or any abandonment or discontinuance of steps toenforce such right, power or privilege, under any of the Loan Documents shalloperate as a waiver thereof, nor shall any single or partial exercise of anyright, power or privilege under any of the Loan Documents preclude any other orfurther exercise thereof or the exercise of any other right, power orprivilege.  The rights and remedies ofthe Administrative Agent, any other Agent, the Issuing Bank and the Lendershereunder and under the other Loan Documents are cumulative and are notexclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreementor any other Loan Document or consent to any departure by the Borrowertherefrom shall in any event be effective unless the same shall be permitted bySection 12.02(b), and then such waiver or consent shall beeffective only in the specific instance and for the purpose for whichgiven.  Without limiting the generalityof the foregoing, the making of a Loan or issuance of a Letter of Credit shallnot be construed as a waiver of any Default, regardless of whether theAdministrative Agent, any other Agent, any Lender or the Issuing Bank may havehad notice or knowledge of such Default at the time.

###  

Notwithstanding anything to the contrary contained herein or in anyother Loan Document, the authority to enforce rights and remedies hereunder andunder the other Loan Documents against the Loan Parties or any of them shall bevested exclusively in, and all actions and proceedings at law in connectionwith such enforcement shall be instituted and maintained exclusively by, theAdministrative Agent in accordance with Section 10.02 for thebenefit of all the Lenders and the L/C Issuer; provided, however, that theforegoing shall not prohibit (a) the Administrative Agent from exercisingon its own behalf the rights and remedies that inure to its benefit (solely inits capacity as the Administrative Agent) hereunder and under the other LoanDocuments, (b) the L/C Issuer from exercising the rights and remedies thatinure to its benefit (solely in its capacity as L/C Issuer) hereunder and underthe other Loan Documents, (c) any Lender from exercising setoff rights inaccordance with Section 12.08 (subject to the terms of Section 4.01,or (d) any Lender from filing proofs of claim or appearing and filingpleadings on 

 

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its own behalf during thependency of a proceeding relative to any Loan Party under any debtor relieflaw; and provided, further, that if at any time there is no Person acting asthe Administrative Agent hereunder and under the other Loan Documents, then (i) theMajority Lenders shall have the rights otherwise ascribed to the AdministrativeAgent pursuant to Section 10.02 and (ii) in addition to thematters set forth in clauses (b), (c) and (d) of the precedingproviso and subject to Section 4.01, any Lender may, with theconsent of the Majority Lenders, enforce any rights and remedies available toit and as authorized by the Majority Lenders.

 

### (b)           Neither this Agreementnor any provision hereof nor any Security Instrument nor any provision thereofmay be waived, amended or modified, except pursuant to an agreement oragreements in writing entered into by the Borrower and the Majority Lenders orby the Borrower and the Administrative Agent with the consent of the MajorityLenders; provided that no such agreement shall (i) increase the Commitmentor the Maximum Credit Amount of any Lender without the written consent of suchLender, (ii) increase the Borrowing Base without the written consent ofeach Lender, decrease or maintain the Borrowing Base without the consent of theMajority Lenders, or modify Section 2.07 in any manner without theconsent of each Lender, (iii) reduce the principal amount of any Loan orLC Disbursement or reduce the rate of interest thereon, or reduce any feespayable hereunder, or reduce any other Indebtedness hereunder or under anyother Loan Document, without the written consent of each Lender affectedthereby, (iv) postpone the scheduled date of payment or prepayment of theprincipal amount of any Loan or LC Disbursement, or any interest thereon, orany fees payable hereunder, or any other Indebtedness hereunder or under anyother Loan Document, or reduce the amount of, waive or excuse any such payment,or postpone or extend the Termination Date without the written consent of eachLender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) ina manner that would alter the pro rata sharing of payments required thereby,without the written consent of each Lender, (vi) waive or amend Section 8.14,without the written consent of each Lender, (vii) amend Section 10.02(c) orSection 12.14 in such a manner that any repayment amounts owed byBorrower, any Subsidiary or any Guarantor to any Swap Lender shall cease to beranked, secured and be guaranteed on a pari passu basis with respect to therepayment of principal outstanding on the Loans due under this Agreement,without the written consent of each Swap Lender affected thereby, (viii) releaseany Guarantor (except as set forth herein or in the Guaranty Agreement),release all or substantially all of the collateral (other than as provided in Section 11.10),or reduce the percentage set forth in Section 8.14(a) to lessthan 90%, without the written consent of each Lender, or (ix) change anyof the provisions of this Section 12.02(b) or the definitionof “Majority Lenders” or any other provision hereof specifying the number orpercentage of Lenders required to waive, amend or modify any rights hereunderor under any other Loan Documents or make any determination or grant anyconsent hereunder or any other Loan Documents, without the written consent ofeach Lender; provided further that (A) no such agreement shall amend,modify or otherwise affect the rights or duties of the Administrative Agent,any other Agent, or the Issuing Bank hereunder or under any other Loan Documentwithout the prior written consent of the Administrative Agent, such other Agentor the Issuing Bank, as the case may be, and (B) nothing in this Section 12.02shall cause any waiver, amendment, modification or consent to (I) any feeletter between the Borrower and any Lender, Agent or the Administrative Agentor Issuing Bank to require the consent of the Majority Lenders, (II) anyLetter of Credit Agreements between the Borrower or any Subsidiary of theBorrower and the Issuing Bank to require the consent of the Majority Lenders, (III) anyLetter of Credit issued by the Issuing Bank pursuant to the terms of thisAgreement to require the 

 

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consent of the Majority Lendersexcept as specifically required by Section 2.08 and (IV) anySwap Agreement between the Borrower or any of its Subsidiaries, and the AdministrativeAgent, any Agent or any Lender, or any Affiliate of any thereof, to require theconsent of the Majority Lenders.

###  

## Section 12.03.        Expenses,Indemnity; Damage Waiver.

##  

### (a)           The Borrower shall pay (i) allreasonable out-of-pocket expenses incurred by the Administrative Agent and itsAffiliates, including, without limitation, the reasonable fees, charges anddisbursements of counsel and other outside consultants for the AdministrativeAgent, the reasonable travel, photocopy, mailing, courier, telephone and othersimilar expenses, and the cost of environmental audits and surveys andappraisals, in connection with the syndication of the credit facilitiesprovided for herein, the preparation, negotiation, execution, delivery andadministration (both before and after the execution hereof and including adviceof counsel to the Administrative Agent as to the rights and duties of theAdministrative Agent and the Lenders with respect thereto) of this Agreementand the other Loan Documents and any amendments, modifications or waivers of orconsents related to the provisions hereof or thereof (whether or not thetransactions contemplated hereby or thereby shall be consummated), (ii) allcosts, expenses, Taxes, assessments and other charges incurred by any Agent orany Lender in connection with any filing, registration, recording or perfectionof any security interest contemplated by this Agreement or any SecurityInstrument or any other document referred to therein, (iii) all reasonableout-of-pocket expenses incurred by the Issuing Bank in connection with theissuance, amendment, renewal or extension of any Letter of Credit or any demandfor payment thereunder, (iv) all out-of-pocket expenses incurred by anyAgent, the Issuing Bank or any Lender, including the fees, charges anddisbursements of any counsel for any Agent, the Issuing Bank or any Lender, inconnection with the enforcement or protection of its rights in connection withthis Agreement or any other Loan Document, including its rights under this Section 12.03,or in connection with the Loans made or Letters of Credit issued hereunder,including, without limitation, all such out-of-pocket expenses incurred duringany workout, restructuring or negotiations in respect of such Loans or Lettersof Credit.

###  

### (b)           THEBORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT THEREOF),EACH LENDER AND THE ISSUING BANK, AND EACH RELATED PARTY OF ANY OF THEFOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST,AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,LIABILITIES, PENALTIES AND RELATED EXPENSES (INCLUDING THE FEES, CHARGES ANDDISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE), AND SHALL INDEMNIFY AND HOLDHARMLESS EACH INDEMNITEE FROM ALL FEES AND TIME CHARGES AND DISBURSEMENTS FORATTORNEYS WHO MAY BE EMPLOYEES OF ANY INDEMNITEE, INCURRED BY ANYINDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY THEBORROWER OR ANY SUBSIDIARY ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULTOF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOANDOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THEPERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER ORTHEREUNDER OR 

 

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THE CONSUMMATION OF THETRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (II) ANY LOAN OR LETTER OFCREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANYREFUSAL BY THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OFCREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOTSTRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUALOR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTYOWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANYENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITSSUBSIDIARIES, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ONCONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY THEBORROWER OR ANY SUBSIDIARY, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTYTHERETO, PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE,BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES,PENALTIES OR RELATED EXPENSES (X) ARE DETERMINED BY A COURT OF COMPETENTJURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THEGROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR (Y) RESULTFROM A CLAIM BROUGHT BY THE BORROWER OR ANY OTHER LOAN PARTY AGAINST ANINDEMNITEE FOR BREACH IN BAD FAITH OF SUCH INDEMNITEE’S OBLIGATIONS HEREUNDEROR UNDER ANY OTHER LOAN DOCUMENT, IF THE BORROWER OR SUCH LOAN PARTY HAS OBTAINEDA FINAL AND NONAPPEALABLE JUDGMENT IN ITS FAVOR ON SUCH CLAIM AS DETERMINED BYA COURT OF COMPETENT JURISDICTION.

###  

### (c)           To the extent that theBorrower fails to indefeasibly pay any amount required to be paid by it to anyAgent, the Arranger or the Issuing Bank under Section 12.03(a) or(b), each Lender severally agrees to pay to such Agent (or anysub-agent), the Issuing Bank, or such Related Party as the case may be, suchLender’s Applicable Percentage (determined as of the time that the applicableunreimbursed expense or indemnity payment is sought) of such unpaid amount;provided that the unreimbursed expense or indemnified loss, claim, damage,liability, penalty or related expense, as the case may be, was incurred by orasserted against the Administrative Agent (or any sub-agent) or the IssuingBank in its capacity as such, or against any Related Party of any of theforegoing acting for the Administrative Agent (or any such sub-agent) orIssuing Bank in connection with such capacity. The obligations of the Lenders under this paragraph (c) areseveral and not joint.

###  

### (d)           To the fullest extentpermitted by applicable law, the Borrower shall not assert, and hereby waives,any claim against any Indemnitee, on any theory of liability, for special, indirect,consequential or punitive damages (as opposed to direct or actual damages)arising out of, in connection with, or as a result of, this Agreement, anyother Loan Document or any agreement or instrument contemplated hereby orthereby, the Transactions, any Loan or Letter of Credit or the use of theproceeds thereof.  No Indemnitee referred to in paragraph (b) aboveshall be liable for any damages arising from the use by unintended recipientsof any information or other materials distributed by it throughtelecommunications, electronic or other 

 

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information transmissionsystems in connection with this Agreement or the other Loan Documents or thetransactions contemplated hereby or thereby.

###  

### (e)           All amounts due underthis Section 12.03 shall be payable not later than three BusinessDays after written demand therefor.

###  

### (f)            The provisions of thisSection 12.03 shall remain operative and in full force and effectregardless of the expiration of the term of this Agreement, the consummation ofthe transactions contemplated hereby, the repayment of any of the Loans, theexpiration of the Commitments, the expiration of any Letter of Credit, theinvalidity or unenforceability of any term or provision of this Agreement orany other Loan Document, or any investigation made by or on behalf of theAdministrative Agent, any Lender or the Issuing Bank.

###  

## Section 12.04.        Successorsand Assigns.

##  

### (a)           The provisions of thisAgreement shall be binding upon and inure to the benefit of the parties heretoand their respective successors and assigns permitted hereby (including anyAffiliate of the Issuing Bank that issues any Letter of Credit), except that (i) theBorrower may not assign or otherwise transfer any of its rights or obligationshereunder without the prior written consent of each Lender (and any attemptedassignment or transfer by the Borrower without such consent shall be null andvoid) and (ii) no Lender may assign or otherwise transfer its rights orobligations hereunder except (i) toan assignee in accordance with the provisions of paragraph (b) of thisSection, (ii) by way of participation in accordance with the provisions ofparagraph (d) of this Section or (iii) by way of pledge orassignment of a security interest subject to the restrictions of paragraph (f) ofthis Section (and any other attempted assignment or transfer by any partyhereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed toconfer upon any Person (other than the parties hereto, their respectivesuccessors and assigns permitted hereby (including any Affiliate of the IssuingBank that issues any Letter of Credit), Participants (to the extent provided inSection 12.04(c)) and, to the extent expressly contemplated hereby,the Related Parties of each of the Administrative Agent, the Issuing Bank andthe Lenders) any legal or equitable right, remedy or claim under or by reasonof this Agreement.

###  

### (b)           (i)   Subjectto the conditions set forth in Section 12.04(b)(ii), any Lender mayassign to one or more Eligible Assignees all or a portion of its rights andobligations under this Agreement (including all or a portion of its Commitmentand the Loans at the time owing to it) with the prior written consent (suchconsent not to be unreasonably withheld or delayed) of:

###  

### (A)    the Borrower, provided that noconsent of the Borrower shall be required if such assignment is to a Lender, anAffiliate of a Lender, an Approved Fund or, if an Event of Default has occurredand is continuing, is to any other assignee; and

#####  

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

 

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#### (ii)           Assignmentsshall be subject to the following additional conditions:

####  

##### (A)          except in the case of anassignment to a Lender or an Affiliate of a Lender or an assignment of theentire remaining amount of the assigning Lender’s Commitment or Loans, theamount of the Commitment or Loans of the assigning Lender subject to each suchassignment (determined as of the date the Assignment and Assumption withrespect to such assignment is delivered to the Administrative Agent) shall notbe less than $5,000,000 unless each of the Borrower and the AdministrativeAgent otherwise consent, provided that no such consent of the Borrower shall berequired if an Event of Default has occurred and is continuing;

#####  

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

#####  

##### (C)           the parties to eachassignment shall execute and deliver to the Administrative Agent an Assignmentand Assumption, together with a processing and recordation fee of $3,500 (whichfee may be waived or reduced in the sole discretion of the Administrative Agentand which fee shall not apply where the assignee is another Lender); and

#####  

##### (D)          the assignee, if itshall not be a Lender, shall deliver to the Administrative Agent anAdministrative Questionnaire.

#####  

#### (iii)          Subject to Section 12.04(b)(iv) andthe acceptance and recording thereof by the Administrative Agent, from andafter the effective date specified in each Assignment and Assumption theassignee thereunder shall be a party hereto and, to the extent of the interestassigned by such Assignment and Assumption, have the rights and obligations ofa Lender under this Agreement, and the assigning Lender thereunder shall, tothe extent of the interest assigned by such Assignment and Assumption, bereleased from its obligations under this Agreement (and, in the case of anAssignment and Assumption covering all of the assigning Lender’s rights andobligations under this Agreement, such Lender shall cease to be a party heretobut shall continue to be entitled to the benefits of Section 5.01, Section 5.02,Section 5.03 and Section 12.03).  Any assignment or transfer by a Lender ofrights or obligations under this Agreement that does not comply with this Section 12.04shall be treated for purposes of this Agreement as a sale by such Lender of aparticipation in such rights and obligations in accordance with Section 12.04(c).

####  

#### (iv)          The AdministrativeAgent, acting solely for this purpose as an agent of the Borrower, shallmaintain at one of its offices a copy of each Assignment and Assumptiondelivered to it and a register for the recordation of the names and addressesof the Lenders, and the Maximum Credit Amount of, and principal amount of theLoans and LC Disbursements owing to, each Lender pursuant to the terms hereoffrom time to time (the “**Register**”). The entries in the Register shall be conclusive, and the Borrower, theAdministrative Agent, the Issuing Bank and the Lenders may treat each Personwhose name is recorded in the Register pursuant to the terms hereof as a Lenderhereunder for all purposes of this Agreement, notwithstanding notice to thecontrary.  The Register shall be availablefor inspection by the Borrower, the Issuing Bank and any Lender, at anyreasonable time and from 

 

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time to time upon reasonableprior notice.  In connection with anychanges to the Register, if necessary, the Administrative Agent will reflectthe revisions on Annex I and forward a copy of such revised Annex I to theBorrower, the Issuing Bank and each Lender.

####  

#### (v)           Upon its receipt of aduly completed Assignment and Assumption executed by an assigning Lender and anassignee, the assignee’s completed Administrative Questionnaire (unless theassignee shall already be a Lender hereunder), the processing and recordationfee referred to in Section 12.04(b) and any written consent tosuch assignment required by Section 12.04(b), the Administrative Agentshall accept such Assignment and Assumption and record the informationcontained therein in the Register.  Noassignment shall be effective for purposes of this Agreement unless it has beenrecorded in the Register as provided in this Section 12.04(b).

####  

### (c)           (i)            Any Lender may, without the consent of theBorrower, the Administrative Agent or the Issuing Bank, sell participations toone or more banks or other entities other than the Borrower, any Guarantor andtheir Affiliates (a “**Participant**”) in all or a portion of such Lender’srights and obligations under this Agreement (including all or a portion of itsCommitment and the Loans owing to it); provided that (A) such Lender’sobligations under this Agreement shall remain unchanged, (B) such Lendershall remain solely responsible to the other parties hereto for the performanceof such obligations and (C) the Borrower, the Administrative Agent, theIssuing Bank and the other Lenders shall continue to deal solely and directlywith such Lender in connection with such Lender’s rights and obligations underthis Agreement.  Any agreement orinstrument pursuant to which a Lender sells such a participation shall providethat such Lender shall retain the sole right to enforce this Agreement and toapprove any amendment, modification or waiver of any provision of thisAgreement; provided that such agreement or instrument may provide that suchLender will not, without the consent of the Participant, agree to anyamendment, modification or waiver described in the proviso to Section 12.02that affects such Participant.  Inaddition such agreement must provide that the Participant be bound by theprovisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees thateach Participant shall be entitled to the benefits of Section 5.01,Section 5.02 and Section 5.03 to the same extent as ifit were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b).  To the extent permitted by law, eachParticipant also shall be entitled to the benefits of Section 12.08as though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) asthough it were a Lender.

###  

#### (ii)           A Participant shall notbe entitled to receive any greater payment under Section 5.01 or Section 5.03than the applicable Lender would have been entitled to receive with respect tothe participation sold to such Participant, unless the sale of theparticipation to such Participant is made with the Borrower’s prior writtenconsent.  A Participant that would be aForeign Lender if it were a Lender shall not be entitled to the benefits of Section 5.03unless the Borrower is notified of the participation sold to such Participantand such Participant agrees, for the benefit of the Borrower, to comply with Section 5.03(e) asthough it were a Lender.

####  

### (d)           Any Lender may at anytime pledge or assign a security interest in all or any portion of its rightsunder this Agreement to secure obligations of such Lender, including, withoutlimitation, any pledge or assignment to secure obligations to a Federal ReserveBank, 

 

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and this Section 12.04(d) shallnot apply to any such pledge or assignment of a security interest; providedthat no such pledge or assignment of a security interest shall release a Lenderfrom any of its obligations hereunder or substitute any such pledgee orassignee for such Lender as a party hereto.

###  

### (e)           Notwithstanding anyother provisions of this Section 12.04, no transfer or assignmentof the interests or obligations of any Lender or any grant of participationstherein shall be permitted if such transfer, assignment or grant would requirethe Borrower and the Guarantors to file a registration statement with the SECor to qualify the Loans under the “Blue Sky” laws of any state.

###  

## Section 12.05.        Survival;Revival; Reinstatement.

##  

### (a)           All covenants,agreements, representations and warranties made by the Borrower herein and inthe certificates or other instruments delivered in connection with or pursuantto this Agreement or any other Loan Document shall be considered to have beenrelied upon by the other parties hereto and shall survive the execution anddelivery of this Agreement and the making of any Loans and issuance of anyLetters of Credit, regardless of any investigation made by any such other partyor on its behalf and notwithstanding that the Administrative Agent, any otherAgent, the Issuing Bank or any Lender may have had notice or knowledge of anyDefault or incorrect representation or warranty at the time any credit isextended hereunder, and shall continue in full force and effect as long as theprincipal of or any accrued interest on any Loan or any fee or any other amountpayable under this Agreement is outstanding and unpaid or any Letter of Creditis outstanding and so long as the Commitments have not expired orterminated.  The provisions of Section 5.01,Section 5.02, Section 5.03 and Section 12.03and ARTICLE XI shall survive and remain in full force and effectregardless of the consummation of the transactions contemplated hereby, therepayment of the Loans, the expiration or termination of the Letters of Creditand the Commitments or the termination of this Agreement, any other LoanDocument or any provision hereof or thereof.

###  

### (b)           To the extent that anypayments on the Indebtedness or proceeds of any collateral are subsequentlyinvalidated, declared to be fraudulent or preferential, set aside or requiredto be repaid to a trustee, debtor in possession, receiver or other Person underany bankruptcy law, common law or equitable cause, then to such extent, theIndebtedness so satisfied shall be revived and continue as if such payment orproceeds had not been received and the Administrative Agent’s and the Lenders’Liens, security interests, rights, powers and remedies under this Agreement andeach Loan Document shall continue in full force and effect.  In such event, each Loan Document shall beautomatically reinstated and the Borrower shall take such action as may bereasonably requested by the Administrative Agent and the Lenders to effect suchreinstatement.

###  

## Section 12.06.        Counterparts;Integration; Effectiveness.

##  

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

 

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### (b)           This Agreement, the other Loan Documents and any separateletter agreements with respect to fees payable to the Administrative Agentconstitute the entire contract among the parties relating to the subject matterhereof and thereof and supersede any and all previous agreements andunderstandings, oral or written, relating to the subject matter hereof andthereof.  **THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENTAMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BYEVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THEPARTIES.  THERE ARE NO UNWRITTEN ORALAGREEMENTS BETWEEN THE PARTIES**.

###  

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

###  

### (d)           ElectronicExecution of Assignments.  The words “execution,”“signed,” “signature,” and words of like import in any Assignment andAssumption shall be deemed to include electronic signatures or the keeping ofrecords in electronic form, each of which shall be of the same legal effect,validity or enforceability as a manually executed signature or the use of apaper-based recordkeeping system, as the case may be, to the extent and asprovided for in any applicable law, including the Federal Electronic Signaturesin Global and National Commerce Act, the New York State Electronic Signaturesand Records Act, or any other similar state laws based on the UniformElectronic Transactions Act.

###  

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

##  

## Section 12.08.        Right of Setoff. If an Event of Default shall have occurred and be continuing, eachLender, the Issuing Bank, and each of their respective Affiliates are herebyauthorized at any time and from time to time, to the fullest extent permittedby law, to set off and apply any and all deposits (general or special, time ordemand, provisional or final, in whatever currency) at any time held and otherobligations (of whatsoever kind, including, without limitation, obligationsunder Swap Agreements) at any time owing by such Lender or Affiliate to or forthe credit or the account of the Borrower or any Subsidiary against any of andall the obligations of the Borrower or any Subsidiary owed to such Lender nowor hereafter existing under this Agreement or any other Loan Document,irrespective of whether or not such Lender shall have made any demand underthis Agreement or any other Loan Document and although such obligations may beunmatured.  The rights of each Lenderunder this Section 12.08 are in addition to other rights andremedies (including other rights of setoff) which such Lender or its Affiliatesmay have.  Each Lender and the Issuing Bank agrees tonotify the Borrower and the 

 

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Administrative Agent promptlyafter any such setoff and application, provided that the failure to givesuch notice shall not affect the validity of such setoff and application.

 

## Section 12.09.        GOVERNINGLAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

##  

### (a)           Governing Law. This Agreement shall be governed by, and construed in accordance with,the law of the State of Texas.

###  

### (b)           Submission to Jurisdiction.  The Borrower irrevocably and unconditionallysubmits, for itself and its property, to the nonexclusive jurisdiction of thecourts of the State of Texas sitting in Dallas County and of the United StatesDistrict Court of the Northern Division of Texas, and any appellate court fromany thereof, in any action or proceeding arising out of or relating to thisAgreement or any other Loan Document, or for recognition or enforcement of anyjudgment, and each of the parties hereto irrevocably and unconditionally agreesthat all claims in respect of any such action or proceeding may be heard anddetermined in such Texas State court or, to the fullest extent permitted byapplicable law, in such Federal court. Each of the parties hereto agrees that a final, non-appealable judgmentin any such action or proceeding shall be conclusive and may be enforced inother jurisdictions by suit on the judgment or in any other manner provided bylaw.  Nothing in this Agreement or in anyother Loan Document shall affect any right that the Administrative Agent, anyLender or the Issuing Bank may otherwise have to bring any action or proceedingrelating to this Agreement or any other Loan Document against the Borrower orany Subsidiary or its Properties in the courts of any jurisdiction.

### (c)           Waiver of Venue. The Borrower irrevocably and unconditionally waives, to the fullestextent permitted by applicable law, any objection that it may now or hereafterhave to the laying of venue of any action or proceeding arising out of orrelating to this Agreement or any other Loan Document in any court referred toin paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullestextent permitted by applicable law, the defense of an inconvenient forum to themaintenance of such action or proceeding in any such court.

###  

### (d)           Service of Process. Each party hereto irrevocably consents to service of process in themanner provided for notices in Section 12.01.  Nothing in this Agreement will affect theright of any party hereto to serve process in any other manner permitted byapplicable law.

###  

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

##  

## Section 12.11.        Confidentiality.  Each of the Administrative Agent, the IssuingBank and the Lenders agrees to maintain the confidentiality of the Information(as defined below), except that Information may be disclosed (a) to itsand its Affiliates’ respective partners, directors, managers, officers,advisors, employees and agents, including accountants, legal counsel and otheradvisors (it being understood that the Persons to whom such disclosure is madewill be 

 

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informed of the confidentialnature of such Information and instructed to keep such Informationconfidential), (b) to the extent requested by any regulatory authority, (c) tothe extent required by applicable laws or regulations or by any subpoena orsimilar legal process, (d) to any other party to this Agreement or anyother Loan Document, (e) in connection with the exercise of any remedieshereunder or under any other Loan Document or any suit, action or proceedingrelating to this Agreement or any other Loan Document or the enforcement ofrights hereunder or thereunder, (f) subject to an agreement containingprovisions substantially the same as those of this Section 12.11,to (i) any assignee of or Participant in, or any prospective assignee ofor Participant in, any of its rights or obligations under this Agreement or (ii) anyactual or prospective counterparty (or its advisors) to any Swap Agreementrelating to the Borrower and its obligations, (g) with the consent of theBorrower or (h) to the extent such Information (i) becomes publiclyavailable other than as a result of a breach of this Section 12.11or (ii) becomes available to the Administrative Agent, the Issuing Bank orany Lender on a nonconfidential basis from a source other than theBorrower.  For the purposes of this Section 12.11,“**Information**”means all information received from the Borrower or any Subsidiary relating tothe Borrower or any Subsidiary and their businesses, other than any suchinformation that is available to the Administrative Agent, the Issuing Bank orany Lender on a nonconfidential basis prior to disclosure by the Borrower or aSubsidiary; provided that, in the case of information received from theBorrower or any Subsidiary after the date hereof, such information is clearlyidentified at the time of delivery as confidential.  Any Person required to maintain theconfidentiality of Information as provided in this Section 12.11shall be considered to have complied with its obligation to do so if suchPerson has exercised the same degree of care to maintain the confidentiality ofsuch Information as such Person would accord to its own confidentialinformation.

 

## Section 12.12.        InterestRate Limitation.  It is the intentionof the parties hereto that each Lender shall conform strictly to usury lawsapplicable to it.  Accordingly, if thetransactions contemplated hereby would be usurious as to any Lender under lawsapplicable to it (including the laws of the United States of America and theState of Texas or any other jurisdiction whose laws may be mandatorilyapplicable to such Lender notwithstanding the other provisions of thisAgreement), then, in that event, notwithstanding anything to the contrary inany of the Loan Documents or any agreement entered into in connection with oras security for the Notes, it is agreed as follows:  (i) the aggregate of all considerationwhich constitutes interest under law applicable to any Lender that iscontracted for, taken, reserved, charged or received by such Lender under anyof the Loan Documents or agreements or otherwise in connection with the Notesshall under no circumstances exceed the maximum amount allowed by suchapplicable law, and any excess shall be canceled automatically and iftheretofore paid shall be credited by such Lender on the principal amount ofthe Indebtedness (or, to the extent that the principal amount of theIndebtedness shall have been or would thereby be paid in full, refunded by suchLender to the Borrower); and (ii) in the event that the maturity of theNotes is accelerated by reason of an election of the holder thereof resultingfrom any Event of Default under this Agreement or otherwise, or in the event ofany required or permitted prepayment, then such consideration that constitutesinterest under law applicable to any Lender may never include more than themaximum amount allowed by such applicable law, and excess interest, if any,provided for in this Agreement or otherwise shall be canceled automatically bysuch Lender as of the date of such acceleration or prepayment and, iftheretofore paid, shall be credited by such Lender on the principal amount ofthe Indebtedness (or, to the extent that the principal amount of 

 

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the Indebtedness shall havebeen or would thereby be paid in full, refunded by such Lender to theBorrower).  All sums paid or agreed to bepaid to any Lender for the use, forbearance or detention of sums due hereundershall, to the extent permitted by law applicable to such Lender, be amortized,prorated, allocated and spread throughout the stated term of the Loansevidenced by the Notes until payment in full so that the rate or amount ofinterest on account of any Loans hereunder does not exceed the maximum amountallowed by such applicable law.  If atany time and from time to time (i) the amount of interest payable to anyLender on any date shall be computed at the Highest Lawful Rate applicable tosuch Lender pursuant to this Section 12.12 and (ii) in respectof any subsequent interest computation period the amount of interest otherwisepayable to such Lender would be less than the amount of interest payable tosuch Lender computed at the Highest Lawful Rate applicable to such Lender, thenthe amount of interest payable to such Lender in respect of such subsequentinterest computation period shall continue to be computed at the Highest LawfulRate applicable to such Lender until the total amount of interest payable tosuch Lender shall equal the total amount of interest which would have beenpayable to such Lender if the total amount of interest had been computedwithout giving effect to this Section 12.12.  To the extent that Chapter 303 of the TexasFinance Code is relevant for the purpose of determining the Highest Lawful Rateapplicable to a Lender, such Lender elects to determine the applicable rateceiling under such Chapter by the weekly ceiling from time to time ineffect.  Chapter 346 of the Texas FinanceCode does not apply to the Borrower’s obligations hereunder.

 

## Section 12.13.        EXCULPATIONPROVISIONS.  EACH OF THE PARTIESHERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THEOTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OFTHE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACTREAD THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OFTHE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEENREPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THENEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOANDOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THISAGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OFTHE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTYASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION ANDRELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THATIT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISIONOF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HADNO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

##  

## Section 12.14.        CollateralMatters; Swap Agreements.  Thebenefit of the Security Instruments and of the provisions of this Agreementrelating to any collateral securing the Indebtedness shall also extend to andbe available to any Swap Lender with respect to amounts payable by theBorrower, any Subsidiary, and any Guarantor under any Swap Agreement on a paripassu basis with respect to repayment of principal outstanding on Loans dueunder this

 

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Agreement.  Except as otherwise provided in Section 12.02(b)(vii),no Swap Lender shall have any voting rights under any Loan Document as a resultof the existence of obligations owed to it under any such Swap Agreements.  All Swap Agreements between the Borrower orany Subsidiary and any Swap Lender are independent agreements governed by theterms thereof and will remain in full force and effect, unaffected by anyrepayment, prepayment, acceleration, reduction, increase or change in the termsof the Loans created under this Agreement except as otherwise provided in saidSwap Agreement.

 

## Section 12.15.        NoThird Party Beneficiaries.  ThisAgreement, the other Loan Documents, and the agreement of the Lenders to makeLoans and the Issuing Bank to issue, amend, renew or extend Letters of Credithereunder are solely for the benefit of the Borrower, and no other Person(including, without limitation, any Subsidiary of the Borrower, any obligor,contractor, subcontractor, supplier or materialman) shall have any rights,claims, remedies or privileges hereunder or under any other Loan Documentagainst the Administrative Agent, any other Agent, the Issuing Bank or anyLender for any reason whatsoever.  Thereare no third party beneficiaries.

##  

## Section 12.16.        USAPatriot Act Notice.  Each Lenderhereby notifies the Borrower that pursuant to the requirements of the USAPatriot Act (Title III of Pub. L. 107-56 (signed into law October 26,2001)) (the “**Act**”),it is required to obtain, verify and record information that identifies theBorrower, which information includes the name and address of the Borrower andother information that will allow such Lender to identify the Borrower inaccordance with the Act.

##  

## Section 12.17.        Amendmentand Restatement; Release.  ThisAgreement amends and restates in its entirety the Original CreditAgreement.  The execution of thisAgreement and the other Loan Documents executed in connection herewith does notextinguish the indebtedness outstanding in connection with the Original CreditAgreement nor does it constitute a novation with respect to suchindebtedness.  THE BORROWER REPRESENTSAND WARRANTS THAT AS OF THE DATE HEREOF THERE ARE NO CLAIMS OR OFFSETS AGAINSTOR DEFENSES OR COUNTERCLAIMS TO ITS OR ANY GUARANTORS OBLIGATIONS UNDER THEORIGINAL CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS.  TO INDUCE THE ADMINISTRATIVE AGENT AND THELENDERS TO ENTER INTO THIS AGREEMENT, THE BORROWER AND, BY THE EXECUTION OF THELOAN DOCUMENTS TO WHICH IT IS A PARTY, EACH GUARANTOR WAIVES ANY AND ALLCLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISINGPRIOR TO THE DATE HEREOF AND HEREBY RELEASES THE ADMINISTRATIVE AGENT, THELENDERS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS ANDATTORNEYS (COLLECTIVELY, THE “RELEASED PARTIES”) FROM ANY AND ALL OBLIGATIONS,INDEBTEDNESS, LIABILITY, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDSWHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED WHICH BORROWEROR ANY GUARANTOR EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANYRELEASED PARTY ARISING PRIOR TO THE DATE HEREOF OR FROM OR IN CONNECTION WITHTHIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATEDTHEREBY.

 

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

 
| BORROWER: | **VANGUARD NATURAL GAS, LLC** |
|-----------|-------------------------------|
|      |                          |
|      |                          |
|      | By:                           |    /s/ Richard Robert |
|      |                          |    Richard Robert |
|      |                          |    Executive Vice President |
|      |                          |    and Chief Financial Officer |

 

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| ADMINISTRATIVE AGENT:   | **CITIBANK, N.A.** |
|-------------------------|--------------------|
| as Administrative Agent |               |
|                    |               |
|                    |               |
|                    | By:                |    /s/ Ryan Watson |
|                    |               |    Ryan Watson |
|                    |               |    Vice President |

 

 
| LENDERS: | **CITIBANK, N.A.** |
|----------|--------------------|
|     |               |
|     |               |
|     | By:                |    /s/ Ryan Watson |
|     |               |    Ryan Watson |
|     |               |    Vice President |

 

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| LENDERS: | **BNP  PARIBAS** |
|----------|------------------|
|     |             |
|     |             |
|     | By:    |      /s/  David Dodd |
|     | Name:            | David Dodd |
|     | Title:           | Managing  Director |
|     |             |   |
|     |             |   |
|     | By:    |      /s/  Betsy Jocher |
|     | Name:            | Betsy Jocher |
|     | Title:           | Director |
|          |                  |  |  |

 

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| LENDERS: | **WACHOVIA  BANK, NATIONAL ASSOCIATION** |
|----------|------------------------------------------|
|     |                                     |
|     |                                     |
|     | By:                            |      /s/  Shawn Young |
|     | Name:                                    | Shawn Young |
|     | Title:                                   | Director |
|          |                                          |  |  |

 

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| LENDERS: | **THE BANK  OF NOVA SCOTIA** |
|----------|------------------------------|
|     |                         |
|     |                         |
|     | By:                |     /s/  David Mills |
|     | Name:                        | David Mills |
|     | Title:                       | Director |
|          |                              |  |  |

 

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