Exhibit 10.92


 


[DISCLAIMER: THIS DOCUMENT IS A WORKING
DRAFT ONLY.  NEITHER THIS DRAFT, NOR ANY
TERM OR PROVISION SET FORTH IN THIS DRAFT ARE BINDING ON ANY PERSON OR ENTITY
UNDER ANY AND ALL CIRCUMSTANCES UNTIL THE EXECUTION AND DELIVERY HEREOF BY
RESACA EXPLOITATION, INC., UNION BANK, N.A., NATIXIS NEW YORK BRANCH, AND THE
OTHER LENDERS THAT MAY BE PARTIES HERETO AND THE SATISFACTION OF THE
CONDITIONS SET FORTH HEREIN.  THIS DRAFT
AND THE TERMS AND PROVISIONS HEREOF ARE SUBJECT, IN ALL RESPECTS, TO CHANGES,
SUPPLEMENTS AND DELETIONS AND TO THE FURTHER REVIEW BY ALL PERSONS OR ENTITIES
INVOLVED, INCLUDING BUT NOT LIMITED TO RESACA EXPLOITATION, INC., UNION BANK,
N.A., NATIXIS NEW YORK BRANCH, AND SUCH OTHER PERSONS OR ENTITIES THAT MAY BECOME
INVOLVED AS A LENDER HERETO.  NEITHER THE
DELIVERY OF THIS DRAFT TO THE SECURITIES AND EXCHANGE COMMISSION NOR THE FILING
HEREOF SHALL CONSTITUTE AN AGREEMENT TO THE PROVISIONS OR THE TERMS HEREOF OR
AS AN AUTHORIZATION BY  UNION BANK,  N.A., NATIXIS NEW YORK BRANCH, OR ANY LENDER
THAT MAY BECOME PARTY HERETO, PERMITTING ANY PERSON OR ENTITY TO RELY ON
THE TERMS OR PROVISIONS SET FORTH IN THIS DRAFT.]


 


	
   

  



 


 


$200,000,000


 


SECOND AMENDED AND RESTATED
CREDIT AGREEMENT


 


Among


 


RESACA EXPLOITATION, INC.


 


as Borrower,


 


THE LENDERS
PARTY HERETO FROM TIME TO TIME


 


as Lenders,


 


and


 


UNION BANK, N.A.


 


as Administrative Agent and as Issuing Lender


 


June         , 2010


 

















 


	
   

  



 


UNION BANK, N.A. and NATIXIS NEW YORK BRANCH


as Joint Lead Arrangers


 


NATIXIS NEW YORK BRANCH


as Syndication Agent


 


REGIONS BANK


as Documentation Agent


 


ii

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  I

  	
  DEFINITIONS
  AND ACCOUNTING TERMS

  	
  1

  
	
  Section 1.01

  	
  Certain
  Defined Terms

  	
  1

  
	
  Section 1.02

  	
  Computation
  of Time Periods

  	
  18

  
	
  Section 1.03

  	
  Accounting
  Terms; Changes in GAAP

  	
  18

  
	
  Section 1.04

  	
  Types
  of Advances

  	
  19

  
	
  Section 1.05

  	
  Miscellaneous

  	
  19

  
	
  ARTICLE
  II

  	
  CREDIT
  FACILITIES

  	
  19

  
	
  Section 2.01

  	
  Commitment
  for Advances

  	
  19

  
	
  Section 2.02

  	
  Borrowing
  Base

  	
  20

  
	
  Section 2.03

  	
  Method
  of Borrowing

  	
  22

  
	
  Section 2.04

  	
  Reduction
  of the Commitments

  	
  24

  
	
  Section 2.05

  	
  Prepayment
  of Advances

  	
  25

  
	
  Section 2.06

  	
  Repayment
  of Advances

  	
  27

  
	
  Section 2.07

  	
  Letters
  of Credit

  	
  27

  
	
  Section 2.08

  	
  Fees

  	
  31

  
	
  Section 2.09

  	
  Interest

  	
  31

  
	
  Section 2.10

  	
  Payments
  and Computations

  	
  32

  
	
  Section 2.11

  	
  Sharing
  of Payments, Etc

  	
  33

  
	
  Section 2.12

  	
  Breakage
  Costs

  	
  34

  
	
  Section 2.13

  	
  Increased
  Costs

  	
  34

  
	
  Section 2.14

  	
  Taxes

  	
  35

  
	
  Section 2.15

  	
  Replacement
  of Lender

  	
  37

  
	
  ARTICLE
  III

  	
  CONDITIONS

  	
  38

  
	
  Section 3.01

  	
  Conditions
  Precedent to Effectiveness

  	
  38

  
	
  Section 3.02

  	
  Conditions
  Precedent to All Borrowings

  	
  41

  
	
  ARTICLE
  IV

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  42

  
	
  Section 4.01

  	
  Existence;
  Subsidiaries

  	
  42

  
	
  Section 4.02

  	
  Power

  	
  42

  
	
  Section 4.03

  	
  Authorization
  and Approvals

  	
  42

  
	
  Section 4.04

  	
  Enforceable
  Obligations

  	
  42

  
	
  Section 4.05

  	
  Financial
  Statements

  	
  43

  
	
  Section 4.06

  	
  True
  and Complete Disclosure

  	
  43

  
				



 


i

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 4.07

  	
  Litigation;
  Compliance with Laws

  	
  43

  
	
  Section 4.08

  	
  Use
  of Proceeds

  	
  43

  
	
  Section 4.09

  	
  Investment
  Company Act

  	
  44

  
	
  Section 4.10

  	
  Federal
  Power Act

  	
  44

  
	
  Section 4.11

  	
  Taxes

  	
  44

  
	
  Section 4.12

  	
  Pension
  Plans

  	
  44

  
	
  Section 4.13

  	
  Condition
  of Property; Casualties

  	
  45

  
	
  Section 4.14

  	
  No
  Burdensome Restrictions; No Defaults

  	
  45

  
	
  Section 4.15

  	
  Environmental Condition

  	
  45

  
	
  Section 4.16

  	
  Permits, Licenses, Etc

  	
  46

  
	
  Section 4.17

  	
  Gas
  Contracts

  	
  46

  
	
  Section 4.18

  	
  Liens; Titles, Leases, Etc

  	
  46

  
	
  Section 4.19

  	
  Solvency
  and Insurance

  	
  46

  
	
  Section 4.20

  	
  Hedging
  Agreements

  	
  47

  
	
  Section 4.21

  	
  Material
  Agreements

  	
  47

  
	
  ARTICLE
  V

  	
  AFFIRMATIVE
  COVENANTS

  	
  47

  
	
  Section 5.01

  	
  Compliance
  with Laws, Etc

  	
  47

  
	
  Section 5.02

  	
  Maintenance
  of Insurance

  	
  47

  
	
  Section 5.03

  	
  Preservation
  of Corporate Existence, Etc

  	
  48

  
	
  Section 5.04

  	
  Payment
  of Taxes, Etc

  	
  48

  
	
  Section 5.05

  	
  Visitation
  Rights

  	
  48

  
	
  Section 5.06

  	
  Reporting
  Requirements

  	
  48

  
	
  Section 5.07

  	
  Maintenance
  of Property

  	
  51

  
	
  Section 5.08

  	
  Agreement
  to Pledge

  	
  52

  
	
  Section 5.09

  	
  Use
  of Proceeds

  	
  52

  
	
  Section 5.10

  	
  Title
  Evidence and Opinions

  	
  52

  
	
  Section 5.11

  	
  Further
  Assurances; Cure of Title Defects

  	
  52

  
	
  Section 5.12

  	
  Hedging
  Arrangements

  	
  53

  
	
  ARTICLE
  VI

  	
  NEGATIVE
  COVENANTS

  	
  53

  
	
  Section 6.01

  	
  Liens,
  Etc

  	
  53

  
	
  Section 6.02

  	
  Debts,
  Guaranties, and Other Obligations

  	
  54

  
	
  Section 6.03

  	
  Agreements
  Restricting Liens and Distributions

  	
  55

  
				



 


ii

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 6.04

  	
  Merger
  or Consolidation; Asset Sales

  	
  56

  
	
  Section 6.05

  	
  Restricted
  Payments

  	
  57

  
	
  Section 6.06

  	
  Investments

  	
  57

  
	
  Section 6.07

  	
  Affiliate
  Transactions

  	
  59

  
	
  Section 6.08

  	
  Compliance
  with ERISA

  	
  59

  
	
  Section 6.09

  	
  Sale-and-Leaseback

  	
  60

  
	
  Section 6.10

  	
  Change
  of Business; Change of Fiscal Year

  	
  60

  
	
  Section 6.11

  	
  Organizational
  Documents, Name Change

  	
  60

  
	
  Section 6.12

  	
  Use
  of Proceeds; Letters of Credit

  	
  60

  
	
  Section 6.13

  	
  Gas
  Imbalances, Take-or-Pay or Other Prepayments

  	
  60

  
	
  Section 6.14

  	
  Hedging
  Requirements

  	
  60

  
	
  Section 6.15

  	
  Additional
  Subsidiaries; Additional Oil and Gas Properties

  	
  61

  
	
  Section 6.16

  	
  Account
  Payables

  	
  61

  
	
  Section 6.17

  	
  Current
  Ratio

  	
  61

  
	
  Section 6.18

  	
  Leverage
  Ratio

  	
  61

  
	
  Section 6.19

  	
  Interest
  Coverage Ratio

  	
  62

  
	
  Section 6.20

  	
  Prepayments
  of Debt

  	
  62

  
	
  Section 6.21

  	
  Non-Guarantor
  Subsidiary

  	
  62

  
	
  Section 6.22

  	
  Equity
  Issuance

  	
  62

  
	
  ARTICLE
  VII

  	
  EVENTS
  OF DEFAULT; REMEDIES

  	
  62

  
	
  Section 7.01

  	
  Events
  of Default

  	
  62

  
	
  Section 7.02

  	
  Optional
  Acceleration of Maturity

  	
  64

  
	
  Section 7.03

  	
  Automatic
  Acceleration of Maturity

  	
  65

  
	
  Section 7.04

  	
  Right
  of Set-off

  	
  65

  
	
  Section 7.05

  	
  Non-exclusivity
  of Remedies

  	
  65

  
	
  Section 7.06

  	
  Application
  of Proceeds

  	
  66

  
	
  ARTICLE
  VIII

  	
  THE
  ADMINISTRATIVE AGENT AND THE ISSUING LENDER

  	
  66

  
	
  Section 8.01

  	
  Authorization
  and Action

  	
  66

  
	
  Section 8.02

  	
  Administrative
  Agent’s Reliance, Etc

  	
  66

  
	
  Section 8.03

  	
  The
  Administrative Agent and Its Affiliates

  	
  67

  
	
  Section 8.04

  	
  Lender
  Credit Decision

  	
  67

  
	
  Section 8.05

  	
  Indemnification

  	
  67

  
				



 


iii

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 8.06

  	
  Successor
  Administrative Agent and Issuing Lender

  	
  68

  
	
  Section 8.07

  	
  Collateral
  Matters

  	
  69

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
  70

  
	
  Section 9.01

  	
  Amendments, Etc

  	
  70

  
	
  Section 9.02

  	
  Notices,
  Etc

  	
  70

  
	
  Section 9.03

  	
  No
  Waiver; Remedies

  	
  70

  
	
  Section 9.04

  	
  Costs
  and Expenses

  	
  71

  
	
  Section 9.05

  	
  Binding
  Effect

  	
  71

  
	
  Section 9.06

  	
  Lender
  Assignments and Participations

  	
  71

  
	
  Section 9.07

  	
  Indemnification;
  Waiver

  	
  73

  
	
  Section 9.08

  	
  Execution
  in Counterparts

  	
  74

  
	
  Section 9.09

  	
  Survival
  of Representations, Etc

  	
  74

  
	
  Section 9.10

  	
  Severability

  	
  74

  
	
  Section 9.11

  	
  Business
  Loans

  	
  74

  
	
  Section 9.12

  	
  Governing
  Law; Submission to Jurisdiction

  	
  74

  
	
  Section 9.13

  	
  [Reserved]

  	
  75

  
	
  Section 9.14

  	
  USA
  Patriot Act

  	
  75

  
	
  Section 9.15

  	
  WAIVER
  OF JURY TRIAL

  	
  75

  
	
  Section 9.16

  	
  ORAL
  AGREEMENTS

  	
  75

  
				



 


	
  EXHIBITS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Form of
  Assignment and Acceptance

  
	
  Exhibit B

  	
  -

  	
  Form of
  Compliance Certificate

  
	
  Exhibit C

  	
  -

  	
  Form of
  Guaranty

  
	
  Exhibit D

  	
  -

  	
  Form of
  Mortgage

  
	
  Exhibit E

  	
  -

  	
  Form of
  Note

  
	
  Exhibit F

  	
  -

  	
  Form of
  Notice of Borrowing

  
	
  Exhibit G

  	
  -

  	
  Form of
  Notice of Conversion or Continuation

  
	
  Exhibit H

  	
  -

  	
  Form of
  Pledge Agreement

  
	
  Exhibit I

  	
  -

  	
  Form of
  Security Agreement

  
	
  Exhibit J

  	
  -

  	
  Form of
  Transfer Letters

  
	
  Exhibit K

  	
  -

  	
  Form of
  Borrower’s Counsel Opinion

  
	
   

  	
   

  	
   

  
	
  SCHEDULES:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule I

  	
  -

  	
  Pricing
  Grid

  
					



 


iv

















 


TABLE OF CONTENTS


(continued)


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Schedule II       -

  	
  Notice
  Information and Commitments

  	
   

  
	
  Schedule 4.01    -

  	
  Subsidiaries
  of Borrower

  	
   

  
	
  Schedule 4.05    -

  	
  Existing
  Debt

  	
   

  
	
  Schedule 4.07    -

  	
  Litigation

  	
   

  
	
  Schedule 4.14(a) -

  	
  MAC
  Documents

  	
   

  
	
  Schedule 4.20    -

  	
  Hedging
  Contracts

  	
   

  



 


v






 










 


SECOND AMENDED AND RESTATED
CREDIT AGREEMENT


 


This Second Amended and
Restated Credit Agreement dated as of June       ,
2010, is among Resaca Exploitation, Inc., a Texas corporation (“Resaca”),
the lenders party hereto from time to time (“Lenders”), and Union Bank, N.A.
(f/k/a Union Bank of California, N.A.), as administrative agent for such
Lenders (in such capacity, the “Administrative Agent”) and as issuing lender
for such Lenders (in such capacity, the “Issuing Lender”).


 


RECITALS


 


A.            Cano Petroleum, Inc. (“Cano”), the Administrative
Agent, the Issuing Lender, and the Lenders have previously executed and
delivered that certain Amended and Restated Credit Agreement dated as of December 17,
2008, as heretofore amended (as so amended, the “Restated Agreement”).


 


B.            Pursuant to that certain Agreement and Plan of Merger
dated September 29, 2009 among Resaca, Resaca Acquisition Sub, Inc.
and Cano which is filed of public record under Cano’s 8-K filing with the
Securities and Exchange Commission on October 1, 2009 (as such agreement
may have been amended, supplemented or otherwise modified through the date
hereof with documentation that has been provided to the Administrative Agent
prior to the date hereof, the “Merger Agreement”), Cano became a wholly
owned subsidiary of Resaca (such transaction being the “Merger”).


 


C.            Pursuant to that certain [Consent and Assignment dated June     ,
2010 among Resaca, Cano, the Lenders and the Administrative Agent (the “Merger
Consent”)], (i) with the consent of all the lenders under the Restated
Agreement, Cano has assigned 100% of its rights and obligations under the
Restated Agreement as the “Borrower” to Resaca, and Resaca has assumed and
agreed to all of the rights and obligations under the Restated Agreement as the
“Borrower”, and (ii) in consideration for terms of the Merger Consent and
other valuable consideration, Cano as a wholly owned subsidiary of Resaca, has
agreed to enter into the Guaranty as required herein.


 


D.            Resaca (hereinafter referred to as the “Borrower”),
the Administrative Agent, the Issuing Lender, and the Lenders desire to amend
and restate (but not extinguish) the Restated Agreement in its
entirety as hereinafter set forth through the execution of this
Agreement.


 


E.             It is the intention of the parties
hereto that this Agreement is an amendment and restatement of the Restated
Agreement, not a new or substitute credit agreement or novation of the Restated
Agreement.


 


NOW, THEREFORE, in
consideration of the premises and the agreements, provisions and covenants
herein contained, the Borrower, the Administrative Agent, the Issuing Lender,
and the Lenders, (i) do hereby agree that the Restated Agreement is
amended and restated (but not substituted or extinguished) in its entirety as
set forth herein, and (ii) do hereby further agree as follows:


 


ARTICLE
I


 


DEFINITIONS
AND ACCOUNTING TERMS


 


Section 1.01           Certain
Defined Terms.  As used in this
Agreement, the terms defined above shall have the meanings set forth therein
and the following terms shall have the following meanings (unless otherwise
indicated, such meanings to be equally applicable to both the singular and
plural forms of the terms defined):


 

















 


“6-Month Period” has the
meaning set forth in Section 5.12.


 


“Acceptable Security
Interest” in any Property means a Lien which (a) exists in favor of
the Administrative Agent for the benefit of the Secured Parties, (b) is
superior to all Liens or rights of any other Person in the Property encumbered
thereby, other than Permitted Subject Liens, (c) secures the Obligations,
and (d) except with respect to Excluded Perfection Assets, is perfected
and enforceable.


 


“Acquisition” means
the purchase by the Borrower or any of its Subsidiaries of any business,
including the purchase of all or substantially all the associated assets or
operations or of stock (or other ownership interests) of a Person (other than
of a wholly-owned Subsidiary of the Borrower).


 


“Adjusted Reference Rate”
means, for any day, the fluctuating rate per annum of interest equal to the
greatest of (a) the Reference Rate in effect on such day, (b) the
Federal Funds Rate in effect on such day plus 1⁄2 of 1% and (c) the
Eurodollar Rate for an Interest Period of one month which begins on such day
plus 1.50%.  Any change in the Adjusted
Reference Rate due to a change in the Reference Rate, Eurodollar Rate or the
Federal Funds Rate shall be effective on the effective date of such change in
the Reference Rate, Eurodollar Rate or the Federal Funds Rate.


 


“Administrative Agent”
means Union Bank, N.A., in its capacity as agent pursuant to Article VIII,
and any successor agent pursuant to Section 8.06.


 


“Advance” means an
advance by a Lender to the Borrower pursuant to Section 2.01(a) as
part of a Borrowing and refers to a Reference Rate Advance or a Eurodollar Rate
Advance.


 


“Affiliate” means, as
to any Person, any other Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such Person or any Subsidiary of such Person.  The term “control” (including the terms “controlled
by” or “under common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of a Control Percentage, by
contract, or otherwise.  Without limiting
the generality of the foregoing, a Person shall be deemed to be controlled by
another Person if such other Person possesses, directly or indirectly, the
power to vote 10% or more of the securities having ordinary voting power for
the election of directors, managing general partners or the equivalent.


 


“Agreement” means
this Second Amended and Restated Credit Agreement, as the same may be further
amended, supplemented, restated, and otherwise modified from time to time.


 


“Applicable Margin”
means, with respect to any Advance, (a) during any time when an Event of
Default exists, 2% per annum plus the rate per annum set forth in the Pricing
Grid for the relevant Type of such Advance based on the present Utilization
Level applicable from time to time, and (b) at any other time, the rate
per annum set forth in the Pricing Grid for the relevant Type of such Advance
based on the relevant Utilization Level applicable from time to time.  The Applicable Margin for any Advance shall
change when and as the relevant Utilization Level changes and when and as any
such Event of Default commences or terminates.


 


“Assignment and
Acceptance” means an assignment and acceptance entered into by a Lender and
an Eligible Assignee, and accepted by the Administrative Agent, in
substantially the form of the attached Exhibit A.


 


“BB Hedge” means any
hedge position or Hedge Contract considered by the Administrative Agent in
determining the then effective Borrowing Base.


 


2

















 


“Borrowing” means a
borrowing consisting of Advances made on the same day by the Lenders pursuant
to Section 2.01(a).


 


“Borrowing Base”
means at any particular time, the Dollar amount determined in accordance with Section 2.02
on account of Proven Reserves attributable to Oil and Gas Properties of the
Borrower and its Subsidiaries subject to an Acceptable Security Interest and
described in the most recent Independent Engineering Report or Internal
Engineering Report, as applicable, delivered to the Administrative Agent and
the Lenders pursuant to Section 2.02.


 


“Business Day” means
a day of the year on which banks are not required or authorized to close in
Dallas, Texas and Los Angeles, California and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on by
banks in the London interbank market.


 


“Capital Leases”
means, as applied to any Person, any lease of any Property by such Person as
lessee which would, in accordance with GAAP, be required to be classified and
accounted for as a capital lease on the balance sheet of such Person.


 


“Cash Collateral Account”
means a special interest bearing cash collateral account pledged by the
Borrower to the Issuing Lender containing cash deposited pursuant to Sections
2.05(b), 7.02(b), or 7.03(b) to be maintained with the Issuing Lender in
accordance with Section 2.07(g) and bear interest or be invested in
the Issuing Lender’s reasonable discretion.


 


“CERCLA” means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, state and local analogs, and all rules and regulations and
requirements thereunder in each case as now or hereafter in effect.


 


“Certificate of
Designation” means the Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock of Resaca Exploitation, Inc.
which is or will be filed with the Secretary of State of Texas on or about June       ,
2010, which is in form and substance substantially the same as Exhibit 5.2
of the Merger Agreement with such modifications as may be permitted under this
Agreement or otherwise agreed to by the Majority Lenders.


 


“Change in Control”
shall mean the occurrence of any of the following events: (a) the Borrower
ceases to own, either directly or indirectly, 100% of the Equity Interest in
any Subsidiary other than as a result of a sale of assets or merger permitted
under Section 6.04, (b) any “person” or “group” (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, except that a person or group shall
be deemed to have “beneficial ownership” of all securities that such person or
group has the right to acquire (such right, an “option right”), whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of 33% or more of the Equity Interest of the Borrower entitled
to vote for members of the board of directors or equivalent governing body of
the Borrower on a fully-diluted basis (and taking into account all such
securities that such person or group has the right to acquire pursuant to any
option right), or (c) during any period of 12 consecutive months, a
majority of the members of the board of directors or other equivalent governing
body of the Borrower cease to be composed of individuals (i) who were
members of that board or equivalent governing body on the first day of such
period, (ii) whose election or nomination to that board or equivalent
governing body was approved by individuals referred to in clause (i) above
constituting at the time of such election or nomination at least a majority of
that board or equivalent governing body or (iii) whose election or
nomination to that board or other equivalent governing body was approved by
individuals referred to in clauses (i) and (ii) above constituting at
the time of such election or nomination at least a majority of that board or
equivalent governing body.


 


3

















 


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


 


“Collateral”
means (a) all “Collateral”, “Pledged Collateral” and “Mortgaged Properties”
(as defined in each of the Mortgages, the Security Agreements, and the Pledge
Agreement, as applicable) or similar terms used in the Security Instruments,
and (b) all amounts contained in the Borrower’s and its Subsidiaries’ bank
accounts.


 


“Commitment” means
the amount set opposite such Lender’s name on the Schedule II hereof as its
Commitment, or if such Lender has entered into any Assignment and Acceptance,
as set forth for such Lender as its Commitment in the Register maintained by
the Administrative Agent pursuant to Section 9.06(c), as such amount may
be reduced or terminated pursuant to Section 2.04 or Article VII or
otherwise under this Agreement.  The
aggregate amount of the Commitments on the date hereof is $200,000,000.00.


 


“Commitment Fee Rate”
means the per annum commitment fee rate set forth on the Pricing Grid
applicable from time to time.  The
Commitment Fee Rate shall change when and as the relevant Utilization Level
changes.


 


“Commitment Termination
Date” means the earlier of (a) the Maturity Date and (b) the
earlier termination in whole of the Commitments pursuant to Section 2.04
or Article VII.


 


“Compliance Certificate”
means a compliance certificate in the form of the attached Exhibit B
signed by a Responsible Officer of the Borrower.


 


“Consolidated Net Income”
means, with respect to the Borrower and its consolidated Subsidiaries, for any
period, the net income for such period after taxes, as determined in accordance
with GAAP, excluding, however, (a) extraordinary items, including (i) any
net non-cash gain or loss during such period arising from the sale, exchange,
retirement or other disposition of capital assets (such term to include all
fixed assets and all securities) other than in the ordinary course of business,
and (ii) any write-up or write-down of assets and (b) the cumulative
effect of any change in GAAP.


 


“Control Percentage”
means, with respect to any Person, the percentage of the outstanding Equity
Interest (including any options, warrants or similar rights to purchase such
Equity Interest) of such Person having ordinary voting power which gives the
direct or indirect holder of such Equity Interest the power to elect a majority
of the board of directors (or other applicable governing body) of such Person.


 


“Controlled Group”
means all members of a controlled group of corporations and all businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of the Code.


 


“Convert,” “Conversion,”
and “Converted” each refers to a conversion of Advances of one Type into
Advances of another Type pursuant to Section 2.03(b).


 


“Credit Extensions”
means (a) an Advance made by any Lender, and (b) the issuance,
increase or extension of any Letter of Credit by the Issuing Lender.


 


“Debt,” for any
Person, means without duplication:


 


(a)           indebtedness of such
Person for borrowed money;


 


4

















 


(b)           obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments;


 


(c)           obligations of such
Person to pay the deferred purchase price of Property or services (including,
without limitation, obligations that are non-recourse to the credit of such
Person but are secured by the assets of such Person, but excluding trade accounts
payable);


 


(d)           obligations of such
Person as lessee under Capital Leases and obligations of such Person in respect
of synthetic leases;


 


(e)           obligations of such
Person under letters of credit and agreements relating to the issuance of
letters of credit or acceptance financing


 


(f)            obligations of such
Person under any Hedge Contract;


 


(g)           obligations of such
Person owing in respect of redeemable preferred stock or other preferred Equity
Interest of such Person;


 


(h)           any obligations of
such Person owing in connection with any volumetric or production prepayments;


 


(i)            obligations of such
Person under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) of such Person to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (h) above;
and


 


(j)            indebtedness or
obligations of others of the kinds referred to in clauses (a) through (i) above
secured by any Lien on or in respect of any Property of such Person.


 


“Debt Issuance” means
the issuance by the Borrower of Debt in the form of convertible notes.


 


“Default” means (a) an
Event of Default or (b) any event or condition which with notice or lapse
of time or both would become an Event of Default.


 


“Defaulting Lender”
means any Lender that (a) has failed to fund its Pro Rata Share of any
Advance or participation in Letter of Credit Obligations required to be funded
by it hereunder within one Business Day of the date required to be funded by it
hereunder unless such failure has been cured within three Business Days (or
such longer time period accepted by the Borrower and the Administrative Agent),
(b) has otherwise failed to pay over to the Administrative Agent or any
other Lender any other amount required to be paid by it hereunder within one
Business Day of the date when due, unless the subject of a good faith dispute
or unless such failure has been cured within three Business Days (or such
longer time period accepted by the Administrative Agent or such other Lender,
as applicable), (c) has notified the Administrative Agent, or has stated
publicly, that it will not comply with any such obligations hereunder, or (d) as
to which a Lender Insolvency Event has occurred and is continuing with respect
to such Lender.  Any determination that a
Lender is a Defaulting Lender will be made by the Administrative Agent in its
sole discretion acting in good faith; provided, that a Lender shall not become
a Defaulting Lender solely as the result of the acquisition or maintenance of
an ownership interest in such Lender or its Parent Company by a governmental
authority or an instrumentality thereof.


 


“Dollars” and “$”
means lawful money of the United States of America.


 


5

















 


“EBITDA” means, for
any period, without duplication, (a) Consolidated Net Income for such
period plus (b) to the extent deducted in determining Consolidated
Net Income, Interest Expense, taxes, depreciation, amortization, depletion, and
other non-cash charges for such period (including any provision for the
reduction in the carrying value of assets recorded in accordance with GAAP and
including non-cash charges resulting from the requirements of ASC 410, 718 and
815) for such period plus (c) reasonable non-recurring cash
acquisition related costs incurred and deducted from Consolidated Net Income
pursuant to ASC 805; provided that the amount under this clause (c) shall
not exceed $2,000,000 in the aggregate for any four fiscal quarter period
beginning with the four fiscal quarters ending June 30, 2011, plus (d) reasonable
transaction fees and expenses incurred in connection with negotiation,
execution and delivery of this Agreement, the Loan Documents and any waivers or
amendments thereto, and in connection with the closing of the Merger minus
(e) all non-cash items of income which were included in determining such
Consolidated Net Income (including non-cash income resulting from the
requirements of ASC 410, 718 and 815); provided that, such EBITDA shall
be subject to pro forma adjustments for the Acquisition and for acquisitions
and non-ordinary course asset sales assuming that such transactions had
occurred on the first day of the applicable calculation period for the ratios
set forth in Sections 6.18 and 6.19, which adjustments shall be made in
accordance with the guidelines for pro forma presentations set forth by the SEC
or in a manner otherwise acceptable to the Administrative Agent.


 


“Effective Date”
means June       , 2010.


 


“Eligible Assignee”
means (a) any Lender, (b) any Subsidiary or Affiliate of a Lender,
and (c) any commercial bank or other financial institution (i) approved
by the Administrative Agent and the Issuing Lender in their sole discretion,
and (ii) unless an Event of Default has occurred and is continuing,
reasonably acceptable to the Borrower.


 


“Engineering Report”
means either an Independent Engineering Report or an Internal Engineering
Report.


 


“Environment” or “Environmental”
shall have the meanings set forth in 42 U.S.C. 
9601(8) (1988).


 


“Environmental Claim”
means any third party (including governmental agencies and employees) action,
lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent
agreement or notice of potential or actual responsibility or violation
(including claims or proceedings under the Occupational Safety and Health Acts
or similar laws or requirements relating to health or safety of employees)
which seeks to impose liability under any Environmental Law.


 


“Environmental Law”
means, as to the Borrower or its Subsidiaries, all Legal Requirements or common
law theories applicable to the Borrower or its Subsidiaries arising from,
relating to, or in connection with the Environment, health, or safety,
including without limitation CERCLA, relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or subsurface
strata, or other natural resources; (b) solid, gaseous or liquid waste
generation, treatment, processing, recycling, reclamation, cleanup, storage,
disposal or transportation; (c) exposure to pollutants, contaminants,
hazardous, or toxic substances, materials or wastes; (d) the safety or
health of employees; or (e) the manufacture, processing, handling,
transportation, distribution in commerce, use, storage or disposal of hazardous
or toxic substances, materials or wastes.


 


“Environmental Permit”
means any permit, license, order, approval, registration or other authorization
under Environmental Law.


 


6

















 


“Equity Interest”
means with respect to any Person, any shares, interests, participation, or
other equivalents (however designated) of corporate stock, membership interests
or partnership interests (or any other ownership interests) of such Person.


 


“Equity Issuance”
means any issuance of equity securities or any other Equity Interests
(including any preferred equity securities) by the Borrower or any of its
Subsidiaries other than equity securities issued (i) to the Borrower or
one of its Subsidiaries, (ii) pursuant to employee or director and officer
stock option plans in the ordinary course of business, and (iii) the
conversion of previously issued preferred, convertible Equity Interests or
convertible notes to the extent such Equity Interests and notes were issued in
compliance with the terms hereof.


 


“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time.


 


“Eurocurrency Liabilities”
has the meaning assigned to that term in Regulation D of the Federal
Reserve Board (or any successor), as in effect from time to time.


 


“Eurodollar Base Rate”
means, for the Interest Period for each Eurodollar Rate Advance comprising the
same Borrowing, the interest rate per annum (rounded upward to the nearest
whole multiple of 1/100 of 1% per annum) set forth on the Reuters Reference
LIBOR01 as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m.
(London, England time) two Business Days before the first day of such
Interest Period and for a period equal to such Interest Period; provided
that, if no such quotation appears on the Reuters Reference LIBOR01, the
Eurodollar Rate shall be an interest rate per annum equal to the rate per annum
at which deposits in Dollars are offered by the principal office of Union Bank,
N.A.  in London, England to prime banks
in the London interbank market at 11:00 a.m.  (London, England time) two Business Days
before the first day of such Interest Period in an amount substantially equal
to the Eurodollar Rate Advance to be maintained by the Lender that is the
Administrative Agent in respect of such Borrowing and for a period equal to
such Interest Period.


 


“Eurodollar Rate”
means (a) for purposes of determining the rate applicable for any Interest
Period with respect to any Eurodollar Rate Advance, a rate per annum determined
by the Administrative Agent (which determination shall be conclusive in the
absence of manifest error) pursuant to the following formula:


 




	
   

  	
  Eurodollar Rate =  

  	
  Eurodollar Base Rate

  	
   

  
	
  1.00 — Eurodollar Rate Reserve Percentage

  	
   

  






 


and
(b) for purposes of determining the Adjusted Reference Rate, the rate per
annum for Dollar deposits quoted by the Administrative Agent as the inter-bank
offered rate in effect from time to time for delivery of funds for one month in
amounts approximately equal to the principal amount of the applicable Advances;
provided that, the Administrative Agent may base its quotation of the inter-bank
offered rate upon such offers or other market indicators of the inter-bank
market as the Administrative Agent in its discretion deems appropriate
including, but not limited to, the rate determined under clause (a) above.


 


“Eurodollar Rate Advance”
means an Advance which bears interest as provided in Section 2.09(b).


 


“Eurodollar Rate Reserve
Percentage” of any Lender for the Interest Period for any Eurodollar Rate
Advance means the reserve percentage applicable during such Interest Period (or
if more than one such percentage shall be so applicable, the daily average of
such percentages for those days in such 


 


7

















 


Interest
Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental, or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.


 


“Event of Default”
has the meaning specified in Section 7.01.


 


“Excluded Perfection
Assets” shall mean, unless otherwise elected by the Administrative Agent
during the continuance of an Event of Default, collectively (i) any real
property which is not, or is not related to, Oil and Gas Property, (ii) accounts
due from any Governmental Authority, (iii) vehicles and other equipment
subject to any registration of title statute, (iv) deposit accounts and
securities accounts held with any Person other than a Lender, (v) Hydrocarbons
in transit or stored with third parties in the ordinary course of business, and
(vi) any other Property (a) in which a security interest cannot be
perfected by the filing of a financing statement under the UCC and (b) with
respect to which the Administrative Agent has determined, in its reasonable
discretion that the cost of perfecting a security interest in such Property
outweighs any benefit that would be received by the Secured Parties therefrom.


 


“Excluded Property”
shall have the meaning set forth for such term in the Security Agreement.


 


“Excluded Ratio Debt”
shall mean (a) Debt under Hedge Contracts, and (b) obligations owing
in respect of redeemable preferred stock or other preferred Equity Interest,
including the Series A Preferred Shares.


 


“Existing
Letters of Credit” means the letters of credit issued by Union Bank, N.A.,
as the issuing lender under the Restated Agreement and which have not been
terminated or expired as of the Effective Date.


 


“Expiration Date”
means, with respect to any Letter of Credit, the date on which such Letter of
Credit will expire or terminate in accordance with its terms.


 


“Federal Funds Rate”
means, for any period, a fluctuating interest rate per annum equal for each day
during such period to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for any such day on such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.


 


“Federal Reserve Board”
means the Board of Governors of the Federal Reserve System or any of its
successors.


 


“Fee Letter” means
that certain letter agreement dated January 12, 2010 from Union Bank, N.A.
to the Borrower.


 


“Financial Statements”
means (a) the audited financial statements, including the audited
consolidated balance sheet, of the Borrower and its consolidated Subsidiaries
as of fiscal year ended June 30, 2009, and the related audited
consolidated statements of income, cash flow, and retained earnings of the
Borrower and its consolidated Subsidiaries for the fiscal year then ended,
copies of which have been delivered to the Administrative Agent and the
Lenders, and (b) the audited financial statements, including the audited
consolidated balance sheet, of Cano and its consolidated Subsidiaries as of
fiscal year ended 


 


8

















 


June 30,
2009, and the related audited consolidated statements of income, cash flow, and
retained earnings of Cano and its consolidated Subsidiaries for the fiscal year
then ended, copies of which have been delivered to the Administrative Agent and
the Lenders.


 


“GAAP” means United
States generally accepted accounting principles as in effect from time to time,
applied on a basis consistent with the requirements of Section 1.03.


 


“Governmental Authority”
means, as to any Person in connection with any subject, any foreign, national,
state or provincial governmental authority, or any political subdivision of any
state thereof, or any agency, department, commission, board, authority or
instrumentality, bureau or court, in each case having jurisdiction over such
Person or such Person’s Property in connection with such subject.


 


“Guarantor” means
each Subsidiary of the Borrower executing a Guaranty.


 


“Guaranty” means a
Guaranty in substantially the form of the attached Exhibit C and executed
by a Guarantor, and “Guaranties” shall mean all such guaranties
collectively.


 


“Hazardous Substance”
means the substances identified as such pursuant to CERCLA and those regulated
under any other Environmental Law, including without limitation pollutants,
contaminants, petroleum, petroleum products, radionuclides, radioactive
materials, and medical and infectious waste.


 


“Hazardous Waste”
means the substances regulated as such pursuant to any Environmental Law.


 


“Hedge Contract”
means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, puts, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all
transactions of any kind, and the related confirmations, which are subject to
the terms and conditions of, or governed by, any form of master agreement
published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master
agreement (any such master agreement, together with any related schedules, a “Master
Agreement”), including any such obligations or liabilities under any Master
Agreement; provided that, a “Hedge Contract” shall not include any “Master
Agreement” or other agreement that provides solely for the sale by the Borrower
or its Subsidiaries of physical Hydrocarbons in exchange for cash in the
ordinary course of its business.


 


“Hydrocarbon Hedge
Agreement” means a Hedge Contract which is intended to reduce or eliminate
the risk of fluctuations in the price of Hydrocarbons.


 


“Hydrocarbons” means
oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, and all other liquid and gaseous hydrocarbons produced
or to be produced in conjunction therewith from a well bore and all products,
by-products, and other substances derived therefrom or the processing thereof,
and all other minerals and substances produced in conjunction with such
substances, including, but not limited to, sulfur, geothermal steam, water,
carbon dioxide, helium, and any and all minerals, ores, or substances of value
and the products and proceeds therefrom.


 


9






 










 


“Independent Engineer”
means Haas Petroleum Engineering Services, Inc., Miller and Lents, Ltd.,
Netherland, Sewell & Associates, Inc., Williamson Petroleum
Consultants, Inc. or any other engineering firm acceptable to the
Administrative Agent.


 


“Independent Engineering
Report” means a report, in form and substance satisfactory to the
Administrative Agent and each of the Lenders, prepared by an Independent
Engineer, addressed to the Administrative Agent and the Lenders with respect to
the Oil and Gas Properties owned by the Borrower or its Subsidiaries (or to be
acquired by the Borrower or any of its Subsidiaries, as applicable) which are
or are to be included in the Borrowing Base, which report shall (a) specify
the location, quantity, and type of the estimated Proven Reserves attributable
to such Oil and Gas Properties, (b) contain a projection of the rate of
production of such Oil and Gas Properties, (c) contain an estimate of the
net operating revenues to be derived from the production and sale of Hydrocarbons
from such Proven Reserves based on product price and cost escalation
assumptions specified by the Administrative Agent and the Lenders, and (d) contain
such other information as is customarily obtained from and provided in such
reports or is otherwise reasonably requested by the Administrative Agent or any
Lender.


 


“Interest Expense”
means, for the Borrower and its consolidated Subsidiaries for any period, total
interest, letter of credit fees, and other fees and expenses incurred in
connection with any Debt for such period, whether paid or accrued, including,
without limitation, (i) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers’ acceptance
financing, imputed interest under Capital Leases, and net costs under Interest
Hedge Agreements, all as determined in conformity with GAAP, and (ii) all
interests, dividends, distributions, or other payments made in respect of
preferred Equity Interests or Debt Issuances; but excluding (A) dividends
payable solely in Equity Interests of the Borrower made in respect of preferred
Equity Interests, and (B) all amortized transaction fees and expenses
incurred in connection with the negotiation, execution and delivery of this
Agreement, the Loan Documents and any waivers or amendments thereto.


 


“Interest Hedge Agreement”
means a Hedge Contract between the Borrower and one or more financial
institutions providing for the exchange of nominal interest obligations between
the Borrower and such financial institution or the cap of the interest rate on
any Debt of the Borrower.


 


“Interest Period”
means, for each Eurodollar Rate Advance comprising part of the same Borrowing,
the period commencing on the date of such Eurodollar Rate Advance or the date
of the Conversion of any Reference Rate Advance into a Eurodollar Rate Advance
and ending on the last day of the period selected by the Borrower pursuant to
the provisions below and Section 2.03 and, thereafter, each subsequent
period commencing on the last day of the immediately preceding Interest Period
and ending on the last day of the period selected by the Borrower pursuant to
the provisions below and Section 2.03. 
The duration of each such Interest Period shall be one, two, three, or
if available, six months, in each case as the Borrower may, upon notice
received by the Administrative Agent not later than 10:00 a.m.  (Dallas, Texas time) / 8:00 a.m. (Los
Angeles, California time) on the third Business Day prior to the first day of
such Interest Period, select; provided, however, that:


 


(a)           the Borrower may not
select any Interest Period which ends after the Commitment Termination Date;


 


(b)           Interest Periods
commencing on the same date for Advances comprising part of the same Borrowing
shall be of the same duration;


 


(c)           whenever the last
day of any Interest Period would otherwise occur on a day other than a Business
Day, the last day of such Interest Period shall be extended to occur on the
next succeeding Business Day, provided that if such extension would
cause the last day of such Interest Period to occur in 


 


10

















 


the
next following calendar month, the last day of such Interest Period shall occur
on the next preceding Business Day; and


 


(d)           any Interest Period
which begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of the calendar
month in which it would have ended if there were a numerically corresponding
day in such calendar month.


 


“Interim
Financial Statements” means (a) the unaudited financial statements of
the Borrower and its Subsidiaries, including the consolidated balance sheet,
for the fiscal quarter ended December 31, 2009 and including therein
statements of income, cash flow, and retained earnings of the Borrower and its
consolidated Subsidiaries for the two fiscal quarter period then ended, copies
of which have been delivered to the Administrative Agent and the Lenders, (b) the
unaudited financial statements of Cano and its Subsidiaries, including the
consolidated balance sheet, for the fiscal quarter ended December 31, 2009
and including therein statements of income, cash flow, and retained earnings of
the Borrower and its consolidated Subsidiaries for the two fiscal quarter
period then ended, copies of which have been delivered to the Administrative
Agent and the Lenders, and (c) the pro forma financial statements,
including the consolidated balance sheet, of the Borrower and its consolidated
Subsidiaries as of the fiscal quarter ended December 31, 2009 and after
giving effect to the Merger, and the related consolidated statements of income
of the Borrower and its consolidated Subsidiaries for the two fiscal quarter
period then ended, copies of which have been delivered to the Administrative
Agent and the Lenders.


 


“Internal Engineering
Report” means a report, in form and substance satisfactory to the
Administrative Agent and each Lender, prepared by the Borrower and certified by
a Responsible Officer of the Borrower, addressed to the Administrative Agent
and the Lenders with respect to the Oil and Gas Properties owned by the
Borrower or any of its Subsidiaries (or to be acquired by the Borrower or any
of its Subsidiaries, as applicable) which are or are to be included in the
Borrowing Base, which report shall (a) specify the location, quantity, and
type of the estimated Proven Reserves attributable to such Oil and Gas
Properties, (b) contain a projection of the rate of production of such Oil
and Gas Properties, (c) contain an estimate of the net operating revenues
to be derived from the production and sale of Hydrocarbons from such Proven
Reserves based on product prices and cost escalation assumptions specified by
the Administrative Agent and the 
Lenders, and (d) contain such other information as is customarily
obtained from and provided in such reports or is otherwise reasonably requested
by the Administrative Agent or any Lender.


 


“Issuing Lender”
means Union Bank, N.A., and any successor issuing bank pursuant to Section 8.06.


 


“Leases” means all
oil and gas leases, oil, gas and mineral leases, oil, gas and casinghead gas
leases or any other instruments, agreements, or conveyances under and pursuant
to which the owner thereof has or obtains the right to enter upon lands and
explore for, drill, and develop such lands for the production of Hydrocarbons.


 


“Legal Requirement”
means, as to any Person, any law, statute, ordinance, decree, requirement,
order, judgment, rule, regulation (or official interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulations D, T,
U, and X, which is applicable to such Person.


 


“Lender Insolvency Event”
means that (a) a Lender or its Parent Company is insolvent, or is
generally unable to pay its debts as they become due, or admits in writing its
inability to pay its debts as they become due, or makes a general assignment
for the benefit of its creditors, or (b) such Lender or its 


 


11

















 


Parent
Company is the subject of a bankruptcy, insolvency, reorganization, liquidation
or similar proceeding, or a receiver, trustee, conservator, intervenor or
sequestrator or the like has been appointed for such Lender or its Parent
Company, or such Lender or its Parent Company has taken any action in
furtherance of or indicating its consent to or acquiescence in any such
proceeding or appointment.


 


“Lenders” means a
party hereto that (a) is a lender listed on the signature pages of
this Agreement on the date hereof or (b) is an Eligible Assignee that
became a lender under this Agreement pursuant to Section 2.15 or 9.06.


 


“Lending Office” means, as to any Lender, the office or offices
of such Lender described as such in such Lender’s administrative questionnaire
requested by the Administrative Agent, or such other office or offices as a
Lender may from time to time notify the Borrower and the Administrative Agent.


 


“Letter of Credit”
means, individually, any standby letter of credit issued or deemed issued by
the Issuing Lender for the account of the Borrower in connection with the
Commitments and that is subject to this Agreement, including the Existing Letters
of Credit, and “Letters of Credit” means all such letters of credit
collectively.


 


“Letter of Credit
Application” means the Issuing Lender’s standard form letter of credit
application for standby letters of credit that has been executed by the Borrower
and accepted by the Issuing Lender in connection with the issuance of a Letter
of Credit.


 


“Letter of Credit
Documents” means all Letters of Credit, Letter of Credit Applications, and
agreements, documents, and instruments entered into in connection with or
relating thereto.


 


“Letter of Credit
Exposure” means, at any time, the sum of (a) the aggregate undrawn
maximum face amount of each Letter of Credit at such time plus (b) the
aggregate unpaid amount of all Reimbursement Obligations at such time.


 


“Letter of Credit
Obligations” means any obligations of the Borrower under this Agreement in
connection with the Letters of Credit, including the Reimbursement Obligations.


 


“Lien” means any
mortgage, lien, pledge, assignment, charge, deed of trust, security interest,
hypothecation, preference, deposit arrangement or encumbrance (or other type of
arrangement having the practical effect of the foregoing) to secure or provide
for the payment of any obligation of any Person, whether arising by contract,
operation of law, or otherwise (including, without limitation, the interest of
a vendor or lessor under any conditional sale agreement, synthetic lease,
Capital Lease, or other title retention agreement).


 


“Liquid
Investments” means:


 


(a)           direct obligations
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States maturing within 180 days from the date of any
acquisition thereof;


 


(b)           (i) negotiable
or nonnegotiable certificates of deposit, time deposits, or other similar
banking arrangements maturing within 180 days from the date of acquisition
thereof (“bank debt securities”), issued by (A) any Lender (or any
Affiliate of any Lender) or (B) any other bank or trust company so long as
such certificate of deposit is pledged to secure the Borrower’s or any
Subsidiaries’ ordinary course of business bonding requirements, or any other
bank or trust company which has primary capital of not less than $500,000,000,
if at the time of deposit or purchase, such bank debt securities are 


 


12

















 


rated
not less than “AA” (or the then equivalent) by the rating service of
Standard & Poor’s Ratings Group or of Moody’s Investors Service, Inc.,
and (ii) commercial paper issued by (A) any Lender (or any Affiliate
of any Lender) or (B) any other Person if at the time of purchase such
commercial paper is rated not less than “A-1” (or the then equivalent) by the
rating service of Standard & Poor’s Ratings Group or not less than “P-1”
(or the then equivalent) by the rating service of Moody’s Investors Service, Inc.,
or upon the discontinuance of both of such services, such other nationally
recognized rating service or services, as the case may be, as shall be selected
by the Borrower with the consent of the Majority Lenders;


 


(c)           deposits in money
market funds investing exclusively in investments described in clauses (a) and
(b) above;


 


(d)           repurchase
agreements relating to investments described in clauses (a) and (b) above
with a market value at least equal to the consideration paid in connection
therewith, with any Person who regularly engages in the business of entering
into repurchase agreements and has a combined capital surplus and undivided
profit of not less than $500,000,000, if at the time of entering into such
agreement the debt securities of such Person are rated not less than “AA” (or
the then equivalent) by the rating service of Standard & Poor’s
Ratings Group or of Moody’s Investors Service, Inc.; and


 


(e)           such other
instruments (within the meaning of Article 9 of the Texas Business and
Commerce Code) as the Borrower may request and the Administrative Agent may
approve in writing.


 


“Loan
Documents” means this Agreement, the Notes, the Letter of Credit Documents,
the Guaranties, the Security Instruments, the Fee Letter, and each other
agreement, instrument, or document executed by the Borrower, any Guarantor, or
any of the Borrower’s or a Guarantor’s Subsidiaries or any of their officers at
any time in connection with this Agreement.


 


“Majority Lenders”
means, (a) at any time when there are more than two Lenders, Lenders
holding at least 662/3% of the then aggregate
unpaid principal amount of the Notes and outstanding Letter of Credit
Obligations held by the Lenders at such time (with the aggregate amount of each
Lender’s risk participation and funded participation in Letter of Credit
Obligations being deemed to be “held” by such Lender for purposes of this
definition); provided that, if no such principal amount or Letter of
Credit Obligation is then outstanding, “Majority Lenders” shall mean Lenders
having at least 662/3% of the aggregate amount of
the Commitments at such time and (b) at any time when there are one or two
Lenders, all of the Lenders; provided further that, if there are two or
more Lenders, the Commitment of, and the portion of the Advances and Letter of
Credit Exposure held or deemed held by, any Defaulting Lender shall be excluded
for purposes of making a determination of Majority Lenders unless all of the
Lenders are Defaulting Lenders.


 


“Material Adverse Change”
means (a) a material adverse change in the business, assets (including the
Oil and Gas Properties of the Borrower or any of its Subsidiaries), condition
(financial or otherwise), or results of operations of the Borrower and its
Subsidiaries, taken as a whole, (b) a material adverse effect on the
Borrower’s ability to perform its obligations under this Agreement, any Note,
any Guaranty, or any other Loan Document, or (c) a material adverse effect
on the Borrower’s and its Subsidiaries’ ability, taken as a whole, to perform
their respective obligations under this Agreement, any Note, any Guaranty, or
any other Loan Document


 


“Maturity Date” means
July 1, 2012; provided that, if prior to July 1, 2012, all of the Series A
Preferred Shares have either (a) been converted to common equity of the
Borrower or (b) had the stated maturity date thereof extended to a date
that is at least 91 days after the third anniversary of the Effective Date,
then upon written notice thereof by the Borrower to the Administrative Agent
with documentation 


 


13

















 


satisfactory
to the Administrative Agent to support such conditions, the “Maturity Date”
shall be extended to June       , 2013 so
long as no Default then exists.


 


“Maximum Rate” means
the maximum nonusurious interest rate under applicable law (determined under
such laws after giving effect to any items which are required by such laws to
be construed as interest in making such determination, including without
limitation if required by such laws, certain fees and other costs).


 


“Mortgage” means each
of the mortgages or deeds of trust executed by any one or more of the Borrower,
a Guarantor or any of their respective Subsidiaries in favor of the Administrative
Agent for the ratable benefit of the Secured Parties in substantially the form
of the attached Exhibit D or such other form as may be requested by the
Administrative Agent, together with any assumptions or assignments of the
obligations thereunder by the Borrower, any Guarantor or any of their
respective Subsidiaries, and “Mortgages” shall mean all of such
Mortgages collectively.


 


“Multiemployer Plan”
means a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA.


 


“Non-Consenting Lender”
means any Lender that does not consent to a proposed agreement, amendment,
waiver, consent or release with respect to this Agreement or any other Loan
Document that requires the consent of each Lender, including any increases to
the Borrowing Base.


 


“Note” means a
promissory note of the Borrower payable to the order of any Lender, in
substantially the form of the attached Exhibit E, evidencing indebtedness
of the Borrower to such Lender resulting from Advances owing to such Lender.


 


“Notice of Borrowing”
means a notice of borrowing in the form of the attached Exhibit F signed
by a Responsible Officer of the Borrower.


 


“Notice of Conversion or
Continuation” means a notice of conversion or continuation in the form of
the attached Exhibit G signed by a Responsible Officer of the Borrower.


 


“Obligations” means (a) all
principal, interest, fees, reimbursements, indemnifications, and other amounts
payable by the Borrower, any Guarantor or any of their respective Subsidiaries
to the Administrative Agent, the Issuing Lender or the Lenders under the Loan
Documents, including without limitation, the Letter of Credit Obligations, and (b) all
obligations of the Borrower, any Guarantor or any of their respective
Subsidiaries owing to any Swap Counterparty under any Hedge Contract; provided
that, (i) when any Swap Counterparty assigns or otherwise transfers any
interest held by it under any Hedge Contract to any other Person pursuant to
the terms of such agreement, the obligations thereunder shall constitute
Obligations only if such assignee or transferee is also then a Lender or an
Affiliate of a Lender and (ii) if a Swap Counterparty ceases to be a
Lender hereunder or an Affiliate of a Lender hereunder, obligations owing to
such Swap Counterparty shall be included as Obligations only to the extent such
obligations arise from transactions under such individual Hedge Contracts (and
not the Master Agreement between such parties) entered into at the time such
Swap Counterparty was a Lender hereunder or an Affiliate of a Lender hereunder
(or lender under the Restated Agreement, or an Affiliate thereof, at the time
such Hedge Contract was entered into), without giving effect to any extension,
increases, or modifications thereof which are made after such Swap Counterparty
ceases to be a Lender hereunder or an Affiliate of a Lender hereunder.


 


“Oil and Gas Properties”
means fee mineral interests, term mineral interests, Leases, subleases,
farm-outs, royalties, overriding royalties, net profit interests, carried
interests, production payments and 


 


14

















 


similar
mineral interests, and all unsevered and unextracted Hydrocarbons in, under, or
attributable to such oil and gas Properties and interests.


 


“Parent Company”
means, with respect to a Lender, the bank holding company (as defined in
Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person
owning, beneficially or of record, directly or indirectly, a majority of the
shares of such Lender.


 


“Patriot Act” means
the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)).


 


“PBGC” means the
Pension Benefit Guaranty Corporation or any entity succeeding to any or all of
its functions under ERISA.


 


“Permit” means any
approval, certificate of occupancy, consent, waiver, exemption, variance,
franchise, order, permit, authorization, right or license of or from any
Governmental Authority, including without limitation, an Environmental Permit.


 


“Permitted Liens”
means the Liens permitted under Section 6.01.


 


“Permitted Subject Liens”
means the Liens permitted under paragraphs (c) through (i) of Section 6.01.


 


“Person” means an
individual, partnership, corporation (including a business trust), joint stock
company, limited liability corporation or company, limited liability
partnership, trust, unincorporated association, joint venture or other entity,
or a government or any political subdivision or agency thereof or any trustee,
receiver, custodian or similar official.


 


“Plan” means an
employee benefit plan (other than a Multiemployer Plan) maintained for
employees of the Borrower or any member of the Controlled Group and covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code.


 


“Pledge Agreement”
means a Pledge Agreement in substantially the form of the attached Exhibit H,
executed by the Borrower or any of its Subsidiaries or any of the Guarantors.


 


“Pricing Grid” means
the pricing information set forth in Schedule I.


 


“Property” of any
Person means any property or assets (whether real, personal, or mixed, tangible
or intangible) of such Person.


 


“Proven Reserves”
means, at any particular time, the estimated quantities of Hydrocarbons which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs attributable to Oil and Gas
Properties included or to be included in the Borrowing Base under then existing
economic and operating conditions (i.e., prices and costs as of the date the
estimate is made).


 


“Pro Rata Share”
means, with respect to any Lender, the ratio (expressed as a percentage) of
aggregate Commitments of such Lender to the aggregate Commitments of all the
Lenders (or if such Commitments have been terminated, the ratio (expressed as a
percentage) of outstanding Advances owing to such Lender to the aggregate
outstanding Advances owing to all such Lenders.


 


15

















 


“Reference Rate”
means a fluctuating interest rate per annum as shall be in effect from time to
time equal to the rate of interest publicly announced by Union Bank, N.A., as
its reference rate, whether or not the Borrower has notice thereof.


 


“Reference Rate Advance”
means an Advance which bears interest as provided in Section 2.09(a).


 


“Register” has the
meaning set forth in paragraph (c) of Section 9.06.


 


“Regulations D, T, U, and
X” mean Regulations D, T, U, and X of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.


 


“Reimbursement
Obligations” means all of the obligations of the Borrower to reimburse the
Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit
as established by the Letter of Credit Applications and Section 2.07(d).


 


“Release” shall have
the meaning set forth in CERCLA or under any other Environmental Law.


 


“Response” shall have
the meaning set forth in CERCLA or under any other Environmental Law.


 


“Responsible Officer”
means (a) with respect to any Person that is a corporation, such Person’s
Chief Executive Officer, President, Chief Financial Officer, or Vice President,
(b) with respect to any Person that is a limited liability company, a
manager or the Responsible Officer of such Person’s managing member or manager,
and (c) with respect to any Person that is a general partnership or a
limited liability partnership, the Responsible Officer of such Person’s general
partner or partners.


 


“Restricted Payment”
means, with respect to any Person, (a) any direct or indirect dividend or
distribution (whether in cash, securities or other Property) or any direct or
indirect payment of any kind or character (whether in cash, securities or other
Property) in consideration for or otherwise in connection with any retirement,
purchase, redemption or other acquisition of any Equity Interest of such
Person, or any options, warrants or rights to purchase or acquire any such
Equity Interest of such Person or (b) principal or interest payments (in
cash, Property or otherwise) on,  or redemptions
of, subordinated debt of such Person; provided that the term “Restricted
Payment” shall not include any dividend or distribution payable solely in
Equity Interests of the Borrower or warrants, options or other rights to
purchase such Equity Interests.


 


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


 


“Secured Parties”
means the Administrative Agent, the Lenders, the Issuing Lender, and the Swap
Counterparties.


 


“Security Agreements”
means the Security Agreements, each in substantially the form of the attached Exhibit I,
executed by the Borrower, any of its Subsidiaries, or any of the Guarantors,
and if applicable, the Administrative Agent.


 


“Security Instruments”
means, collectively, (a) the Mortgages, (b) the Transfer Letters, (c) the
Pledge Agreements, (d) the Security Agreements, (e) each other
agreement, instrument or document executed at any time in connection with the
Pledge Agreements, the Security Agreements, or the Mortgages, (f) each
agreement, instrument or document executed in connection with the Cash
Collateral Account; and (g) each other agreement, instrument or document
executed at any time in connection with securing the Obligations.


 


16

















 


“Series A Preferred
Shares” means the convertible, preferred Equity Interests of the Borrower
known as the “Series A Convertible Preferred Stock” issued on June       ,
2010, and maturing on a date no earlier than October 6, 2012, the terms of
which are as set forth in the Certificate of Designation.


 


“Solvent” means, with
respect to any Person as of the date of any determination, that on such date (a) the
fair value of the Property of such Person (both at fair valuation and at
present fair saleable value) is greater than the total liabilities, including
contingent liabilities, of such Person, (b) the present fair saleable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations, and
other commitments as they mature in the normal course of business, (d) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction,
and is not about to engage in business or a transaction, for which such Person’s
Property would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and
current and anticipated future business conduct and the prevailing practice in
the industry in which such Person is engaged. 
In computing the amount of contingent liabilities at any time, such
liabilities shall be computed at the amount which, in light of the facts and
circumstances known at such time, represents the amount that can reasonably be
expected to become an actual or matured liability.


 


“Subsidiary” means,
with respect to any Person (the “parent”) at any date, any other Person
the accounts of which would be consolidated with those of the parent in the
parent’s consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any Person, a
majority of whose outstanding Voting Securities (other than directors’
qualifying shares) shall at any time be owned by such parent or one or more
Subsidiaries of such parent.  Unless otherwise specified,
all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a
Subsidiary or Subsidiaries of the Borrower; provided that Tri-Flow shall not be
considered a Subsidiary of the Borrower or any Guarantor. 


 


“Swap Counterparty”
means (a) any Lender or Affiliate of a Lender that is a counterparty to
any Hedge Contract with the Borrower or any Subsidiary listed on Schedule 4.20
and (b) any counterparty to any other Hedge Contract with the Borrower or
any Subsidiary; provided that such counterparty is a Lender or an Affiliate of
a Lender at the time such Hedge Contract is entered into.  For the avoidance of doubt, “Swap
Counterparty” shall not include any participant of a Lender pursuant to Section 9.06(e) other
than to the extent such participant is otherwise a Lender or an Affiliate of a
Lender.


 


“Termination Event”
means (a) a Reportable Event described in Section 4043 of ERISA and
the regulations issued thereunder (other than a Reportable Event not subject to
the provision for 30-day notice to the PBGC under such regulations), (b) the
withdrawal of the Borrower or any of its Affiliates from a Plan during a plan
year in which it was a “substantial employer” as defined in Section 4001(a)(2) of
ERISA, (c) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC,
or (e) any other event or condition which constitutes grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.


 


“Torch Management
Documents” means that (a) certain Second Amended and Restated
Agreement for Operational, Accounting and Financial Services dated as of January 1,
2009, among Torch Energy Advisors Incorporated, Torch Energy Services, Inc.
and the Borrower, and (b) that certain Co-Employment Agreement as defined
therein, each as amended from time to time so long as such amendment could not
have an adverse effect on the Lenders as determined by the Administrative Agent
in its sole reasonable discretion.


 


17

















 


“Transfer Letters”
means, collectively, the letters in lieu of transfer orders in substantially
the form of the attached Exhibit J and executed by the Borrower, any
Guarantor or any of their respective Subsidiaries executing a Mortgage.


 


“Tri-Flow” means
Tri-Flow, Inc., an Oklahoma corporation.


 


“Type” has the
meaning set forth in Section 1.04.


 


“Unused Commitment Amount”
means, with respect to a Lender at any time, the lesser of (a) such Lender’s
Commitment at such time and (b) such Lender’s Pro Rata Share of the
Borrowing Base then in effect at such time minus, in each case the
sum of (i) the aggregate outstanding principal amount of all Advances owed
to such Lender at such time plus (ii) such Lender’s Pro Rata Share
of the aggregate Letter of Credit Exposure at such time.


 


“Utilization Level”
means the applicable category (being Level I, Level II, Level III or Level IV)
of pricing criteria contained in Schedule I, which is at any time of its
determination based on the percentage obtained by dividing (a) the
outstanding principal amount of the Advances and the Letter of Credit Exposure
at such time by (b) the lesser of the Commitments and the Borrowing Base
at such time.


 


“Voting Securities”
means (a) with respect to any corporation (including any unlimited
liability company), capital stock of such corporation having general voting
power under ordinary circumstances to elect directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have special voting power or rights by reason of the happening of
any contingency), (b) with respect to any partnership, any partnership
interest or other ownership interest having general voting power to elect the
general partner or other management of the partnership or other Person, and (c) with
respect to any limited liability company, membership certificates or interests
having general voting power under ordinary circumstances to elect managers of
such limited liability company.


 


Section 1.02           Computation
of Time Periods.  In this Agreement,
with respect to the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including” and the words “to”
and “until” each means “to but excluding”.


 


Section 1.03           Accounting
Terms; Changes in GAAP.  Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lenders hereunder shall
(unless otherwise disclosed to the Lenders in writing at the time of delivery
thereof) be prepared, in accordance with GAAP applied on a basis consistent
with those used in the preparation of the latest financial statements furnished
to the Lenders hereunder (which prior to the delivery of the first financial
statements under Section 5.06 hereof, shall mean the Financial Statements
and the Interim Financial Statements). 
All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with those used in the
preparation of the annual or quarterly financial statements furnished to the
Lenders pursuant to Section 5.06 hereof most recently delivered prior to
or concurrently with such calculations (or, prior to the delivery of the first
financial statements under Section 5.06 hereof, used in the preparation of
the Financial Statements and the Interim Financial Statements).  In addition, all calculations and defined
accounting terms used herein shall, unless expressly provided otherwise, when
referring to any Person, refer to such Person on a consolidated basis and mean
such Person and its consolidated subsidiaries.


 


18

















 


Section 1.04           Types
of Advances.  Advances are
distinguished by “Type.”  The “Type” of
an Advance refers to the determination whether such Advance is a Eurodollar
Rate Advance or Reference Rate Advance.


 


Section 1.05           Miscellaneous.  Article, Section, Schedule, and Exhibit references
are to Articles and Sections of and Schedules and Exhibits to this Agreement,
unless otherwise specified.  All
references to instruments, documents, contracts, and agreements are references
to such instruments, documents, contracts, and agreements as the same may be amended,
supplemented, and otherwise modified from time to time, unless otherwise
specified.  The words “hereof”, “herein”,
and “hereunder” and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.  The term “including” means “including,
without limitation,”.  Paragraph headings
have been inserted in this Agreement as a matter of convenience for reference
only and it is agreed that such paragraph headings are not a part of this
Agreement and shall not be used in the interpretation of any provision of this
Agreement.


 


ARTICLE
II


 


CREDIT
FACILITIES


 


Section 2.01           Commitment
for Advances.


 


(a)           Advances.  Each Lender severally agrees, on the terms
and conditions set forth in this Agreement, to make Advances to the Borrower
from time to time on any Business Day during the period from the date of this
Agreement until the Commitment Termination Date in an amount for each Lender
not to exceed such Lender’s Unused Commitment Amount.  Each Borrowing shall, in the case of
Borrowings consisting of Reference Rate Advances, be in an aggregate amount not
less than $250,000 and in integral multiples of $100,000 in excess thereof, and
in the case of Borrowings consisting of Eurodollar Rate Advances, be in an
aggregate amount not less than $500,000 and in integral multiples of $100,000
in excess thereof, and in each case shall consist of Advances of the same Type
made on the same day by the Lenders ratably according to their respective Commitments.  Within the limits of each Lender’s
Commitment, and subject to the terms of this Agreement, the Borrower may from
time to time borrow, prepay, and reborrow Advances.


 


(b)           Outstanding
Advances under the Restated Agreement. 
Without any further action on the part of the Borrower or the Lenders,
the parties hereto acknowledge and agree that, effective as of the date hereof,
(i) all outstanding “Advances” which are “Eurodollar Rate Advances” under
the Restated Agreement shall be automatically deemed to be outstanding as
Eurodollar Rate Advances under this Agreement with the same Interest Period but
adjusted for the Lenders’ pro rata share thereof based on the Lenders’
Commitments under this Agreement and (b) all outstanding “Advances” which
are “Reference Rate Advances” under the Restated Agreement shall be
automatically deemed to be outstanding as Reference Rate Advances under this
Agreement but adjusted for the Lenders’ pro rata share thereof based on the
Lenders’ Commitments under this Agreement. 
Such advances under the Restated Agreement shall be assigned, renewed,
extended, and rearranged pursuant to the terms of this Agreement and the Notes
and shall, for all purposes, be deemed a Borrowing hereunder.  The Lenders shall make all appropriate adjustments
and payments between and among themselves to account for the revised Pro Rata
Shares resulting from the Lenders’ Commitments under this Agreement.


 


(c)           Notes.  The indebtedness of the Borrower to
each Lender resulting from the Advances owing to such Lender shall be evidenced
by a Note of the Borrower payable to the order of such Lender.


 


19














 


Section 2.02           Borrowing
Base.


 


(a)           Borrowing Base.  The initial Borrowing Base in effect as of
Effective Date has been set by the Administrative Agent and the Lenders and
acknowledged by the Borrower as $90,000,000. 
Such initial Borrowing Base shall remain in effect until the next
redetermination made pursuant to this Section 2.02.  The Borrowing Base shall be determined in
accordance with the standards set forth in Section 2.02(d) and is
subject to periodic redetermination pursuant to Sections 2.02(b), 2.02(c) and
2.02(e).


 


(b)           Calculation of
Borrowing Base.


 


(i)            The Borrower shall
deliver to the Administrative Agent and each of the Lenders on or before August 1,
2010, and each August 31st thereafter, beginning with August 31,
2011, an Independent Engineering Report dated effective as of the immediately
preceding June 30, and such other information as may be reasonably
requested by any Lender with respect to the Oil and Gas Properties included or
to be included in the Borrowing Base. 
Within 30 days after the Administrative Agent and the Lenders’ receipt
of such Independent Engineering Report and other information, (A) the
Administrative Agent shall deliver to each Lender the Administrative Agent’s
recommendation for the redetermined Borrowing Base, (B) the Administrative
Agent and the Lenders shall redetermine the Borrowing Base in accordance with Section 2.02(d),
and (C) the Administrative Agent shall promptly notify the Borrower in
writing of the amount of the Borrowing Base as so redetermined.


 


(ii)           The Borrower shall
deliver to the Administrative Agent and each Lender, on or before each February 28,
beginning February 28, 2011, an Internal Engineering Report dated
effective as of the immediately preceding December 31 and such other
information as may be reasonably requested by the Administrative Agent or any
Lender with respect to the Oil and Gas Properties included or to be included in
the Borrowing Base.  Within 30 days after
the Administrative Agent and the Lenders’ receipt of such Internal Engineering Report
and other information, (A) the Administrative Agent shall deliver to each
Lender the Administrative Agent’s recommendation for the redetermined Borrowing
Base, (B) the Administrative Agent and the Lenders shall redetermine the
Borrowing Base in accordance with Section 2.02(d), and (C) the
Administrative Agent shall promptly notify the Borrower in writing of the
amount of the Borrowing Base as so redetermined.


 


(iii)          In the event that
the Borrower does not furnish to the Administrative Agent and the Lenders the
Independent Engineering Report, Internal Engineering Report or other
information specified in clauses (i) and (ii) above by the date
specified therein, the Administrative Agent and the Lenders may nonetheless
redetermine the Borrowing Base and redesignate the Borrowing Base from
time-to-time thereafter in their sole discretion until the Administrative Agent
and the Lenders receive the relevant Independent Engineering Report, Internal
Engineering Report, or other information, as applicable, whereupon the
Administrative Agent and the Lenders shall redetermine the Borrowing Base as
otherwise specified in this Section 2.02.


 


(iv)          Each delivery of an
Engineering Report by the Borrower to the Administrative Agent and the Lenders
shall constitute a representation and warranty by the Borrower to the
Administrative Agent and the Lenders that (A) the Borrower and its
Subsidiaries, as applicable, own the Oil and Gas Properties specified therein
with at least 80% (by value) of the Proven Reserves covered therein subject to
an Acceptable Security Interest and free and clear of any Liens (except
Permitted Liens), (B) on and as of the date of such Engineering Report
each Oil and Gas Property described as “proved developed” therein was developed
for oil and gas, and the wells pertaining to such Oil and Gas Properties that
are described therein as producing wells (“Wells”), were each producing oil
and/or gas in paying quantities, except for Wells that were utilized as water
or gas injection wells, carbon dioxide wells or as water disposal wells (each
as noted in such Engineering Report), (C) the descriptions of quantum and
nature of the record title interests of the Borrower and its Subsidiaries, as
applicable, set forth in such Engineering Report include the entire record
title interests of the Borrower and its Subsidiaries in such Oil 


 


20

















 


and
Gas Properties, are complete and accurate in all respects, and take into
account all Permitted Liens, (D) there are no “back-in” or “reversionary”
interests held by third parties which could reduce the interests of the
Borrower or any of its Subsidiaries in such Oil and Gas Properties except as
set forth in Engineering Report, (E) no operating or other agreement to
which the Borrower or any of its Subsidiaries is a party or by which the
Borrower or any of its Subsidiaries is bound affecting any part of such Oil and
Gas Properties requires the Borrower or any of its Subsidiaries to bear any of
the costs relating to such Oil and Gas Properties greater than the record title
interest of the Borrower or any of its Subsidiaries in such portion of the such
Oil and Gas Properties except as set forth in such Engineering Report, except
in the event the Borrower or any of its Subsidiaries is obligated under an
operating agreement to assume a portion of a defaulting party’s share of costs,
and (F) the Borrower’s and the Subsidiaries’ ownership of the Hydrocarbons
and the undivided interests in the Oil and Gas Properties as specified in such Engineering
Report (i) will, after giving full effect to all Permitted Liens, afford
the Borrower or the applicable Subsidiary not less than those net interests
(expressed as a fraction, percentage or decimal) in the production from or
which is allocated to such Hydrocarbons specified as net revenue interest in
such Engineering Report and (ii) will cause the Borrower or the applicable
Subsidiary to bear not more than that portion (expressed as a fraction,
percentage or decimal), specified as working interest in such Engineering
Report, of the costs of drilling, developing and operating the wells identified
in such Engineering Report or identified in the exhibits to the Mortgages
encumbering such Oil and Gas Properties (except for any increases in working interest
with a corresponding increase in the net revenue interest in such Oil and Gas
Property).


 


(c)           Interim
Redetermination.  In addition to the
Borrowing Base redeterminations provided for in Section 2.02(b), (i) the
Administrative Agent and the Lenders may, either in their sole discretion or at
the request of the Borrower and based on such information as the Administrative
Agent and the Lenders deem relevant (but in accordance with Section 2.02(d)),
make one additional redetermination of the Borrowing Base during any six-month
period between scheduled redeterminations; (ii) the Administrative Agent
and the Lenders may make additional redeterminations of the Borrowing Base in
connection with any sale, lease, transfer, assignment, farm-out, conveyance, or
other disposition of Oil and Gas Properties of the Borrower or any Subsidiary
having a fair market value which, when taken together with (A) the fair
market value of all other sales, leases, transfers, assignments, farm-outs,
conveyances, or other dispositions of Oil and Gas Properties of the Borrower or
any Subsidiary and (B) the Borrowing Base value attributed by the
Administrative Agent to BB Hedges that have been subject to novations,
assignments, amendments, modifications or terminations, in each case, occurring
since the date of the most recent scheduled Borrowing Base redetermination,
equals or exceeds 5% of the Borrowing Base then in effect; and (iii) the
Administrative Agent and the Lenders, at the request of the Administrative
Agent, may make additional redeterminations of the Borrowing Base in connection
with any novation, assignment, modification, amendment or termination of a BB
Hedge.  For the avoidance of doubt, such
additional redeterminations of the Borrowing Base shall not constitute nor be
construed as a consent to any transaction or proposed transaction that would
not be permitted under the terms of this Agreement.  The party requesting the redetermination
under this paragraph (c) shall give the other party at least 10 days’
prior written notice that a redetermination of the Borrowing Base pursuant to
this paragraph (c) is to be performed; provided that, no such prior
written notice shall be required for any redetermination made by the Lenders
during the existence of a Default.  In
connection with any redetermination of the Borrowing Base under this Section 2.02(c),
the Borrower shall provide the Administrative Agent and the Lenders with such
information regarding the Borrower and its Subsidiaries’ business (including,
without limitation, its Oil and Gas Properties, the Proven Reserves, and
production relating thereto) as the Administrative Agent or any Lender may
reasonably request; provided that, (y) in the case of requests for an
increase to the Borrowing Base of $5,000,000 or more, the request of an updated
Independent Engineering Report is deemed to be reasonable and (z) other
than as provided in the preceding clause (y), no new reserve or deliverability
studies shall be required with respect to existing Oil and Gas Properties
evaluated in the most recently delivered Engineering Report upon which the then



 


21

















 


effective
Borrowing Base was determined.  The
Administrative Agent shall promptly notify the Borrower in writing of each
redetermination of the Borrowing Base pursuant to this Section 2.02(c) and
the amount of the Borrowing Base as so redetermined.


 


(d)           Standards for
Redetermination.  Each
redetermination of the Borrowing Base by the Administrative Agent and the
Lenders pursuant to this Section 2.02 shall be made (i) in the sole
discretion of the Administrative Agent and the Lenders (but in accordance with
the other provisions of this Section 2.02(d)), (ii) in accordance
with the Administrative Agent’s and the Lenders’ customary internal standards
and practices for valuing and redetermining the value of Oil and Gas Properties
in connection with reserve based oil and gas loan transactions, (iii) in
conjunction with the most recent Independent Engineering Report or Internal
Engineering Report, as applicable, or other information received by the
Administrative Agent and the Lenders relating to the Proven Reserves of the
Borrower and its Subsidiaries, and (iv) based upon the estimated value of
the Proven Reserves owned by the Borrower and its Subsidiaries as determined by
the Administrative Agent and the Lenders. 
In valuing and redetermining the Borrowing Base, the Administrative
Agent and the Lenders may also consider the business, financial condition, and
Debt obligations of the Borrower and its Subsidiaries and such other factors as
the Administrative Agent and the Lenders customarily deem appropriate.  In that regard, the Borrower acknowledges
that the determination of the Borrowing Base contains an equity cushion (market
value in excess of loan value), which is essential for the adequate protection
of the Administrative Agent and the Lenders. 
No Proven Reserves shall be included or considered for inclusion in the
Borrowing Base unless the Administrative Agent shall have received, at the
Borrower’s expense, (A) evidence of title reasonably satisfactory in form
and substance to the Administrative Agent covering at least 80% (by value) of
the Proven Reserves and the Oil and Gas Properties relating thereto and at
least 80% (by value) of the Proven Reserves categorized as “proved, developed
and producing” and the Oil and Gas Properties related thereto and (B) Mortgages
and such other Security Instruments requested by the Administrative Agent to
the extent necessary to cause the Administrative Agent to have an Acceptable
Security Interest in at least 80% (by value) of the Proven Reserves and the Oil
and Gas Properties relating thereto.  At
all times after the Administrative Agent has given the Borrower notification of
a redetermination of the Borrowing Base under this Section 2.02, the
Borrowing Base shall be equal to the redetermined amount or such lesser amount
designated by the Borrower and disclosed in writing to the Administrative Agent
and the Lenders until the Borrowing Base is subsequently redetermined in
accordance with this Section 2.02.


 


Section 2.03           Method
of Borrowing.


 


(a)           Notice.  Each Borrowing shall be made pursuant
to a Notice of Borrowing (or by telephone notice promptly confirmed in writing
by a Notice of Borrowing), given not later than 11:00 a.m.  (Dallas, Texas time) / 9:00 a.m. (Los
Angeles, California time) (i) on the third Business Day before the date of
the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate
Advances or (ii) on the Business Day of the proposed Borrowing, in the
case of a Borrowing comprised of Reference Rate Advances, by the Borrower to
the Administrative Agent, which shall in turn give to each Lender prompt notice
of such proposed Borrowing by telecopier or telex.  Each Notice of a Borrowing shall be given by
telecopier or telex, confirmed immediately in writing, specifying the
information required therein.  In the
case of a proposed Borrowing comprised of Eurodollar Rate Advances, the
Administrative Agent shall promptly notify each Lender of the applicable
interest rate under Section 2.09(b). 
Each Lender shall, before 1:00  pm 
(Dallas, Texas time) / 11:00 a.m. (Los Angeles, California time) on
the date of such Borrowing, make available for the account of its Lending
Office to the Administrative Agent at its address referred to in Section 9.02,
or such other location as the Administrative Agent may specify by notice to the
Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata
Share of such Borrowing.  After the Administrative
Agent’s receipt of 


 


22

















 


such
funds and upon fulfillment of the applicable conditions set forth in Article III,
the Administrative Agent shall make such funds available to the Borrower at its
account with the Administrative Agent.


 


(b)           Conversions and
Continuations.  The Borrower may
elect to Convert or continue any Borrowing under this Section 2.03 by
delivering an irrevocable Notice of Conversion or Continuation to the
Administrative Agent at the Administrative Agent’s office no later than 11:00 a.m.  (Dallas, Texas time) / 9:00 a.m. (Los
Angeles, California time) (i) on the date which is at least three Business
Days in advance of the proposed Conversion or continuation date in the case of
a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate
Advances and (ii) on the Business Day of the proposed Conversion in the
case of a Conversion to a Borrowing comprised of Reference Rate Advances.  Each such Notice of Conversion or Continuation
shall be in writing or by telex or telecopier confirmed immediately in writing
specifying the information required therein. 
Promptly after receipt of a Notice of Conversion or Continuation under
this Section, the Administrative Agent shall provide each Lender with a copy
thereof and, in the case of a Conversion to or a continuation of a Borrowing
comprised of Eurodollar Rate Advances, notify each Lender of the applicable
interest rate under Section 2.09(b).


 


(c)           Certain
Limitations.  Notwithstanding
anything to the contrary contained in paragraphs (a) and (b) above:


 


(i)            at no time shall
there be more than six Interest Periods applicable to outstanding Eurodollar
Rate Advances and the Borrower may not select Eurodollar Rate Advances for any
Borrowing at any time that a Default has occurred and is continuing;


 


(ii)           if any Lender
shall, at least one Business Day before the date of any requested Borrowing,
Conversion, or continuation, notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other Governmental
Authority asserts that it is unlawful, for such Lender or its Lending Office to
perform its obligations under this Agreement to make Eurodollar Rate Advances
or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to
select Eurodollar Rate Advances from such Lender shall be suspended until such
Lender shall notify the Administrative Agent that the circumstances causing
such suspension no longer exist, and the Advance made by such Lender in respect
of such Borrowing, Conversion, or continuation shall be a Reference Rate
Advance;


 


(iii)          if the
Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar
Rate Advances comprising any requested Borrowing, the right of the Borrower to
select Eurodollar Rate Advances for such Borrowing or for any subsequent
Borrowing shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, and each Advance comprising such Borrowing shall be a Reference
Rate Advance;


 


(iv)          if the Majority
Lenders shall, at least one Business Day before the date of any requested
Borrowing, notify the Administrative Agent that the Eurodollar Rate for
Eurodollar Rate Advances comprising such Borrowing will not adequately reflect
the cost to such Lenders of making or funding their respective Eurodollar Rate
Advances, as the case may be, for such Borrowing, the right of the Borrower to
select Eurodollar Rate Advances for such Borrowing or for any subsequent
Borrowing shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, and each Advance comprising such Borrowing shall be a Reference
Rate Advance; and


 


(v)           if the Borrower
shall fail to select the duration or continuation of any Interest Period for
any Eurodollar Rate Advances in accordance with the provisions contained in the
definition of 


 


23

















 


“Interest
Period” in Section 1.01 and paragraph (b) above, the
Administrative Agent shall forthwith so notify the Borrower and the Lenders and
such Advances shall be made available to the Borrower on the date of such
Borrowing as Reference Rate Advances or, if an existing Advance, Convert into
Reference Rate Advances.


 


(d)           Notices
Irrevocable.  Each Notice of
Borrowing and Notice of Conversion or Continuation shall be irrevocable and
binding on the Borrower.  In the case of
any Borrowing for which the related Notice of Borrowing specifies is to be
comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender
against any loss, out-of-pocket cost, or expense incurred by such Lender as a
result of any failure by the Borrower to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III including, without limitation, any
loss (including any loss of anticipated profits), cost, or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the Advance to be made by such Lender as part of such
Borrowing when such Advance, as a result of such failure, is not made on such
date.


 


(e)           Administrative
Agent Reliance.  Unless the
Administrative Agent shall have received notice from a Lender before the date
of any Borrowing that such Lender shall not make available to the Administrative
Agent such Lender’s Pro Rata Share of a Borrowing, the Administrative Agent may
assume that such Lender has made its Pro Rata Share of such Borrowing available
to the Administrative Agent on the date of such Borrowing in accordance with
paragraph (a) of this Section 2.03 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount.  If and to
the extent that such Lender shall not have so made its Pro Rata Share of such
Borrowing available to the Administrative Agent, such Lender and the Borrower
severally agree to immediately repay to the Administrative Agent on demand such
corresponding amount, together with interest on such amount, for each day from
the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable on such day to Advances comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for
such day.  If such Lender shall repay to
the Administrative Agent such corresponding amount and interest as provided
above, such corresponding amount so repaid shall constitute such Lender’s
Advance as part of such Borrowing for purposes of this Agreement even though
not made on the same day as the other Advances comprising such Borrowing.


 


(f)            Lender
Obligations Several.  The failure of
any Lender to make the Advance to be made by it as part of any Borrowing shall
not relieve any other Lender of its obligation, if any, to make its Advance on
the date of such Borrowing.  No Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.


 


Section 2.04           Reduction
of the Commitments.


 


(a)           The Borrower shall
have the right, upon at least three Business Days’ irrevocable notice to the
Administrative Agent, to terminate in whole or reduce ratably in part the
unused portion of the Commitments; provided that each partial reduction
shall be in the aggregate amount of $500,000 or in integral multiples of
$100,000 in excess thereof.


 


(b)           Other than as
provided in Section 2.04(c) below, any reduction and termination of
the Commitments pursuant to this Section 2.04 shall be applied ratably to
each Lender’s Commitment and shall be permanent, with no obligation of the
Lenders to reinstate such Commitments.


 


(c)           In the event of a
Defaulting Lender, the Borrower, at the Borrower’s election may (with the
consent of the Administrative Agent) elect to terminate such Defaulting Lender’s
Commitment 


 


24

















 


hereunder;
provided that (i) such termination must be of the Defaulting Lender’s
entire Commitment, (ii) the Borrower shall pay all amounts owed by the
Borrower to such Defaulting Lender under this Agreement and under the other
Loan Documents (including principal of and interest on the Advances owed to
such Defaulting Lender, accrued commitment fees, and letter of credit fees but
specifically excluding any amounts owing under Section 2.12 as result of
such payment of Advances) and shall deposit with the Administrative Agent into
the Cash Collateral Account cash collateral in the amount equal to such
Defaulting Lender’s ratable share of the Letter of Credit Exposure, (iii) a
Defaulting Lender’s Commitment may be terminated by the Borrower under this Section 2.04(c) if
and only if at such time, the Borrower has elected, or is then electing,
to terminate the Commitments of all then existing Defaulting Lenders.  Upon written notice to the Defaulting Lender
and Administrative Agent of the Borrower’s election to terminate a Defaulting
Lender’s Commitment pursuant to this clause (c) and the payment and
deposit of amounts required to be made by the Borrower under clause (ii) above,
(A) such Defaulting Lender shall cease to be a “Lender” hereunder for all
purposes except that such Lender’s rights under Sections 2.13, 2.14, and 9.07
shall continue with respect to events and occurrences occurring before or concurrently
with its ceasing to be a “Lender” hereunder, (B) such Defaulting Lender’s
Commitment shall be deemed terminated, and (C) such Defaulting Lender
shall be relieved of its obligations hereunder.


 


Section 2.05           Prepayment
of Advances.


 


(a)           Optional.  The Borrower may prepay the Advances, after
giving by 11:00 a.m.  (Dallas, Texas
time) / 9:00 a.m. (Los Angeles, California time)  (i) in the case of Eurodollar Rate
Advances, at least three Business Days’ or (ii) in the case of Reference
Rate Advances, same Business Day’s, irrevocable prior written notice to the
Administrative Agent stating the proposed date and aggregate principal amount
of such prepayment.  If any such notice
is given, the Borrower shall prepay the Advances in whole or ratably in part in
an aggregate principal amount equal to the amount specified in such notice,
together with accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12
as a result of such prepayment being made on such date; provided,
however, that each partial prepayment with respect to:  (A) any amounts prepaid in respect of
Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances
comprising part of the same Borrowing; (B) any prepayments made in respect
of Reference Rate Advances shall be made in a minimum amounts of $250,000 and
in integral multiples of $100,000 in excess thereof, and (C) any
prepayments made in respect of any Borrowing comprised of Eurodollar Rate
Advances shall be made in an aggregate principal amount of at least $500,000
and in integral multiples of $100,000 in excess thereof, and in an aggregate
principal amount such that after giving effect thereto such Borrowing shall
have a remaining principal amount outstanding with respect to such Borrowing of
at least $500,000.  Full prepayments of
any Borrowing are permitted without restriction of amounts.


 


(b)           Borrowing Base
Deficiency.


 


(i)            Other than as
provided in clause (ii) below, if the aggregate outstanding amount of the
Advances plus the Letter of Credit Exposure ever exceeds the lesser of
the (y) Borrowing Base and (z) the aggregate Commitments, the
Borrower shall, after receipt of written notice from the Administrative Agent
regarding such deficiency, take any of the following actions (and the failure
of the Borrower to take such actions to remedy such Borrowing Base deficiency
shall constitute an Event of Default):


 


(A)          prepay Advances or, if the Advances have been repaid in
full, make deposits into the Cash Collateral Account to provide cash collateral
for the Letter of Credit Exposure, such that the Borrowing Base deficiency is
cured within 10 Business Days after the date such deficiency notice is received
by the Borrower from the Administrative Agent;


 


25

















 


(B)           pledge as Collateral for the Obligations additional Oil
and Gas Properties acceptable to the Administrative Agent and each of Lenders
such that the Borrowing Base deficiency is cured within 30 days after the date
such deficiency notice is received by the Borrower from the Administrative
Agent;


 


(C)           (i) deliver, within 10 Business Days after the date
such deficiency notice is received by the Borrower from the Administrative
Agent, written notice to the Administrative Agent indicating the Borrower’s
election to repay the Advances and make deposits into the Cash Collateral
Account to provide cash collateral for the Letters of Credit, each in five
monthly installments equal to one-fifth of such Borrowing Base deficiency with
the first such installment due 30 days after the date such deficiency notice is
received by the Borrower from the Administrative Agent and each following
installment due 30 days after the preceding installment and (ii) make such
payments and deposits within such time periods; provided that, the Borrowing
Base deficiency cure permitted under this clause (C) shall not be
available to the Borrower unless, concurrent with the written notice delivered
to the Administrative Agent electing this option, the Borrower shall have
delivered to the Administrative Agent a calculation of the Borrower’s
consolidated cash flow forecast and financial projections which demonstrates,
to the Administrative Agent’s satisfaction, the Borrower’s ability to make each
such installment payments and to otherwise pay its other Debt and trade
accounts payable as they become due; or


 


(D)          (i) deliver, within 10 Business Days after the date
such deficiency notice is received by the Borrower from the Administrative
Agent, written notice to the Administrative Agent indicating the Borrower’s
election to combine the options provided in clause (B) and clause (C) above,
and also indicating the amount to be prepaid in installments and the amount to
be provided as additional Collateral, and (ii) make such five equal
consecutive monthly installments and deliver such additional Collateral within
the time required under clause (B) and clause (C) above.


 


(ii)           Upon each reduction
of the Borrowing Base, if any, resulting from a Borrowing Base redetermination
made under Section 2.02(c)(ii) or (iii), if the aggregate outstanding
amount of the Advances plus the Letter of Credit Exposure exceeds the
lesser of the (y) Borrowing Base and (z) the aggregate Commitments,
then the Borrower shall immediately prepay the Advances or, if the Advances
have been repaid in full, make deposits into the Cash Collateral Account to
provide cash collateral for the Letter of Credit Exposure, in an amount equal
to (A) such portion of the Borrowing Base deficiency resulting from such
reduction plus (B) if a Borrowing Base deficiency exists prior to
such reduction, then an amount equal to the lesser of (i) the net cash
proceeds of the transaction that triggered such Borrowing Base reduction and (ii) such
portion of the Borrowing Base deficiency in existence immediately prior to such
reduction.


 


(iii)          Each prepayment
pursuant to this Section 2.05(b) shall be accompanied by accrued
interest on the amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.12 as a result of such
prepayment being made on such date.  Each
prepayment under this Section 2.05(b) shall be applied to the
Advances as determined by the Administrative Agent and agreed to by the Lenders
in their sole discretion.  The failure of
the Borrower to provide a notice of its election within the required 10 days as
required in clause (i) above shall be deemed to be an election by the
Borrower to take the actions provided in clause (i)(A) above.


 


(c)           Reduction of
Commitments.  On the date of each
reduction of the aggregate Commitments pursuant to Section 2.04, the
Borrower agrees to make a prepayment in respect of the outstanding amount of
the Advances to the extent, if any, that the aggregate unpaid principal amount
of all Advances plus the Letter of Credit Exposure exceeds the lesser of
(A) the aggregate Commitments, as 


 


26

















 


so
reduced and (B) the Borrowing Base. 
Each prepayment pursuant to this Section 2.05(c) shall be
accompanied by accrued interest on the amount prepaid to the date of such
prepayment and amounts, if any, required to be paid pursuant to Section 2.12
as a result of such prepayment being made on such date.  Each prepayment under this Section 2.05(c) shall
be applied to the Advances as determined by the Administrative Agent and agreed
to by the Lenders in their sole discretion; provided that, outstanding
Reference Rate Advances, if any, shall be paid in full first before any such
prepayments are applied to outstanding Eurodollar Rate Advances.


 


(d)           Illegality.  If any Lender shall notify the Administrative
Agent and the Borrower that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or that any central
bank or other Governmental Authority asserts that it is unlawful for such
Lender or its Lending Office to perform its obligations under this Agreement to
maintain any Eurodollar Rate Advances of such Lender then outstanding
hereunder, (i) the Borrower shall, no later than 11:00 a.m.  (Dallas, Texas time) / 9:00 a.m. (Los
Angeles, California time) (A) if not prohibited by law, on the last day of
the Interest Period for each outstanding Eurodollar Rate Advance made by such
Lender or (B) if required by such notice, on the second Business Day
following its receipt of such notice, prepay all of the Eurodollar Rate
Advances made by such Lender then outstanding, together with accrued interest
on the principal amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.12 as a result of such
prepayment being made on such date, (ii) such Lender shall simultaneously
make a Reference Rate Advance to the Borrower on such date in an amount equal
to the aggregate principal amount of the Eurodollar Rate Advances prepaid to
such Lender, and (iii) the right of the Borrower to select Eurodollar Rate
Advances from such Lender for any subsequent Borrowing shall be suspended until
such Lender gives notice referred to above shall notify the Administrative
Agent that the circumstances causing such suspension no longer exist.


 


(e)           No Additional
Right; Ratable Prepayment.  The
Borrower shall have no right to prepay any principal amount of any Advance
except as provided in Section 2.04(c) and in this Section 2.05,
and all notices given pursuant to this Section 2.05 shall be irrevocable
and binding upon the Borrower.  Each
payment of any Advance pursuant to this Section 2.05 shall be made in a
manner such that all Advances comprising part of the same Borrowing are paid in
whole or ratably in part.


 


Section 2.06           Repayment
of Advances.  The Borrower shall
repay to the Administrative Agent for the ratable benefit of the Lenders the
outstanding principal amount of each Advance, together with any accrued
interest thereon, on the Maturity Date or such earlier date pursuant to Section 7.02
or Section 7.03.


 


Section 2.07           Letters
of Credit.


 


(a)           Commitment.  From time to time from the date of this
Agreement until 30 days prior to the Maturity Date, at the request of the
Borrower, the Issuing Lender shall, on the terms and conditions hereinafter set
forth, issue, increase, or extend the Expiration Date of, Letters of Credit for
the account of the Borrower on any Business Day.  No Letter of Credit will be issued,
increased, or extended:


 


(i)            if such issuance,
increase, or extension would cause the Letter of Credit Exposure to exceed the
lesser of (A) $5,000,000 and (B) an amount equal to the lesser of (1) the
aggregate Commitments at such time and (2) the Borrowing Base in effect at
such time minus, in each case under this clause (B), the sum of the aggregate
outstanding principal amount of all Advances at such time;


 


(ii)           if such Letter of
Credit has an Expiration Date later than the earlier of (A) one year after
the date of issuance thereof and (B) the Maturity Date;


 


27

















 


(iii)          unless such Letter
of Credit Documents are in form and substance acceptable to the Issuing Lender
in its sole discretion;


 


(iv)          unless such Letter
of Credit is a standby letter of credit not supporting the repayment of
indebtedness for borrowed money of any Person;


 


(v)           unless the Borrower
has delivered to the Issuing Lender a completed and executed Letter of Credit
Application; provided that, if the terms of any such Letter of Credit
Application conflicts with the terms of this Agreement, the terms of this
Agreement shall control;


 


(vi)          unless such Letter
of Credit is governed by (A) the Uniform Customs and Practice for Documentary
Credits (2007 Revision), International Chamber of Commerce Publication No. 600,
or (B) the International Standby Practices (ISP98), International Chamber
of Commerce Publication No. 590, in either case, including any subsequent
revisions thereof approved by a Congress of the International Chamber of
Commerce and adhered to by the Issuing Lender;


 


(vii)         if any order,
judgment or decree of any Governmental Authority or arbitrator shall by its
terms purport to enjoin or restrain the Issuing Lender from issuing such Letter
of Credit, or any Legal Requirement applicable to the Issuing Lender or any
request or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over the Issuing Lender shall
prohibit, or request that the Issuing Lender refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Issuing Lender with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing Lender is
not otherwise compensated hereunder) not in effect on the date hereof, or shall
impose upon the Issuing Lender any unreimbursed loss, cost or expense which was
not applicable on the date hereof and which the Issuing Lender in good faith
deems material to it;


 


(viii)        if the issuance of
such Letter of Credit would violate one or more policies of the Issuing Lender
applicable to letters of credit generally;


 


(ix)           except as otherwise
agreed by the Issuing Lender, if Letter of Credit is to be denominated in a
currency other than Dollars; or


 


(x)            a default of any
Lender’s obligations to fund under Section 2.07(d) exists or any
Lender is at such time a Defaulting Lender hereunder, unless the Issuing Lender
has entered into satisfactory arrangements with the Borrower or such Lender to
eliminate the Issuing Lender’s risk with respect to such Lender.


 


(b)           Participations.  Upon (i) the date of the issuance or
increase of a Letter of Credit, and (ii) the Effective Date as to the
deemed issuance of the Existing Letters of Credit under Section 2.07(i),
the Issuing Lender shall be deemed to have sold to each other Lender having a
Commitment and each other Lender having a Commitment shall have been deemed to
have purchased from the Issuing Lender a participation in the related Letter of
Credit Obligations equal to such Lender’s Pro Rata Share at such date and such
sale and purchase shall otherwise be in accordance with the terms of this
Agreement.  The Issuing Lender shall
promptly notify each such participant Lender having a Commitment by telephone
or telecopy of each Letter of Credit issued, increased, or extended or
converted and the actual dollar amount of such Lender’s participation in such
Letter of Credit.


 


(c)           Issuing.  Each Letter of Credit shall be issued,
increased, or extended pursuant to a Letter of Credit Application (or by
telephone notice promptly confirmed in writing by a Letter of Credit
Application), given not later than 11:00 a.m.  (Dallas, Texas time) / 9:00 a.m. (Los
Angeles, California 


 


28

















 


time)  on the fifth Business Day before the date of
the proposed issuance, increase, or extension of the Letter of Credit, and the
Issuing Lender shall give to each other Lender prompt notice thereof by telex,
telephone, or telecopy.  Each Letter of
Credit Application shall be delivered by facsimile or by mail specifying the
information required therein; provided that if such Letter of Credit
Application is delivered by facsimile, the Borrower shall follow such facsimile
with an original by mail.  After the
Issuing Lender’s receipt of such Letter of Credit Application (by facsimile or
by mail) and upon fulfillment of the applicable conditions set forth in Article III,
the Issuing Lender shall issue, increase, or extend such Letter of Credit for
the account of the Borrower.  Each Letter
of Credit Application shall be irrevocable and binding on the Borrower.


 


(d)           Reimbursement.  The Borrower hereby agrees to pay on demand
to the Issuing Lender an amount equal to any amount paid by the Issuing Lender
under any Letter of Credit.  In the event
the Issuing Lender makes a payment pursuant to a request for draw presented
under a Letter of Credit and such payment is not promptly reimbursed by the
Borrower upon demand, the Issuing Lender shall give the Administrative Agent
notice of the Borrower’s failure to make such reimbursement and the
Administrative Agent shall promptly notify each Lender having a Commitment of
the amount necessary to reimburse the Issuing Lender.  Upon such notice from the Administrative
Agent, each Lender shall promptly reimburse the Issuing Lender for such Lender’s
Pro Rata Share of such amount, and such reimbursement shall be deemed for all
purposes of this Agreement to be an Advance to the Borrower transferred at the
Borrower’s request to the Issuing Lender. 
If such reimbursement is not made by any Lender to the Issuing Lender on
the same day on which the Administrative Agent notifies such Lender to make
reimbursement to the Issuing Lender hereunder, such Lender shall pay interest
on its Pro Rata Share thereof to the Issuing Lender at a rate per annum equal
to the Federal Funds Rate.  The Borrower
hereby unconditionally and irrevocably authorizes, empowers, and directs the
Administrative Agent and the Lenders to record and otherwise treat such
reimbursements to the Issuing Lender as Reference Rate Advances under a
Borrowing requested by the Borrower to reimburse the Issuing Lender which have
been transferred to the Issuing Lender at the Borrower’s request.


 


(e)           Obligations
Unconditional.  The obligations of
the Borrower under this Agreement in respect of each Letter of Credit shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement under all circumstances, including, without
limitation, the following circumstances:


 


(i)            any lack of
validity or enforceability of any Letter of Credit Documents;


 


(ii)           any amendment or
waiver of, or any consent to or departure from, any Letter of Credit Documents;


 


(iii)          the existence of
any claim, set-off, defense, or other right which the Borrower may have at any
time against any beneficiary or transferee of such Letter of Credit (or any
Persons for whom any such beneficiary or any such transferee may be acting),
the Issuing Lender, or any other person or entity, whether in connection with
this Agreement, the transactions contemplated in this Agreement or in any
Letter of Credit Documents, or any unrelated transaction;


 


(iv)          any statement or any
other document presented under such Letter of Credit proving to be forged,
fraudulent, invalid, or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;


 


(v)           payment by the
Issuing Lender under such Letter of Credit against presentation of a draft or
certificate which does not comply with the terms of such Letter of Credit; or


 


29






 










 


(vi)          any other
circumstance or happening whatsoever, whether or not similar to any of the
foregoing.


 


provided, however,
that nothing contained in this paragraph (e) shall be deemed to
constitute a waiver of any remedies of the Borrower in connection with the
Letters of Credit or the Borrower’s rights under Section 2.07(f) below.


 


(f)            Liability of
Issuing Lender.  The Borrower assumes
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit.  Neither the Issuing Lender nor any of its
officers or directors shall be liable or responsible for:


 


(i)            the use which may
be made of any Letter of Credit or any acts or omissions of any beneficiary or
transferee in connection therewith;


 


(ii)           the validity,
sufficiency, or genuineness of documents, or of any endorsement thereon, even
if such documents should prove to be in any or all respects invalid,
insufficient, fraudulent, or forged;


 


(iii)          payment by the
Issuing Lender against presentation of documents which do not comply with the
terms of a Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the relevant Letter of Credit; or


 


(iv)          any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit (INCLUDING THE ISSUING LENDER’S OWN NEGLIGENCE),


 


except that the
Borrower shall have a claim against the Issuing Lender, and the Issuing Lender
shall be liable to the Borrower, to the extent of any direct, as opposed to
consequential, damages suffered by the Borrower which the Borrower proves were
caused by the Issuing Lender’s willful misconduct or gross negligence in
determining whether documents presented under a Letter of Credit comply with
the terms of such Letter of Credit.  In
furtherance and not in limitation of the foregoing, the Issuing Lender may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.


 


(g)           Cash Collateral
Account.


 


(i)            If the Borrower is
required to deposit funds in the Cash Collateral Account pursuant to
Sections 2.04(c), 2.05(b), 7.02(b), or 7.03(b), then the Borrower and the
Issuing Lender shall establish the Cash Collateral Account and the Borrower
shall execute any documents and agreements, including the Issuing Lender’s
standard form assignment of deposit accounts, that the Issuing Lender requests
in connection therewith to establish the Cash Collateral Account and grant the
Issuing Lender a first priority security interest in such account and the funds
therein.  The Borrower hereby pledges to
the Issuing Lender and grants the Issuing Lender a security interest in the
Cash Collateral Account, whenever established, all funds held in the Cash
Collateral Account from time to time, and all proceeds thereof as security for
the payment of the Obligations.


 


(ii)           So long as no
Default exists, (A) the Issuing Lender 
may apply the funds held in the Cash Collateral Account only to the reimbursement
of any Letter of Credit Obligations, and (B) the Issuing Lender shall
release to the Borrower at the Borrower’s written request any funds held in the
Cash Collateral Account in an amount up to but not exceeding the excess, if any
(immediately prior to the release of any such funds), of the total amount of
funds held in the Cash Collateral Account over the Letter of Credit
Exposure.  During the existence of any
Default, the Issuing Lender may apply any funds 


 


30

















 


held
in the Cash Collateral Account to the Obligations in any order determined by
the Issuing Lender, regardless of any Letter of Credit Exposure that may remain
outstanding.  The Issuing Lender may in
its sole discretion at any time release to the Borrower any funds held in the
Cash Collateral Account.


 


(iii)          The Issuing Lender
shall exercise reasonable care in the custody and preservation of any funds
held in the Cash Collateral Account and shall be deemed to have exercised such
care if such funds are accorded treatment substantially equivalent to that
which the Issuing Lender accords its own Property, it being understood that the
Issuing Lender shall not have any responsibility for taking any necessary steps
to preserve rights against any parties with respect to any such funds.


 


(h)           Defaulting Lender.  If, at any time, a Defaulting Lender exists
hereunder, then, at the request of the Issuing Lender, the Borrower shall
deposit funds with Administrative Agent into the Cash Collateral Account in an
amount equal to such Defaulting Lender’s Pro Rata Share of the Letter of Credit
Exposure.


 


(i)            Existing Letters
of Credit. The Issuing Lender, the Lenders and the Borrower agree that
effective as of the Effective Date, the Existing Letters of Credit shall be
deemed to have been issued and maintained under, and to be governed by the
terms and conditions of, this Agreement.


 


Section 2.08           Fees.


 


(a)           Commitment Fees.  The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee at a per
annum rate equal to the Commitment Fee Rate on the daily Unused Commitment
Amount of such Lender, from the Effective Date until the Commitment Termination
Date; provided that, no Commitment Fee shall accrue on the Commitment of a
Defaulting Lender during the period such Lender remains a Defaulting
Lender.  The commitment fees shall be due
and payable quarterly in arrears on the last day of each March, June,
September, and December commencing on June 30, 2010 and continuing
thereafter through and including the Commitment Termination Date.


 


(b)           Letter of Credit
Fees.


 


(i)            The Borrower agrees
to pay to the Administrative Agent for the pro rata benefit of the Lenders a
per annum letter of credit fee for each Letter of Credit issued hereunder in an
amount equal to the greater of (A) the Applicable Margin then in effect
for Eurodollar Rate Advances times the daily maximum amount available to be
drawn under such Letter of Credit and (B) $1,000, payable quarterly in
arrears on the last day of each March, June, September, and December commencing
on June 30, 2010 and continuing thereafter through and including the
Commitment Termination Date.


 


(ii)           The Borrower also
agrees to pay to the Issuing Lender such other usual and customary fees associated
with any transfers, amendments, drawings, negotiations or reissuances of any
Letters of Credit.


 


(c)           Other Fees.  The Borrower agrees to pay to Union Bank,
N.A. the fees provided for in the Fee Letter.


 


Section 2.09           Interest.  The Borrower shall pay interest on the unpaid
principal amount of each Advance made by each Lender from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:


 


31

















 


(a)           Reference Rate
Advances.  If such Advance is a
Reference Rate Advance, a rate per annum equal at all times to the Adjusted
Reference Rate in effect from time to time plus the Applicable Margin in
effect from time to time, payable quarterly in arrears on the last day of each
March, June, September, and December commencing on June 30, 2010 and
on the date such Reference Rate Advance shall be paid in full.


 


(b)           Eurodollar Rate
Advances.  If such Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during the
Interest Period for such Advance to the Eurodollar Rate for such Interest
Period plus the Applicable Margin in effect from time to time, payable
on the last day of such Interest Period and, in the case of six month Interest
Periods, on the day which occurs during such Interest Period three months from
the first day of such Interest Period.


 


(c)           [Reserved].


 


(d)           Usury Recapture.


 


(i)            If, with respect to
any Lender, the effective rate of interest contracted for under the Loan
Documents, including the stated rates of interest and fees contracted for
hereunder and any other amounts contracted for under the Loan Documents which
are deemed to be interest, at any time exceeds the Maximum Rate, then the
outstanding principal amount of the loans made by such Lender hereunder shall
bear interest at a rate which would make the effective rate of interest for
such Lender under the Loan Documents equal the Maximum Rate until the
difference between the amounts which would have been due at the stated rates
and the amounts which were due at the Maximum Rate (the “Lost Interest”) has
been recaptured by such Lender.


 


(ii)           If, when the loans
made hereunder are repaid in full, the Lost Interest has not been fully
recaptured by such Lender pursuant to the preceding paragraph, then, to the
extent permitted by law, for the loans made hereunder by such Lender the
interest rates charged under Section 2.09 hereunder shall be retroactively
increased such that the effective rate of interest under the Loan Documents was
at the Maximum Rate since the effectiveness of this Agreement to the extent
necessary to recapture the Lost Interest not recaptured pursuant to the
preceding sentence and, to the extent allowed by law, the Borrower shall pay to
such Lender the amount of the Lost Interest remaining to be recaptured by such
Lender.


 


(iii)          NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND
THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER AND THE
BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS.  ACCORDINGLY, IF ANY LENDER CONTRACTS FOR,
CHARGES, OR RECEIVES ANY CONSIDERATION WHICH CONSTITUTES INTEREST IN EXCESS OF
THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF
PREVIOUSLY PAID, SHALL AT SUCH LENDER’S OPTION BE APPLIED TO THE OUTSTANDING
PRINCIPAL AMOUNT OF THE LOANS MADE HEREUNDER BY SUCH LENDER OR BE REFUNDED TO
THE BORROWER.


 


Section 2.10           Payments
and Computations.


 


(a)           Payment
Procedures.  The Borrower shall make
each payment under this Agreement and under the Notes not later than 11:00 a.m.  (Dallas, Texas time) / 9:00 a.m. (Los
Angeles, California time) on the day when due in Dollars to the Administrative
Agent at the location referred to in the Notes (or such other location as the
Administrative Agent shall designate in writing to the Borrower) in same day
funds without deduction, setoff, or counterclaim of any kind, except as may be
applicable to any Defaulting Lender.  The
Administrative Agent shall promptly thereafter cause to be distributed like funds



 


32

















 


relating
to the payment of principal, interest or fees ratably (other than amounts
payable solely to the Administrative Agent, the Issuing Lender, or a specific
Lender pursuant to Section 2.08(c), 2.09(c), 2.09(d), 2.12, 2.13, 2.14,
8.05, or 9.07, but after taking into account payments effected pursuant to Section 9.04)
in accordance with each Lender’s Pro Rata Share to the Lenders for the account
of their respective Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender or the Issuing Lender to such Lender for
the account of its Lending Office, in each case to be applied in accordance
with the terms of this Agreement.


 


(b)           Computations.  All computations of interest based on the
Reference Rate and of fees shall be made by the Administrative Agent on the
basis of a year of 365 or 366 days, as the case may be, and all computations of
interest based on the Eurodollar Rate and the Federal Funds Rate shall be made
by the Administrative Agent, on the basis of a year of 360 days, in each case
for the actual number of days (including the first day, but excluding the last
day) occurring in the period for which such interest or fees are payable.  Each determination by the Administrative
Agent of an interest rate or fee shall be conclusive and binding for all
purposes, absent manifest error.


 


(c)           Non-Business Day
Payments.  Whenever any payment shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or fees, as the
case may be; provided, however, that if such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.


 


(d)           Administrative
Agent Reliance.  Unless the
Administrative Agent shall have received written notice from the Borrower prior
to the date on which any payment is due to the Lenders that the Borrower shall
not make such payment in full, the Administrative Agent may assume that the
Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such date an amount equal to the amount then due
such Lender.  If and to the extent the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender, together with interest, for each day
from the date such amount is distributed to such Lender until the date such Lender
repays such amount to the Administrative Agent, at the Federal Funds Rate for
such day.


 


Section 2.11           Sharing
of Payments, Etc.  If any Lender
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of the Advances or Letter of
Credit Obligations made by it in excess of its Pro Rata Share of payments on
account of the Advances or Letter of Credit Obligations obtained by all the
Lenders (other than as a result of a termination of a Defaulting Lender’s
Commitment under Section 2.04(c)), such Lender shall notify the
Administrative Agent and forthwith purchase from the other Lenders such
participations in the Advances made by them or Letter of Credit Obligations
held by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such Lender’s ratable share (according to the proportion of (a) the amount
of the participation sold by such Lender to the purchasing Lender as a result
of such excess payment to (b) the total amount of such excess payment) of
such recovery, together with an amount equal to such Lender’s ratable share
(according to the proportion of (i) the amount of such Lender’s required
repayment to the purchasing Lender to (ii) the total amount of all such
required repayments to the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered.  The Borrower agrees that any
Lender so purchasing a participation from another 


 


33

















 


Lender
pursuant to this Section 2.11 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.  If a Lender fails to make an Advance with
respect to a Borrowing as and when required hereunder and the Borrower
subsequently makes a repayment of any Advances, such repayment shall be split
among the non-defaulting Lenders ratably in accordance with their respective
Commitment percentages until each Lender (including the Defaulting Lender) has
its percentage of all of the outstanding Advances and the balance of such
repayment shall be applied among the Lenders in accordance with their Pro Rata
Share.


 


Section 2.12           Breakage
Costs.  If (a) any payment of
principal of any Eurodollar Rate Advance is made other than on the last day of
the Interest Period for such Advance, whether as a result of any payment
pursuant to Section 2.05, the acceleration of the maturity of the Notes
pursuant to Article VII, or otherwise, or (b) the Borrower fails to
make a principal or interest payment with respect to any Eurodollar Rate
Advance on the date such payment is due and payable, the Borrower shall, within
10 days of any written demand sent by any Lender to the Borrower through the
Administrative Agent, pay to the Administrative Agent for the account of such
Lender any amounts required to compensate such Lender for any additional
losses, out-of-pocket costs or expenses which it may reasonably incur as a
result of such payment or nonpayment, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.


 


Section 2.13           Increased
Costs.


 


(a)           Eurodollar Rate
Advances.  If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding,
or maintaining Eurodollar Rate Advances, then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), immediately pay to the Administrative Agent for the
account of such Lender additional amounts sufficient to compensate such Lender
for such increased cost.  A certificate
as to the amount of such increased cost and detailing the calculation of such
cost submitted to the Borrower and the Administrative Agent by such Lender
shall be conclusive and binding for all purposes, absent manifest error.


 


(b)           Capital Adequacy.  If any Lender or the Issuing Lender
determines in good faith that compliance with any law or regulation adopted or
changed after the date hereof or any guideline or request from any central bank
or other Governmental Authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be
maintained by such Lender or the Issuing Lender or any corporation controlling
such Lender or the Issuing Lender and that the amount of such capital is increased
by or based upon the existence of such Lender’s commitment to lend or the
Issuing Lender’s commitment to issue the Letters of Credit and other
commitments of this type, then, upon 30 days’ prior written notice by such
Lender or the Issuing Lender (with a copy of any such demand to the
Administrative Agent), the Borrower shall immediately pay to the Administrative
Agent for the account of such Lender or to the Issuing Lender, as the case may
be, from time to time as specified by such Lender or the Issuing Lender,
additional amounts sufficient to compensate such Lender or the Issuing Lender,
in light of such circumstances, (i) with respect to such Lender, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the existence of such Lender’s commitment to lend under this
Agreement and (ii) with respect to the Issuing Lender, to the extent that
the Issuing Lender reasonably determines such increase in capital to be
allocable to the issuance or maintenance of the Letters of Credit.  A certificate as to such amounts and
detailing the calculation of 


 


34

















 


such
amounts submitted to the Borrower by such Lender or the Issuing Lender shall be
conclusive and binding for all purposes, absent manifest error.


 


(c)           Letters of Credit.  If any change adopted after the date hereof
in any law or regulation or in the interpretation thereof by any court or
administrative or Governmental Authority charged with the administration
thereof shall either (i) impose, modify, or deem applicable any reserve,
special deposit, or similar requirement against letters of credit issued by, or
assets held by, or deposits in or for the account of, the Issuing Lender or (ii) impose
on the Issuing Lender any other condition regarding the provisions of this
Agreement relating to the Letters of Credit or any Letter of Credit
Obligations, and the result of any event referred to in the preceding
clause (i) or (ii) shall be to increase the cost to the Issuing
Lender of issuing or maintaining any Letter of Credit (which increase in cost
shall be determined by the Issuing Lender’s reasonable allocation of the
aggregate of such cost increases resulting from such event), then, upon demand
by the Issuing Lender, the Borrower shall pay to the Issuing Lender, from time
to time as specified by the Issuing Lender, additional amounts which shall be
sufficient to compensate the Issuing Lender for such increased cost.  A certificate as to such increased cost
incurred by the Issuing Lender, as a result of any event mentioned in
clause (i) or (ii) above, and detailing the calculation of such
increased costs submitted by the Issuing Lender to the Borrower, shall be
conclusive and binding for all purposes, absent manifest error.


 


(d)           Mitigation.  If any Lender requests compensation under Section 2.13,
or requires the Borrower to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.14,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Advances hereunder or to assign its rights
and obligations hereunder to another of its offices, branches or affiliates,
if, in the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.13 or 2.14,
as the case may be, in the future and (ii) would not subject such Lender
to any unreimbursed cost or expense and would not otherwise be disadvantageous
to such Lender.  The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.


 


(e)           Delay in Requests.  Failure or delay on the part of any Lender or
the Issuing Lender to demand compensation pursuant to this Section 2.13
shall not constitute a waiver of such Lender’s or the Issuing Lender’s right to
demand such compensation, provided that the Borrower shall not be
required to compensate a Lender or the Issuing Lender pursuant to this Section 2.13
for any increased costs incurred or reductions suffered more than nine months
prior to the date that such Lender or the Issuing Lender, as the case may be,
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender’s or the Issuing Lender’s intention to claim
compensation therefor (except that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the nine-month period
referred to above shall be extended to include the period of retroactive effect
thereof).


 


Section 2.14           Taxes.


 


(a)           No Deduction for
Certain Taxes.  Any and all payments
by the Borrower shall be made, in accordance with Section 2.10, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender, the Issuing Lender, and the
Administrative Agent, taxes imposed on its income, and franchise taxes imposed
on it, by the jurisdiction under the laws of which such Lender, the Issuing
Lender, or the Administrative Agent (as the case may be) is organized or any
political subdivision of the jurisdiction (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as “Taxes”) and, in the case of each Lender and the Issuing Lender,
Taxes by the jurisdiction of such Lender’s Lending Office or any political
subdivision 


 


35

















 


of
such jurisdiction.  If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable to
any Lender, the Issuing Lender, or the Administrative Agent, (i) the sum
payable shall be increased as may be necessary so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.14), such Lender, the Issuing Lender, or the
Administrative Agent (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made; provided,
however, that if the Borrower’s obligation to deduct or withhold Taxes is
caused solely by such Lender’s, the Issuing Lender’s, or the Administrative
Agent’s failure to provide the forms described in paragraph (d) of
this Section 2.14 and such Lender, the Issuing Lender, or the
Administrative Agent could have provided such forms, no such increase shall be
required; (ii) the Borrower shall make such deductions; and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.


 


(b)           Other Taxes.  In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Notes, or the other Loan Documents (hereinafter referred to as “Other
Taxes”).


 


(c)           Indemnification.  THE BORROWER INDEMNIFIES
EACH LENDER, THE ISSUING LENDER, AND THE ADMINISTRATIVE AGENT FOR THE FULL
AMOUNT OF TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR
OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.14)
PAID BY SUCH LENDER, THE ISSUING LENDER, OR THE ADMINISTRATIVE AGENT (AS THE
CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING
THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE
CORRECTLY OR LEGALLY ASSERTED.  EACH
PAYMENT REQUIRED TO BE MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION
SHALL BE MADE TO THE ADMINISTRATIVE AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING
SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE BORROWER RECEIVES WRITTEN
DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON BEHALF OF ITSELF AS
ADMINISTRATIVE AGENT, THE ISSUING LENDER, OR ANY SUCH LENDER.  IF ANY LENDER, THE ADMINISTRATIVE AGENT, OR
THE ISSUING LENDER RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE
BORROWER UNDER THIS PARAGRAPH (C), SUCH LENDER, THE ADMINISTRATIVE AGENT,
OR THE ISSUING LENDER, AS THE CASE MAY BE, SHALL PROMPTLY PAY TO THE
BORROWER THE BORROWER’S SHARE OF SUCH REFUND.


 


(d)           Foreign Lender
Withholding Exemption.  Each Lender
and Issuing Lender that is not incorporated under the laws of the United States
of America or a state thereof agrees that it shall deliver to the Borrower and
the Administrative Agent (i) two duly completed copies of United States
Internal Revenue Service Form W8-ECI or W8-BEN or successor applicable
form, as the case may be, certifying in each case that such Lender is entitled
to receive payments under this Agreement and the Notes payable to it, without
deduction or withholding of any United States federal income taxes, (ii) if
applicable, an Internal Revenue Service Form W-8 or W-9 or successor
applicable form, as the case may be, to establish an exemption from United
States backup withholding tax, and (iii) any other governmental forms
which are necessary or required under an applicable tax treaty or otherwise by
law to reduce or eliminate any withholding tax, which have been reasonably
requested by the Borrower.  Each Lender
which delivers to the Borrower and the Administrative Agent a Form W8-ECI or
W8-BEN and Form W-8 or W-9 pursuant to the next preceding sentence further
undertakes to deliver to the Borrower and the Administrative Agent two further
copies of the said letter and Form W8-ECI or W8-BEN and Form W-8 or
W-9 , or successor applicable forms, or other manner of certification, as the
case may be, on or before the date that any such 


 


36

















 


letter
or form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent letter and form previously delivered by
it to the Borrower and the Administrative Agent, and such extensions or
renewals thereof as may reasonably be requested by the Borrower and the
Administrative Agent certifying in the case of a Form W8-ECI or W8-BEN
that such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes.  If an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which
any delivery required by the preceding sentence would otherwise be required
which renders all such forms inapplicable or which would prevent any Lender
from duly completing and delivering any such letter or form with respect to it and
such Lender advises the Borrower and the Administrative Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax, and in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax, such
Lender shall not be required to deliver such letter or forms.  The Borrower shall withhold tax at the rate
and in the manner required by the laws of the United States with respect to
payments made to a Lender failing to timely provide the requisite Internal
Revenue Service forms.


 


Section 2.15           Replacement
of Lender.  If (i) any Lender
requests compensation under Section 2.13(a) or (b), (ii) any
Lender suspends its obligation to continue, or Convert Advances into, Eurodollar
Rate Advances pursuant to Section 2.03(c)(ii) or Section 2.11, (iii) any
Lender becomes a Defaulting Lender, or (iv) any Lender is a Non-Consenting
Lender (any such Lender, a “Subject Lender”), then (A) in the case
of a Defaulting Lender, the Administrative Agent may, upon notice to the
Subject Lender and the Borrower, require such Subject Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in, and consents required by, Section 9.06), all of its
interests, rights and obligations under this Agreement and the related Loan
Documents to an Eligible Assignee that shall assume such obligations (which
Eligible Assignee may be another Lender, if a Lender accepts such assignment)
and (B) in the case of any Subject Lender, including a Defaulting Lender,
the Borrower may, upon notice to the Subject Lender and the Administrative
Agent and at the Borrower’s sole cost and expense, require such Subject Lender
to assign, without recourse (in accordance with and subject to the restrictions
contained in, and consents required by, Section 9.06), all of its
interests, rights and obligations under this Agreement and the related Loan
Documents to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment), provided that:


 


(A)             as to assignments required by the Borrower, the Borrower
shall have paid to the Administrative Agent the assignment fee specified in Section 9.06;


 


(B)              such Subject Lender shall have received payment of an
amount equal to the outstanding principal of its Advances and participations in
outstanding Letter of Credit Obligations, accrued interest thereon, accrued
fees and all other amounts payable to it hereunder and under the other Loan Documents
(including any amounts under Section 2.12) from the assignee (to the
extent of such outstanding principal and accrued interest and fees) or the
Borrower (in the case of all other amounts);


 


(C)              in the case of any such assignment resulting from a claim
for compensation under Section 2.13, such assignment will result in a
reduction in such compensation or payments thereafter;


 


(D)              such assignment does not conflict with applicable Legal
Requirements; and


 


(E)              with respect to a Non-Consenting Lender, the proposed
agreement, amendment, waiver, consent or release with respect to this Agreement
or any other Loan Document (including any increases to the Borrowing Base) has
been approved by the Required Lenders and such agreement, 


 


37

















 


amendment, waiver, consent
or release can be effected as a result of the assignment contemplated by this
Section.


 


A Lender shall not be
required to make any such assignment or delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.  Solely for purposes of effecting the
assignment required for a Defaulting Lender under this Section 2.15 and to
the extent permitted under applicable Legal Requirements, each Lender hereby
designates and appoints the Administrative Agent as true and lawful agent and
attorney-in-fact, with full power and authority, for and on behalf of and in
the name of such Lender to execute, acknowledge and deliver the Assignment and
Acceptance required hereunder if such Lender was a Defaulting Lender and such
Lender shall be bound thereby as fully and effectively as if such Lender had
personally executed, acknowledged and delivered the same.  In lieu of the Borrower or the Administrative
Agent replacing a Defaulting Lender as provided in this Section 2.15, the
Borrower may terminate such Defaulting Lender’s Commitment as provided in Section 2.04.


 


ARTICLE
III


 


CONDITIONS


 


Section 3.01           Conditions
Precedent to Effectiveness.  The
effectiveness of this Agreement and the amendment and restatement of the
Restated Agreement is subject to the conditions precedent that:


 


(a)           Documentation.  The Administrative Agent shall have received
the following duly executed by all the parties thereto, in form and substance
satisfactory to the Administrative Agent, the Issuing Lender and the Lenders,
and, where applicable, in sufficient copies for each Lender:


 


(i)            this Agreement, a
Note payable to the order of each Lender in the amount of its Commitment, the
Guaranties, the Pledge Agreement, the Security Agreements, and Mortgages
encumbering at least 80% (by value) of the Borrower’s and its Subsidiaries’
Proven Reserves and Oil and Gas Properties in connection therewith, and each of
the other Loan Documents, and all attached exhibits and schedules;


 


(ii)           a favorable opinion
of the Borrower’s, its Subsidiaries’ and the Guarantors’ counsel dated as of
the date of this Agreement and substantially in the form of the attached Exhibit K
covering the matters discussed in such Exhibit and such other matters as
any Lender through the Administrative Agent may reasonably request;


 


(iii)          copies, certified
as of the date of this Agreement by a Responsible Officer of the Borrower of (A) the
resolutions of the Board of Directors of the Borrower approving the Loan
Documents to which the Borrower is a party, (B) the certificate of
incorporation of the Borrower, (C) the bylaws of the Borrower and (D) all
other documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement, the Note, and the other Loan
Documents;


 


(iv)          certificates of a
Responsible Officer of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to sign this Agreement, the Notes,
Notices of Borrowing, Notices of Conversion or Continuation, and the other Loan
Documents to which the Borrower is a party;


 


(v)           copies, certified as
of the date of this Agreement by a Responsible Officer or the secretary or an
assistant secretary of each Guarantor of (A) the resolutions of the Board
of Directors (or other applicable governing body) of such Guarantor approving
the Loan Documents to which it is a party, 


 


38

















 


(B) the
articles or certificate (as applicable) of incorporation (or organization) and
bylaws of such Guarantor, and (C) all other documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
the Guaranty, the Security Instruments, and the other Loan Documents to which
such Guarantor is a party;


 


(vi)          a certificate of the
secretary or an assistant secretary of each Guarantor certifying the names and
true signatures of officers of such Guarantor authorized to sign the Guaranty,
Security Instruments and the other Loan Documents to which such Guarantor is a
party;


 


(vii)         a certificate dated
as of the date of this Agreement from the Responsible Officer of the Borrower
stating that the conditions in this Section 3.01 have been met;


 


(viii)        appropriate UCC-1
and UCC-3, as applicable, Financing Statements covering the Collateral for
filing with the appropriate authorities and any other documents, agreements or
instruments necessary to create an Acceptable Security Interest in such
Collateral;


 


(ix)           stock certificates
required in connection with the Pledge Agreements and stock powers executed in
blank for each such stock certificate;


 


(x)            insurance
certificates naming the Administrative Agent loss payee or additional insured,
as applicable, and evidencing insurance which meets the requirements of this
Agreement and the Security Instruments, and which is otherwise satisfactory to
the Administrative Agent;


 


(xi)           the initial
Independent Engineer’s Report dated effective as of a date acceptable to the
Administrative Agent;


 


(xii)          amendments to the
Certificate of Designation and/or such other evidence satisfactory to the
Administrative Agent confirming that (A) the aggregate annual cash
Restricted Payments required to be made under the Series A Preferred
Shares does not exceed $766,000 and (B) the scheduled maturity date of
such Series A Preferred Shares is a date no earlier than October 6,
2012; and


 


(xiii)         such other
documents, governmental certificates, agreements and lien searches as the
Administrative Agent or any Lender may reasonably request.


 


(b)           Payment of Fees.  On the date of this Agreement, the Borrower
shall have paid the fees required by Section 2.08(c) and all costs
and expenses that have been invoiced and are payable pursuant to Section 9.04.


 


(c)           Delivery of
Financial Statements.  The
Administrative Agent and the Lenders shall have received true and correct
copies of (i) the Financial Statements, (ii) the Interim Financial
Statements and (iii) such other financial information as the Lenders may
reasonably request.


 


(d)           Security
Instruments.  The Administrative
Agent shall have received all appropriate evidence required by the
Administrative Agent and the Lenders in their sole discretion necessary to
determine that the Administrative Agent (for its benefit and the benefit of the
Secured Parties) shall have an Acceptable Security Interest in the Collateral
and that all actions or filings necessary to protect, preserve and validly
perfect such Liens have been made, taken or obtained, as the case may be, and
are in full force and effect.


 


(e)           Title.  The Administrative Agent shall be satisfied
in its sole discretion with the title to the Oil and Gas Properties included in
the Borrowing Base and that such Oil and Gas Properties constitute


 


39














 


at
least 80% of the present value of the Proven Reserves of the Borrower and its
Subsidiaries as determined by the Administrative Agent in its sole discretion.


 


(f)                                    Environmental.  The Administrative Agent shall have received
such Phase I environmental assessments or other reports as it may reasonably
require and shall be satisfied with the condition of the Oil and Gas Properties
with respect to the Borrower’s and its Subsidiaries’ compliance with
Environmental Laws.


 


(g)                                 No Default.  No Default shall have occurred and be
continuing.


 


(h)                                 Representations
and Warranties.  The
representations and warranties contained in Article IV hereof and in each
other Loan Document shall be true and correct in all material respects.


 


(i)                                     Material
Adverse Change.  No event or
circumstance that could cause a Material Adverse Change shall have occurred and
no Target Material Adverse Effect, as defined in the Merger Agreement, shall
have occurred.


 


(j)                                     No Proceeding
or Litigation; No Injunctive Relief.  No action, suit, investigation or other
proceeding (including, without limitation, the enactment or promulgation of a
statute or rule) by or before any arbitrator or any Governmental Authority
shall be threatened or pending and no preliminary or permanent injunction or
order by a state or federal court shall have been entered (i) in
connection with this Agreement or any transaction contemplated hereby or (ii) which,
in any case, in the judgment of the Administrative Agent, could reasonably be
expected to result in a Material Adverse Change (other than the developments
under the litigation proceedings set forth on Schedule 4.07 which have been
disclosed to the Administrative Agent prior to the Effective Date).


 


(k)                                  Consents, Licenses, Approvals, etc.  The
Administrative Agent shall have received true copies (certified to be such by
the Borrower or other appropriate party) of all consents, licenses and
approvals required in accordance with applicable law, or in accordance with any
document, agreement, instrument or arrangement to which the Borrower, the
Guarantors and their respective Subsidiaries is a party, in connection with the
execution, delivery, performance, validity and enforceability of this
Agreement, and the other Loan Documents. 
In addition, the Borrower, the Guarantors and their respective
Subsidiaries shall have all such material consents, licenses and approvals
required in connection with the continued operation of the Borrower, the
Guarantors and respective Subsidiaries, and such approvals shall be in full
force and effect, and all applicable waiting periods shall have expired without
any action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose material and adverse conditions on this
Agreement and the actions contemplated hereby.


 


(l)                                     Hedging
Arrangements.  The
Borrower shall have entered into the Hydrocarbon Hedge Agreements detailed on Part A
of Schedule 4.20.


 


(m)                               Material
Contracts.  The
Borrower shall have delivered to the Administrative Agent copies of all material
contracts, agreements or instruments identified as material in any public
filings with the SEC on or prior to the date hereof to the extent requested by
the Administrative Agent.


 


(n)                                 Other Debt.  Concurrent with the closing of this Agreement
and the making of the initial Advances hereunder, all outstanding obligations
under (i) the Subordinated Credit Agreement dated as of December 17,
2008 among Cano and UnionBanCal Equities Inc. as the administrative agent and
sole lender, and (ii) the Second Amended and Restated Credit Agreement
dated as of June 26, 2009, as heretofore amended, among the Borrower, the
lenders party thereto and CIT Capital USA Inc., as 


 


40

















 


administrative
agent for such lenders shall have been paid in full and the Administrative
Agent shall have received “pay-off” letters in form and substance reasonably
satisfactory to the Administrative Agent with respect to such Debt; and
arrangements satisfactory to the Administrative Agent shall have been made for
the termination and release of all Liens securing such Debt.


 


(o)                                 Merger.  The Administrative Agent shall be satisfied
that the Merger has been fully effected on or prior to the Effective Date
pursuant to the terms of the Merger Agreement.


 


(p)                                 Availability.  The Administrative Agent shall be satisfied
that as of the Effective Date, after giving effect to (i) the Merger, (ii) the
payment in full of the Debt required under clause (n) above, (iii) all
Advances made on the Effective Date and all advances under the Restated
Agreement that are being renewed, extended, and rearranged (but not substituted
or extinguished) as an Advance under this Agreement pursuant to the terms of
this Agreement, and (iv) all Letters of Credit issued or deemed to be
issued on the Effective Date (including the Existing Letters of Credit, if
any), the aggregate Unused Commitment Amount is greater than or equal to
$30,000,000.


 


(q)                                 USA Patriot Act.  The Borrower has delivered to each Lender
that is subject to the Patriot Act such information requested by such Lender in
order to comply with the Patriot Act.


 


Section 3.02                                Conditions
Precedent to All Borrowings.  The obligation of each Lender to make an
Advance on the occasion of each Borrowing and of the Issuing Lender to issue,
increase, or extend any Letter of Credit shall be subject to the further
conditions precedent that on the date of such Borrowing or the date of the
issuance, increase, or extension of such Letter of Credit:


 


(a)                                  the following
statements shall be true (and each of the giving of the applicable Notice of
Borrowing, or Letter of Credit Application and the acceptance by the Borrower
of the proceeds of such Borrowing or the issuance, increase, or extension of
such Letter of Credit shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing or on the date of such issuance,
increase, or extension of such Letter of Credit, as applicable, such statements
are true):


 


(i)                                     the
representations and warranties contained in Article IV of this Agreement
and the representations and warranties contained in the Security Instruments,
the Guaranties, and each of the other Loan Documents are true and correct in
all material respects on and as of the date of such Borrowing or the date of
the issuance, increase, or extension of such Letter of Credit, before and after
giving effect to such Borrowing or to the issuance, increase, or extension of
such Letter of Credit and to the application of the proceeds from such
Borrowing, as though made on and as of such date except to the extent that any
such representation or warranty expressly relates solely to an earlier date, in
which case it shall have been true and correct in all material respects as of
such earlier date; and


 


(ii)                                  no Default has occurred
and is continuing or would result from such Borrowing or from the application
of the proceeds therefrom, or would result from the issuance, increase, or
extension of such Letter of Credit; and


 


(b)                                 the
Administrative Agent shall have received such other approvals, opinions, or
documents reasonably deemed necessary or desirable by any Lender as a result of
circumstances occurring after the date of this Agreement, as any Lender through
the Administrative Agent may reasonably request.


 


41

















 


ARTICLE
IV


 


REPRESENTATIONS
AND WARRANTIES


 


The
Borrower represents and warrants as follows:


 


Section 4.01                                Existence;
Subsidiaries.  The
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of Texas and in good standing and qualified to do business in
each other jurisdiction where its ownership or lease of Property or conduct of
its business requires such qualification except where the failure to be so
qualified could not, individually or in the aggregate, reasonably be expected
to cause a Material Adverse Change.  Each
Subsidiary of the Borrower is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of formation and in good standing
and qualified to do business in each jurisdiction where its ownership or lease
of Property or conduct of its business requires such qualification except where
the failure to be so qualified could not, individually or in the aggregate,
reasonably be expected to cause a Material Adverse Change.  As of the date hereof, the Borrower has no
Subsidiaries other than those identified in Schedule 4.01.


 


Section 4.02                                Power.  The execution, delivery, and performance by
the Borrower of this Agreement, the Notes, and the other Loan Documents to
which it is a party and by the Guarantors of the Guaranties and the other Loan
Documents to which they are a party and the consummation of the transactions
contemplated hereby and thereby (a) are within the Borrower’s and such
Guarantors’ governing powers, (b) have been duly authorized by all
necessary governing action, (c) do not contravene (i) the Borrower’s
or any Guarantor’s certificate or articles of incorporation, bylaws, limited
liability company agreement, or other similar governance documents or (ii) any
law or any contractual restriction binding on or affecting the Borrower or any
Guarantor, and (d) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement.  At the time of each Advance and the issuance,
extension or increase of a Letter of Credit, such Advance and such Letter of
Credit, and the use of the proceeds of such Advance and such Letter of Credit,
will be within the Borrower’s governing powers, will have been duly authorized
by all necessary corporate action, will not contravene (i) the Borrower’s
certificate of incorporation and bylaws or other organizational documents or (ii) any
law or any contractual restriction binding on or affecting the Borrower and
will not result in or require the creation or imposition of any Lien prohibited
by this Agreement.


 


Section 4.03                                Authorization
and Approvals.  No consent,
order, authorization, or approval or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required for the
due execution, delivery, and performance by the Borrower of this Agreement, the
Notes, or the other Loan Documents to which the Borrower is a party or by each
Guarantor of its Guaranty or the other Loan Documents to which it is a party or
the consummation of the transactions contemplated thereby.  At the time of each Borrowing and each
issuance, increase or extension of a Letter of Credit, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required for such Borrowing or such issuance, increase or
extension of such Letter of Credit or the use of the proceeds of such Borrowing
or such Letter of Credit.


 


Section 4.04                                Enforceable
Obligations.  This
Agreement, the Notes, and the other Loan Documents to which the Borrower is a
party have been duly executed and delivered by the Borrower and the Guaranties
and the other Loan Documents to which each Guarantor is a party have been duly
executed and delivered by the Guarantors. 
Each Loan Document is the legal, valid, and binding obligation of the
Borrower and each Guarantor which is a party to it enforceable against the
Borrower and each such Guarantor in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, or similar law affecting creditors’ rights
generally and by general principles of equity.


 


42

















 


Section 4.05                                Financial
Statements.


 


(a)                                  The Borrower
has delivered to the Administrative Agent and the Lenders copies of the
Financial Statements and the Interim Financial Statements, and the Financial
Statements and the Interim Financial Statements are accurate and complete in
all material respects and present fairly the financial condition of Borrower
and its consolidated Subsidiaries (or if applicable, the financial condition of
Cano and its consolidated Subsidiaries prior to the Merger) for their
respective period in accordance with GAAP. 
As of the date of the Financial Statements, there were no material
contingent obligations, liabilities for taxes, unusual forward or long-term
commitments, or unrealized or anticipated losses of the Borrower or any
Subsidiary, except as disclosed therein and adequate reserves for such items
have been made in accordance with GAAP.


 


(b)                                 Since the date
of the Financial Statements, no event or circumstance that could reasonably be
expected to cause a Material Adverse Change has occurred.


 


(c)                                  As of the date
hereof, the Borrower, the Guarantors and their respective Subsidiaries have no
Debt other than the Debt listed on Schedule 4.05.


 


Section 4.06                                True and
Complete Disclosure.  All factual
information (excluding estimates and projections) heretofore or
contemporaneously furnished by or on behalf of the Borrower or any of the
Guarantors in writing to any Lender or the Administrative Agent for purposes of
or in connection with this Agreement, any other Loan Document or any
transaction contemplated hereby or thereby is, and all other such factual
information hereafter furnished by or on behalf of the Borrower and the
Guarantors in writing to the Administrative Agent or any of the Lenders was or
shall be, true and accurate in all material respects on the date as of which
such information was or is dated or certified and did not or does not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained therein not misleading at such time.  All projections, estimates, and pro forma
financial information furnished by the Borrower were prepared on the basis of
assumptions, data, information, tests, or conditions believed to be reasonable
at the time such projections, estimates, and pro forma financial information
were furnished.


 


Section 4.07                                Litigation;
Compliance with Laws.


 


(a)                                  There is no
pending or, to the best knowledge of the Borrower, threatened action or
proceeding affecting the Borrower or any of the Guarantors before any court,
Governmental Authority or arbitrator which could reasonably be expected to
cause a Material Adverse Change other than as set forth in Schedule 4.07 or
which purports to affect the legality, validity, binding effect or
enforceability of this Agreement, any Note, or any other Loan Document.  As of the Effective Date, there is no pending
or, to the knowledge of the Borrower, threatened action or proceeding
instituted against the Borrower or any of the Guarantors which seeks to
adjudicate the Borrower or any of the Guarantors as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its Property.


 


(b)                                 The Borrower
and its Subsidiaries have complied in all material respects with all material
statutes, rules, regulations, orders and restrictions of any Governmental
Authority having jurisdiction over the conduct of their respective businesses
or the ownership of their respective Property


 


Section 4.08                                Use of Proceeds.  The proceeds of the Advances will be used by
the Borrower for the purposes described in Section 5.09.  Neither the Borrower nor any Subsidiary is
engaged in the 


 


43

















 


business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U). 
No proceeds of any Advance will be used to purchase or carry any margin
stock in violation of Regulation T, U or X.


 


Section 4.09                                Investment
Company Act.  Neither the
Borrower nor any of the Guarantors is an “investment company” or a company “controlled”
by an “investment company” within the meaning of the Investment Company Act of
1940, as amended.


 


Section 4.10                                Reserved.


 


Section 4.11                                Taxes.


 


(a)                                  Reports and
Payments.  All Returns
(as defined below in clause (c) of this Section) required to be filed by
or on behalf of the Borrower, the Guarantors, or any member of the Controlled
Group (hereafter collectively called the “Tax Group”) have been duly filed on a
timely basis or appropriate extensions have been obtained and such Returns are
and will be true, complete and correct, except where the failure to so file
would not be reasonably expected to cause a Material Adverse Change; and all
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto will have been paid in full on a timely basis, and no other
Taxes will be payable by the Tax Group with respect to items or periods covered
by such Returns, except in each case to the extent of (i) reserves
reflected in the Financial Statements and the Interim Financial Statements, or (ii) taxes
that are being contested in good faith. 
The reserves for accrued Taxes reflected in the financial statements
delivered to the Lenders under this Agreement are adequate in the aggregate for
the payment of all unpaid Taxes, whether or not disputed, for the period ended
as of the date thereof and for any period prior thereto, and for which the Tax
Group may be liable in its own right, as withholding agent or as a transferee
of the assets of, or successor to, any Person.


 


(b)                                 Taxes
Definition.  “Taxes” in
this Section 4.11 shall mean all taxes, charges, fees, levies, or other
assessments imposed by any federal, state, local, or foreign taxing authority,
including without limitation, income, gross receipts, excise, real or personal
property, sales, occupation, use, service, leasing, environmental, value added,
transfer, payroll, and franchise taxes (and including any interest, penalties,
or additions to tax attributable to or imposed on with respect to any such
assessment).


 


(c)                                  Returns
Definition.  “Returns”
in this Section 4.11 shall mean any federal, state, local, or foreign
report, declaration of estimated Tax, information statement or return relating
to, or required to be filed in connection with, any Taxes, including any
information return or report with respect to backup withholding or other
payments of third parties.


 


Section 4.12                                Pension Plans.  All Plans are in compliance in all material
respects with all applicable provisions of ERISA.  No Termination Event has occurred with
respect to any Plan, and each Plan has complied with and been administered in
all material respects in accordance with applicable provisions of ERISA and the
Code.  No “accumulated funding deficiency”
(as defined in Section 302 of ERISA) has occurred and there has been no
excise tax imposed under Section 4971 of the Code.  No Reportable Event under Section 4043
of ERISA and the regulations issued thereunder has occurred with respect to any
Multiemployer Plan, and each Multiemployer Plan has complied with and been
administered in all material respects with applicable provisions of ERISA and
the Code.  The present value of all
benefits vested under each Plan (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits by more
than $1,000,000 in the aggregate. 
Neither the Borrower nor any member of the Controlled Group has had a complete
or partial withdrawal from any Multiemployer Plan for which there is any
withdrawal liability.  As of the most
recent valuation date applicable thereto, neither the 


 


44

















 


Borrower
nor any member of the Controlled Group would become subject to any liability
under ERISA if the Borrower or any member of the Controlled Group has received
notice that any Multiemployer Plan is insolvent or in reorganization.  Based upon GAAP existing as of the date of
this Agreement and current factual circumstances, the Borrower has no reason to
believe that the annual cost during the term of this Agreement to the Borrower
or any member of the Controlled Group for post-retirement benefits to be
provided to the current and former employees of the Borrower or any member of
the Controlled Group under Plans that are welfare benefit plans (as defined in Section 3(1) of
ERISA) could, in the aggregate, reasonably be expected to cause a Material
Adverse Change.


 


Section 4.13                                Condition of
Property; Casualties.  Each of the
Borrower and the Guarantors has good and marketable title to all of its Oil and
Gas Properties as is customary in the oil and gas industry in all material
respects, free and clear of all Liens except for Permitted Liens.  Each of the Borrower and the Guarantors has
good and indefeasible title to all of its other material Properties, free and
clear of all Liens except for Permitted Liens. 
The material Properties used or to be used in the continuing operations
of the Borrower and each of the Guarantors are in good repair, working order
and condition, normal wear and tear excepted. 
Since the date of the Financial Statements and except as otherwise
disclosed by the Borrower to the Administrative Agent in writing, neither the
business nor the material Properties of the Borrower and each of the
Guarantors, taken as a whole, has been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property
or cancellation of contracts, Permits, or concessions by a Governmental
Authority, riot, activities of armed forces, or acts of God or of any public
enemy.


 


Section 4.14                                No Burdensome
Restrictions; No Defaults.


 


(a)                                  Other than
those identified on Schedule 4.14(a), neither the Borrower nor any Guarantor is
a party to any indenture, loan, or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate restriction or
provision of applicable law or governmental regulation that could reasonably be
expected to cause a Material Adverse Change. 
Neither the Borrower nor any of its Subsidiaries is in default under or
with respect to any contract, agreement, lease, or other instrument to which
the Borrower or any Subsidiary is a party and which could reasonably be
expected to cause a Material Adverse Change. 
Neither the Borrower nor any of its Subsidiaries has received any notice
of default under any material contract, agreement, lease, or other instrument
to which the Borrower or such Subsidiary is a party a copy of which has not
been delivered to the Administrative Agent.


 


(b)                                 No Default has
occurred and is continuing.


 


Section 4.15                                Environmental Condition.


 


(a)                                  Permits, Etc.  The Borrower and the
Guarantors (i) have obtained all Environmental Permits necessary for the
ownership and operation of their respective Properties and the conduct of their
respective businesses; (ii) have at all times been and are in material
compliance with all terms and conditions of such Permits and with all other
material requirements of applicable Environmental Laws; (iii) have not
received notice of any material violation or alleged violation of any
Environmental Law or Permit; and (iv) are not subject to any actual or
contingent Environmental Claim, which could reasonably be expected to cause a
Material Adverse Change.


 


(b)                                 Certain
Liabilities.  To the
Borrower’s actual knowledge, none of the present or previously owned or
operated Property of the Borrower or any Guarantor or of any of their former
Subsidiaries, wherever located, (i) has been placed on or proposed to be
placed on the National Priorities List, the Comprehensive Environmental
Response Compensation Liability Information System list, or 


 


45

















 


their
state or local analogs, or have been otherwise investigated, designated,
listed, or identified as a potential site for removal, remediation, cleanup,
closure, restoration, reclamation, or other response activity under any
Environmental Laws, which could reasonably be expected to result in the need
for Response that would cause a Material Adverse Change; (ii) is subject
to a Lien, arising under or in connection with any Environmental Laws, that
attaches to any revenues or to any Property owned or operated by the Borrower
or any of the Guarantors, wherever located, which could reasonably be expected
to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past
operations which has caused at the site or at any third-party site any
condition that has resulted in or could reasonably be expected to result in the
need for Response that would cause a Material Adverse Change.


 


(c)                                  Certain Actions.  Without limiting the foregoing, (i) all
necessary notices have been properly filed, and no further action is required
under current Environmental Law as to each Response or other restoration or
remedial project undertaken by the Borrower or the Guarantors or any of their former
Subsidiaries on any of their presently or formerly owned or operated Property
and (ii) the present and, to the Borrower’s best knowledge, future
liability, if any, of the Borrower and the Guarantors which could reasonably be
expected to arise in connection with requirements under Environmental Laws will
not result in a Material Adverse Change.


 


Section 4.16                                Permits, Licenses, Etc.  The Borrower and the
Guarantors possess all authorizations, Permits, licenses, patents, patent
rights or licenses, trademarks, trademark rights, trade names rights and
copyrights which are material to the conduct of their business.  The Borrower and the Guarantors manage and
operate their business in all material respects in accordance with all
applicable Legal Requirements and good industry practices.


 


Section 4.17                                Gas Contracts.  Neither the Borrower nor any of the
Guarantors, as of the date hereof, (a) is obligated in any material
respect by virtue of any prepayment made under any contract containing a “take-or-pay”
or “prepayment” provision or under any similar agreement to deliver
hydrocarbons produced from or allocated to any of the Borrower’s and its
Subsidiaries’ Oil and Gas Properties at some future date without then or
thereafter receiving full payment therefor, or (b) except as has been
disclosed to the Administrative Agent, has produced gas, in any material
amount, subject to balancing rights of third parties or subject to balancing
duties under Legal Requirements.


 


Section 4.18                                Liens; Titles, Leases, Etc.  None of the Property of the
Borrower or any of the Guarantors is subject to any Lien other than Permitted
Liens.  On the date of this Agreement,
all governmental actions and all other filings, recordings, registrations, third
party consents and other actions which are necessary to create and perfect the
Liens provided for in the Security Instruments will have been made, obtained
and taken in all relevant jurisdictions, other than routine filings or
recordings of Mortgages and financing statements.  All material leases and agreements for the
conduct of business of the Borrower and the Guarantors are valid and
subsisting, in full force and effect and there exists no default or event of
default or circumstance which with the giving of notice or lapse of time or
both would give rise to a default under any such leases or agreements which
could reasonably be expected to cause a Material Adverse Change.  Neither the Borrower nor any of the
Guarantors is a party to any agreement or arrangement (other than this
Agreement, the Security Instruments and any other agreement permitted under Section 6.03),
or subject to any order, judgment, writ or decree, which either restricts or
purports to restrict its ability to grant Liens to secure the Obligations
against their respective assets or Properties.


 


Section 4.19                                Solvency and
Insurance.  Before and
after giving effect to the making of the initial Advances (or deemed issuance
thereof under Section 2.01(b)), each of the Borrower and its Subsidiaries
is Solvent.  Additionally, each of the
Borrower and its Subsidiaries carry insurance required under Section 5.02
of this Agreement.


 


46

















 


Section 4.20                                Hedging
Agreements.  Schedule
4.20 sets forth, as of the date hereof, a true and complete list of all
Interest Hedge Agreements, Hydrocarbon Hedge Agreements, and Hedge Contracts of
the Borrower and its Subsidiaries, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes),
the net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied), and the counterparty to
each such agreement.


 


ARTICLE
V


 


AFFIRMATIVE
COVENANTS


 


So long as any Note or any
amount under any Loan Document shall remain unpaid, any Letter of Credit shall
remain outstanding, or any Lender shall have any Commitment hereunder, the
Borrower agrees, unless the Majority Lenders shall otherwise consent in
writing, to comply with the following covenants.


 


Section 5.01                                Compliance with
Laws, Etc.  The
Borrower shall comply, and cause each of its Subsidiaries to comply, in all
material respects with all material Legal Requirements.  Without limiting the generality and coverage
of the foregoing, the Borrower shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects, with all material
Environmental Laws and all laws, regulations, or directives with respect to
equal employment opportunity and employee safety in all jurisdictions in which the
Borrower, or any of its Subsidiaries do business; provided, however,
that this Section 5.01 shall not prevent the Borrower or any of its
Subsidiaries from, in good faith and with reasonable diligence, contesting the
validity or application of any such laws or regulations by appropriate legal
proceedings.  Without limitation of the
foregoing, the Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain
and possess all authorizations, Permits, licenses, trademarks, trade names,
rights and copyrights which are reasonably necessary to the conduct of its
business and (b) obtain, as soon as practicable, all consents or approvals
required from any states of the United States (or other Governmental
Authorities) reasonably necessary to grant the Administrative Agent an
Acceptable Security Interest in at least 80% by value (or if an Event of
Default exists and is continuing, at least 100% by value) of the Proven
Reserves attributable to the Borrower’s and its Subsidiaries’ Oil and Gas
Properties.


 


Section 5.02                                Maintenance of
Insurance.


 


(a)                                  The Borrower
shall, and shall cause each of its Subsidiaries to, maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such casualties, risks, perils, liabilities and other hazards as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same or similar locations (provided, that this Section 5.02(a) shall
not be breached if an insurance company becomes financially insolvent and the
Borrower or relevant Subsidiary promptly obtains the coverage required
hereunder from a different, financially sound insurer within a reasonable
period of time).


 


(b)                                 All certified
copies of policies or certificates thereof, and endorsements and renewals
thereof shall be delivered to and retained by the Administrative Agent upon its
request.  All policies of insurance shall
either have attached thereto a Lender’s loss payable endorsement for the
benefit of the Administrative Agent, as loss payee in form reasonably
satisfactory to the Administrative Agent or shall name the Administrative Agent
as an additional insured, as applicable. 
All policies or certificates of insurance shall set forth the coverage,
the limits of liability, the name of the carrier, the policy number, and the
period of coverage.  All such policies
shall contain a provision that notwithstanding any contrary agreements between
the Borrower, its Subsidiaries, and the applicable insurance company, such
policies 


 


47

















 


will
not be canceled, allowed to lapse without renewal, surrendered or amended
(which provision shall include any reduction in the scope or limits of
coverage) without at least 30 days’ prior written notice to the Administrative
Agent.  In the event that,
notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02,
the proceeds of any insurance policy described above are paid to the Borrower
or a Subsidiary, the Borrower shall deliver such proceeds to the Administrative
Agent immediately upon receipt.


 


Section 5.03                                Preservation of
Corporate Existence, Etc.  The
Borrower shall preserve and maintain, and, except as otherwise permitted
herein, cause each of its Subsidiaries to preserve and maintain, its corporate
or limited liability company, as applicable, existence, rights, franchises, and
privileges in the jurisdiction of its incorporation or organization, as
applicable, and qualify and remain qualified, and cause each such Subsidiary to
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which qualification is necessary or desirable in view of its business and
operations or the ownership of its Properties, and, in each case, where failure
to qualify or preserve and maintain its rights and franchises could reasonably
be expected to cause a Material Adverse Change.


 


Section 5.04                                Payment of
Taxes, Etc.  The
Borrower shall pay and discharge, and cause each of its Subsidiaries to pay and
discharge, before the same shall become delinquent, (a) all taxes,
assessments, and governmental charges or levies imposed upon it or upon its
income or profits or Property that are material in amount, prior to the date on
which penalties attach thereto and (b) all lawful claims that are material
in amount which, if unpaid, might by law become a Lien upon its Property; provided,
however, that neither the Borrower nor any such Subsidiary shall be required to
pay or discharge any such tax, assessment, charge, levy, or claim which is
being contested in good faith and by appropriate proceedings, and with respect
to which reserves in conformity with GAAP have been provided.


 


Section 5.05                                Visitation
Rights.  At any reasonable time and
from time to time, upon reasonable notice, the Borrower shall, and shall cause
its Subsidiaries to, permit (a) the Administrative Agent or any of its
agents or representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit and inspect at their
reasonable discretion the Properties of, the Borrower and any such Subsidiary,
and (b) the Administrative Agent and any Lender or any of their respective
agents or representatives thereof to discuss the affairs, finances and accounts
of the Borrower and any such Subsidiary with any of their respective officers
or directors.


 


Section 5.06                                Reporting
Requirements.  The
Borrower shall furnish to the Administrative Agent and each Lender:


 


(a)                                  Annual
Financials.  As soon as
available and in any event not later than 90 days after the end of each fiscal
year of the Borrower and its consolidated Subsidiaries, commencing with fiscal
year ending June 30, 2010, (i) to the extent not otherwise provided
in the Form 10-K filed by the Borrower with the SEC for such fiscal year
end, a copy of the annual audit report for such year for the Borrower and its
consolidated Subsidiaries, including therein the Borrower’s and its
consolidated Subsidiaries’ balance sheets as of the end of such fiscal year and
the Borrower’s and its consolidated Subsidiaries’ statements of income, cash
flows, and retained earnings, in each case certified by an independent
certified public accountants of national standing reasonably acceptable to the
Administrative Agent and including any management letters delivered by such accountants
to the Borrower or any Subsidiary in connection with such audit, (ii) any
management letters delivered by such accountants to the Borrower, (iii) the
Form 10-K filed with the SEC for such fiscal year end, and (iv) a
Compliance Certificate executed by a Responsible Officer of the Borrower.


 


(b)                                 Quarterly
Financials.  As soon as
available and in any event not later than 45 days after the end of each of the
first three fiscal quarters of each fiscal year of the Borrower and its
consolidated 


 


48

















 


Subsidiaries,
(i) commencing with the fiscal quarter ended September 30, 2010, to
the extent not otherwise provided in the Form 10-Q for such fiscal quarter
end, the unaudited balance sheet and the statements of income, cash flows, and
retained earnings of each such Person for the period commencing at the end of
the previous year and ending with the end of such fiscal quarter, all in
reasonable detail and duly certified with respect to such consolidated statements
(subject to year-end audit adjustments) by a Responsible Officer of the
Borrower as having been prepared in accordance with GAAP, (ii) the Form 10-Q
filed with the SEC for such fiscal quarter end, and (iii) a Compliance
Certificate executed by the Responsible Officer of the Borrower;


 


(c)                                  Oil and Gas
Reserve Reports.


 


(i)                                     As soon as
available but in any event on or before August 1, 2010 and August 31
of each year thereafter, an Independent Engineering Report dated effective as
of the immediately preceding June 30th;


 


(ii)                                  As soon as
available but in any event on or before February 28 of each year an
Internal Engineering Report dated effective as of the immediately preceding December 31st;


 


(iii)                               Such other
information as may be reasonably requested by the Administrative Agent or any
Lender with respect to the Oil and Gas Properties included or to be included in
the Borrowing Base;


 


With the delivery of each
Engineering Report, a certificate from a Responsible Officer of the Borrower
certifying that, to the best of his knowledge and in all material respects: (A) the
information contained in the Engineering Report and any other information
delivered in connection therewith is true and correct, (B) except as set
forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to its Oil and Gas
Properties evaluated in such Engineering Report which would require the
Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from such
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor, (C) none of its Oil and Gas Properties have been
sold since the date of the last Borrowing Base determination except as set
forth on an exhibit to the certificate, which certificate shall list all of its
Oil and Gas Properties sold and in such detail as reasonably required by the
Majority Lenders, (D) attached to the certificate is a list of its Oil and
Gas Properties added to and deleted from the immediately prior Engineering
Report and a list showing any change in working interest or net revenue
interest in its Oil and Gas Properties occurring and the reason for such
change, (E) attached to the certificate is a list of all Persons
disbursing proceeds to the Borrower or to its Subsidiary, as applicable, from
its Oil and Gas Properties, (F) except as set forth on a schedule attached
to the certificate, all of the Oil and Gas Properties evaluated by such
Engineering Report are pledged as Collateral for the Obligations, and (G) attached
to the certificate is a quarterly cash flow budget for the four quarters
following the delivery of such certificate setting forth the Borrower’s
projections for production volumes, revenues, expenses, taxes and budgeted
capital expenditures during such period.


 


(d)                                 Production and
Hedging Reports.  As soon as
available and in any event within 45 days after the end of each quarter,
commencing with the quarter ending June 30, 2010, a report certified by a
Responsible Officer of the Borrower in form and substance satisfactory to the
Administrative Agent prepared by the Borrower (i) covering each of the Oil
and Gas Properties of the Borrower and its Subsidiaries and detailing on a
quarterly basis (A) the production, revenue, and price information and
associated operating expenses for each such quarter, (B) any changes to
any producing reservoir, production equipment, or producing well during each
such quarter, which changes could reasonably be expected to cause a Material
Adverse Change, and (C) any sales of the Borrower’s or any Subsidiaries’
Oil and Gas Properties during each such quarter, (ii) setting forth a true
and complete list of all Hedge


 


49














 


Contracts
of the Borrower and its Subsidiaries and detailing the material terms thereof
(including the type, term, effective date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied), and
the counterparty to each such agreement, and (iii) certifying the Borrower’s
compliance with Section 5.12 hereof;


 


(e)                                  Defaults.  As soon as possible and in any event within
five days after (i) the occurrence of any Default or (ii) the
occurrence of any default under any instrument or document evidencing Debt of
the Borrower or any Subsidiary, in each case known to any officer of the
Borrower or any of its Subsidiaries which is continuing on the date of such
statement, a statement of a Responsible Officer of the Borrower setting forth
the details of such Default or default, as applicable, and the actions which
the Borrower or such Subsidiary has taken and proposes to take with respect
thereto;


 


(f)                                    Termination
Events.  As soon as possible and in any
event (i) within 30 days after the Borrower or any member of the
Controlled Group knows or has reason to know that any Termination Event
described in clause (a) of the definition of Termination Event with
respect to any Plan has occurred, and (ii) within 10 days after the
Borrower or any of its Affiliates knows or has reason to know that any other
Termination Event with respect to any Plan has occurred, a statement of a
Responsible Officer of the Borrower describing such Termination Event and the
action, if any, which the Borrower or such Affiliate proposes to take with
respect thereto;


 


(g)                                 Termination of
Plans.  Promptly and in any event
within two Business Days after receipt thereof by the Borrower or any member of
the Controlled Group from the PBGC, copies of each notice received by the
Borrower or any such member of the Controlled Group of the PBGC’s intention to
terminate any Plan or to have a trustee appointed to administer any Plan;


 


(h)                                 Other ERISA
Notices.  Promptly and in any event
within five Business Days after receipt thereof by the Borrower or any member
of the Controlled Group from a Multiemployer Plan sponsor, a copy of each
notice received by the Borrower or any member of the Controlled Group
concerning the imposition or amount of withdrawal liability pursuant to Section 4202
of ERISA;


 


(i)                                     Environmental
Notices.  Promptly upon the receipt
thereof by the Borrower or any of its Subsidiaries, a copy of any form of
request, notice, summons or citation received from the Environmental Protection
Agency, or any other Governmental Authority, concerning (i) violations or
alleged violations of Environmental Laws, which seeks to impose liability
therefor and could cause a Material Adverse Change, (ii) any action or
omission on the part of the Borrower or any Subsidiary or any of their former
Subsidiaries in connection with Hazardous Waste or Hazardous Substances which
could reasonably result in the imposition of liability therefor that could
cause a Material Adverse Change, including without limitation any information
request related to, or notice of, potential responsibility under CERCLA, or (iii) concerning
the filing of a Lien upon, against or in connection with the Borrower or any
Subsidiary or their former Subsidiaries, or any of their leased or owned
Property, wherever located;


 


(j)                                     Other
Governmental Notices.  Promptly
and in any event within five Business Days after receipt thereof by the
Borrower or any Subsidiary, a copy of any notice, summons, citation, or
proceeding seeking to modify in any material respect, revoke, or suspend any
material contract, license, permit or agreement with any Governmental
Authority;


 


(k)                                  Material
Changes.  Prompt written notice of any
condition or event of which the Borrower has knowledge, which condition or
event (i) has resulted or may reasonably be expected to result in a
Material Adverse Change or (ii) has resulted in a breach of or
noncompliance with any material 


 


50

















 


term,
condition, or covenant of any material contract to which the Borrower or any of
its Subsidiaries is a party or by which they or their Properties may be bound;


 


(l)                                     Disputes, Etc.  Prompt written notice of (i) any claims,
legal or arbitration proceedings, proceedings before any Governmental
Authority, or disputes pending, or to the knowledge of the Borrower threatened,
or affecting the Borrower, or any of its Subsidiaries which, if adversely
determined, could reasonably be expected to cause a Material Adverse Change, or
any material labor controversy of which the Borrower or any of its Subsidiaries
has knowledge resulting in or reasonably considered to be likely to result in a
strike against the Borrower or any of its Subsidiaries and (ii) any claim,
judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any
Property of the Borrower or any Subsidiary if the value of the claim, judgment,
Lien, or other encumbrance affecting such Property shall exceed $750,000;


 


(m)                               Other Accounting
Reports.  Promptly upon receipt thereof,
a copy of each other report or letter (other than routine correspondences and
reports in the ordinary course of business) submitted to the Borrower or any
Subsidiary by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its Subsidiaries,
and a copy of any response by the Borrower or any Subsidiary of the Borrower,
or the Board of Directors (or other applicable governing body) of the Borrower
or any Subsidiary of the Borrower, to such letter or report;


 


(n)                                 Notices Under
Other Loan Agreements. 
Promptly after the furnishing thereof, copies of any statement, report
or notice (other than routine correspondences and reports in the ordinary course
of business) furnished to any Person pursuant to the terms of any indenture,
loan or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 5.06;


 


(o)                                 Public Filings.  Promptly after the sending or filing thereof (i) copies
of all proxy material, reports and other information which the Borrower or any
of its Subsidiaries sends to or files with, without duplication, the SEC or any
U.S. Governmental Authority succeeding to any or all of the functions of such
Governmental Authorities, or with any national securities exchange, or sends to
any shareholder of the Borrower or of any of its Subsidiaries; and (ii) copies
of all material proxy material, reports and other information which the
Borrower or any of its Subsidiaries sends to or files with, without
duplication, the London Stock Exchange plc, the U.K. Financial Services
Authority, the Regulatory News Service of the London Stock Exchange or any foreign
Governmental Authority succeeding to any or all of the functions of such
Governmental Authorities;


 


(p)                                 USA Patriot Act.  Promptly, following a request by any Lender,
all documentation and other information that such Lender reasonably requests in
order to comply with its ongoing obligations under applicable “know your
customer” and anti-money laundering rules and regulations, including the
Patriot Act; and


 


(q)                                 Other
Information.  Such other
information respecting the business or Properties, or the condition or
operations, financial or otherwise, of the Borrower or any of its Subsidiaries,
as any Lender through the Administrative Agent may from time to time reasonably
request.  The Administrative Agent agrees
to provide the Lenders with copies of any material notices and information
delivered solely to the Administrative Agent pursuant to the terms of this
Agreement.


 


Section 5.07                                Maintenance of
Property.  The
Borrower shall, and shall cause each of its Subsidiaries to, maintain their
material owned, leased, or operated Property in good condition and repair,
normal wear and tear excepted; and shall abstain, and cause each of its
Subsidiaries to abstain from, knowingly or willfully permitting the commission
of waste or other injury, destruction, or loss of natural 


 


51

















 


resources,
or the occurrence of pollution, contamination, or any other condition in, on or
about the owned or operated Property involving the Environment that could
reasonably be expected to result in Response activities and that could
reasonably be expected to cause a Material Adverse Change.


 


Section 5.08                                Agreement to
Pledge.  The Borrower shall, and shall
cause each Subsidiary to, grant to the Administrative Agent an Acceptable
Security Interest in any Property of the Borrower or any Subsidiary now owned
or hereafter acquired promptly after receipt of a written request from the
Administrative Agent; provided that, unless an Event of Default has occurred
and is continuing, the Administrative Agent shall not be permitted to request
nor shall the Borrower be required to (a) grant an Acceptable Security
Interest in Oil and Gas Properties in excess of 80% (by value) of all of the
Borrower’s and its Subsidiaries’ Proven Reserves and Oil and Gas Properties, (b) other
than the filing of financing statements, take any action to perfect a Lien in
any Excluded Perfection Assets, or (c) grant a Lien in any Excluded
Property.


 


Section 5.09                                Use of Proceeds.  On the Effective Date, each of the Lenders
shall pay to the lenders under the Restated Agreement an amount equal to the
outstanding principal balance of the “Advances” as defined under the Restated
Agreement times such Lender’s Pro Rata Share. 
Such advances under the Restated Agreement shall be renewed, extended,
and rearranged (but not substituted or extinguished) pursuant to the terms of
this Agreement and shall, for all purposes, be deemed Advances made
hereunder.  Furthermore, the Borrower
shall use the proceeds of the Advances (a) to refinance the Debt required
to be paid in full under Section 3.01(n), (b) to develop and acquire
Oil and Gas Properties, and (c) for general corporate purposes, including
working capital needs.  The Borrower
shall use the Letters of Credit for general corporate purposes.


 


Section 5.10                                Title Evidence
and Opinions.  The
Borrower shall from time to time upon the reasonable request of the
Administrative Agent, take such actions and execute and deliver such documents
and instruments as the Administrative Agent shall require to ensure that the
Administrative Agent shall, at all times, have received satisfactory title
evidence, which title evidence shall be in form and substance acceptable to the
Administrative Agent in its sole discretion and shall include information
regarding the before payout and after payout ownership interests held by the
Borrower and the Borrower’s Subsidiaries, for all wells located on the Oil and
Gas Properties, covering at least 80% of the present value of the Proven
Reserves of the Borrower and its Subsidiaries and at least 80% of the present
value of the proved developed producing reserves of the Borrower and its
Subsidiaries as determined by the Administrative Agent.  The parties hereto acknowledge and agree that,
if the title of the Borrower, any Guarantor or any of their respective
Subsidiaries to any of the Oil and Gas Properties reviewed and accepted by the
Administrative Agent as satisfactory to meet the preceding 80% requirement
shall become the subject matter of litigation before any Governmental Authority
or arbitrator which could reasonably be expected to result in a Material
Adverse Change with respect to the Borrower’s and the Subsidiaries’ title to
such Oil and Gas Properties, taken as a whole, then, at the election of the
Administrative Agent, such title shall no longer be considered satisfactory for
purposes of compliance with this Section 5.10.


 


Section 5.11                                Further
Assurances; Cure of Title Defects.  The Borrower shall, and shall cause each
Subsidiary to, cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the Security Instruments and this
Agreement.  The Borrower hereby
authorizes the Administrative Agent to file any financing statements without
the signature of the Borrower to the extent permitted by applicable law in
order to perfect or maintain the perfection of any security interest granted
under any of the Loan Documents.  The
Borrower at its expense will, and will cause each Subsidiary to, promptly
execute and deliver to the Administrative Agent upon request all such other
documents, agreements and instruments to comply with or accomplish the
covenants and agreements of the Borrower or any Subsidiary, as the case may be,
in the Security Instruments and this Agreement, or to further 


 


52

















 


evidence
and more fully describe the collateral intended as security for the Notes, or
to correct any omissions in the Security Instruments, or to state more fully
the security obligations set out herein or in any of the Security Instruments,
or to perfect, protect or preserve any Liens created pursuant to any of the
Security Instruments, or to make any recordings, to file any notices or obtain
any consents, all as may be necessary or appropriate in connection therewith or
to enable the Administrative Agent to exercise and enforce its rights and
remedies with respect to any Collateral. 
Within 30 days after (a) a request by the Administrative Agent or
the Lenders to cure any title defects or exceptions which are not Permitted
Liens raised by such information or (b) a notice by the Administrative
Agent that the Borrower has failed to comply with Section 5.10 above, the
Borrower shall (i) cure such title defects or exceptions which are not
Permitted Liens or substitute acceptable Oil and Gas Properties with no title
defects or exceptions except for Permitted Liens covering Collateral of an
equivalent value and (ii) deliver to the Administrative Agent satisfactory
title evidence (including supplemental or new title opinions meeting the
foregoing requirements) in form and substance acceptable to the Administrative
Agent in its reasonable business judgment as to the Borrower’s and its
Subsidiaries’ ownership of such Oil and Gas Properties and the Administrative
Agent’s Liens and security interests therein as are required to maintain
compliance with Section 5.10.


 


Section 5.12                                Hedging
Arrangements.  The
Borrower shall maintain each Hydrocarbon Hedge Agreement described in Schedule
4.20 and each other BB Hedge until the stated maturity thereof; provided that
Borrower or any of its Subsidiaries may modify, amend, assign, novate or
terminate any such Hedge Contract so long as (a) the net cash proceeds, if
any, received by Borrower or its Subsidiaries in connection therewith are
deposited in the Cash Collateral Account pending a redetermination, if any, of
the Borrowing Base in accordance with Section 2.02, (b) such net cash
proceeds are applied to the extent necessary as required under Section 2.05(b)(iii),
with any remaining proceeds being returned to Borrower, and (c) the sum of
(i) the aggregate fair market value of Oil and Gas Properties with
attributable Proven Reserves which were sold, leased, transferred, assigned,
farmed out, conveyed or otherwise disposed of between consecutive scheduled
redeterminations of the Borrowing (the “6-Month Period”) plus (ii) the
aggregate Borrowing Base value assigned by the Administrative Agent to BB
Hedges which have been novated, assigned, uwound, terminated, or amended during
such 6-Month Period, shall not exceed 5% of the then effective Borrowing
Base.  Other than Hydrocarbon Hedge
Agreements described in Schedule 4.20, no other Hedge Contracts are required on
the date hereof.


 


ARTICLE
VI


 


NEGATIVE
COVENANTS


 


So long as any Note or any
amount under any Loan Document shall remain unpaid, any Letter of Credit shall
remain outstanding, or any Lender shall have any Commitment, the Borrower
agrees, unless the Majority Lenders otherwise consent in writing, to comply
with the following covenants.


 


Section 6.01                                Liens, Etc.  The Borrower shall not create, assume, incur,
or suffer to exist, or permit any of its Subsidiaries to create, assume, incur,
or suffer to exist, any Lien on or in respect of any of its Property whether
now owned or hereafter acquired, or assign any right to receive income, except
that the Borrower and its Subsidiaries may create, incur, assume, or suffer to
exist:


 


(a)                                  Liens securing
the Obligations;


 


(b)                                 purchase money
Liens or purchase money security interests upon or in any equipment acquired or
held by the Borrower or any of its Subsidiaries in the ordinary course of
business prior to or at the time of the Borrower’s or such Subsidiary’s
acquisition of such equipment or land, including all improvements thereon; provided
that, the Debt secured by such Liens (i) was incurred solely for the 


 


53

















 


purpose
of financing the acquisition of such equipment, and does not exceed the
aggregate purchase price of such equipment, (ii) is secured only by such
equipment and not by any other assets of the Borrower and its Subsidiaries, and
(iii) is not increased in amount;


 


(c)                                  Liens for
taxes, assessments, or other governmental charges or levies not yet due or that
(provided foreclosure, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings, and
such reserve as may be required by GAAP shall have been made therefor;


 


(d)                                 Liens in favor
of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen,
construction, or similar Liens arising by operation of law in the ordinary
course of business in respect of obligations that are not yet due or that are
being contested in good faith by appropriate proceedings, provided such reserve
as may be required by GAAP shall have been made therefor;


 


(e)                                  Liens to
operators and non-operators under joint operating agreements arising in the
ordinary course of the business of the Borrower or the relevant Subsidiary to
secure amounts owing, which amounts are not yet due or are being contested in
good faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor;


 


(f)                                    royalties,
overriding royalties, net profits interests, production payments, reversionary
interests, calls on production, preferential purchase rights and other burdens
on or deductions from the proceeds of production, that do not secure Debt for
borrowed money and that are taken into account in computing the net revenue interests
and working interests of the Borrower or any of its Subsidiaries warranted in
the Security Instruments or in this Agreement;


 


(g)                                 Liens arising
in the ordinary course of business out of pledges or deposits under workers’
compensation laws, unemployment insurance, old age pensions or other social
security or retirement benefits, or similar legislation or to secure public or
statutory obligations of the Borrower;


 


(h)                                 operating
agreements, unitization and pooling agreements and orders, farmout agreements,
gas balancing agreements and other agreements, in each case that are customary
in the oil, gas and mineral production business and that are entered into in
the ordinary course of business that are taken into account in computing the
net revenue interests and working interests of the Borrower or any of its
Subsidiaries warranted in the Security Instruments or this Agreement, to the
extent that any such Lien referred to in this clause does not materially impair
the use of the Property covered by such Lien for the purposes for which such
Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; and


 


(i)                                     easements,
rights-of-way, restrictions, and other similar encumbrances, and minor defects
in the chain of title that are customarily accepted in the oil and gas
financing industry, none of which interfere with the ordinary conduct of the
business of Borrower or any Subsidiary or materially detract from the value or
use of the Property to which they apply.


 


Section 6.02                                Debts,
Guaranties, and Other Obligations.  The Borrower shall not, and shall not permit
any of its Subsidiaries to, create, assume, suffer to exist, or in any manner
become or be liable in respect of, any Debt except:


 


(a)                                  Debt of the Borrower
and its Subsidiaries under the Loan Documents;


 


54

















 


(b)                                 Debt under
customary insurance premium financing arrangements entered into in the ordinary
course of business provided that the outstanding principal amount of such Debt
shall not exceed $1,500,000;


 


(c)                                  Debt in the
form of obligations for the deferred purchase price of Property or services
incurred in the ordinary course of business which are not yet due and payable
or are being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP have been established;


 


(d)                                 Debt secured by
the Liens permitted under paragraph (b) of Section 6.01 in an
aggregate amount not to exceed $3,000,000 at any time;


 


(e)                                  Debt under
Hydrocarbon Hedge Agreements which are not prohibited by the terms of Section 6.14;
provided that (i) such Debt shall not be secured, other than such Debt
owing to Swap Counterparties which are secured under the Loan Documents, (ii) such
Debt shall not obligate the Borrower or any of its Subsidiaries to any margin
call requirements including any requirement to post cash collateral, property
collateral or a letter of credit, and (iii) the deferred premium payments
associated with such Hedge Contracts shall be limited to the deferred premium
payments for put option contracts which are secured under the Loan Documents;
provided that, the aggregate outstanding amount of such deferred premium
payments shall not exceed $500,000;


 


(f)                                    Debt consisting
of sureties or bonds provided to any Governmental Authority or other Person and
assuring payment of contingent liabilities of the Borrower in connection with
the operation of the Oil and Gas Properties, including with respect to
plugging, facility removal and abandonment of its Oil and Gas Properties;


 


(g)                                 Debt of the
Borrower or any Guarantor owing to the Borrower or to any other Guarantor;
provided that such Debt is subordinated to the Obligations on terms acceptable
to the Administrative Agent in its sole discretion;


 


(h)                                 Debt that
constitutes a renewal, refinancing or extension of any Debt referred to clause (d) of
this Section 6.02; provided that (i) no Lien existing at the time of
such renewal, refinancing or extension shall be extended to cover any property
not already subject to such Lien, and (ii) the principal amount of any
Debt renewed, refinanced or extended shall not exceed the amount of such Debt
outstanding immediately prior to such renewal, refinancing or extension;


 


(i)                                     Debt under the Series A
Preferred Shares; provided that, (A) other than the extension of the
maturity date thereof, the terms, conditions and provisions of such Debt
(including but not limited to, the subordination terms thereof) shall not be
amended, supplemented, restated or otherwise modified in any way that could be
reasonably determined to be adverse to the Lenders without the consent of the
Majority Lenders, and (B) the amount of such Debt shall not increase other
than as a result of dividend payments which have been added to the principal
amount thereof as elected by certain holders of the Series A Preferred
Shares; and


 


(j)                                     Other unsecured
Debt in an aggregate amount outstanding at any time not to exceed $500,000.


 


Section 6.03                                Agreements
Restricting Liens and Distributions.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, create, incur, assume or permit to exist any
contract, agreement or understanding (other than this Agreement or Security
Instruments) which in any way prohibits or restricts the granting, conveying,
creation or imposition of any Lien on any of its Property, whether now 


 


55

















 


owned
or hereafter acquired, to secure the Obligations or restricts any Subsidiary
from paying dividends to the Borrower, or which requires the consent of or
notice to other Persons in connection therewith; provided, that the
foregoing shall not apply to (a) restrictions and conditions imposed by
Legal Requirements, (b) customary restrictions imposed on the granting, conveying,
creation or imposition of any Lien on any Property of the Borrower or its
Subsidiaries imposed by any contract, agreement or understanding related to the
Liens permitted under clause (b) of Section 6.01 so long as such
restriction only applies to the Property permitted under such clause to be
encumbered by such Liens, (c) restrictions on the transfer of Equity
Interests in joint ventures, (d) customary non-assignment provisions in
leases, licenses, permits and other agreements entered into in the ordinary
course of business with respect to Excluded Property, and (e) in
connection with any sale or other disposition of Property permitted hereunder,
any restriction as to the continuing imposition of any Lien granted under a
Loan Document with respect to such Property after the completion of such sale
or disposition which restriction may be imposed under the agreement or
agreements governing such sale or disposition.


 


Section 6.04                                Merger or
Consolidation; Asset Sales.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to:


 


(a)                                  merge or
consolidate with or into any other Person; provided that (i) the Borrower
or any Subsidiary may merge or may be consolidated into the Borrower or any
Guarantor if the Borrower or such Guarantor is the surviving entity; and (ii) the
Borrower may merge or consolidate into a third party only with the consent of
all Lenders; or


 


(b)                                 sell, lease,
transfer, assign, farm-out, convey, or otherwise dispose of any of its Property
(including, without limitation, any working interest, overriding royalty
interest, production payments, net profits interest, royalty interest, or
mineral fee interest) other than:


 


(i)                                     the sale of
Hydrocarbons or liquidation of Liquid Investments in the ordinary course of
business,


 


(ii)                                  the sale or
transfer of equipment that is (A) obsolete, worn out, depleted or
uneconomic and disposed of in the ordinary course of business, (B) no
longer necessary for the business of such Person or (C) contemporaneously
replaced by equipment of at least comparable value and use,


 


(iii)                               the sale,
lease, transfer, assignment, farm-out, conveyance, or other disposition of
Property between or among a Guarantor and the Borrower or between or among
Guarantors;


 


(iv)                              the sale,
lease, transfer, assignment, farm-out, conveyance, or other disposition of
Property which is not Oil and Gas Properties attributable to Proven Reserves
and which is not Collateral or which is not otherwise required pursuant to the
terms of this Agreement to be Collateral; provided that, this clause (iv) shall
not restrict (A) farm-outs, and assignments in connection with such
farm-outs, of undeveloped Oil and Gas Properties which do not constitute or
contribute to Proven Reserves and (B) sales, leases, transfers,
assignments, conveyances, or other dispositions (other than farm-outs) of
undeveloped Oil and Gas Properties which do not constitute or contribute to
Proven Reserves so long as the aggregate fair market value of the Oil and Gas
Properties subject to such disposition permitted under this clause (B) shall
not exceed $2,000,000 in any fiscal year or $5,000,000 in the aggregate; and


 


(v)                                 the sale,
lease, transfer, assignment, farm-out, conveyance, or other disposition of Oil
and Gas Properties which are attributable to Proven Reserves; provided that, (A) at
least 75% of the consideration received in respect of such disposition shall be
cash or cash equivalents, (B) 


 


56

















 


the consideration received in respect of such
disposition shall be equal to or greater than the fair market value of the such
Oil and Gas Property, interest therein or Subsidiary subject of such
disposition (as reasonably determined by the board of directors or the
equivalent governing body of the Borrower and, if requested by the
Administrative Agent, the Borrower shall deliver a certificate of a Responsible
Officer of the Borrower certifying to that effect), (C) if any such
disposition is of a Subsidiary owning Oil and Gas Properties, such disposition
shall include all the Equity Interests of such Subsidiary; and (D) the sum
of (i) the aggregate fair market value of Oil and Gas Properties subject
to such dispositions consummated in such applicable 6-Month Period plus (ii) the
aggregate Borrowing Base value assigned by the Administrative Agent to BB
Hedges which have been novated, assigned, uwound, terminated, or amended during
such 6-Month Period, shall not exceed 5% of the then effective Borrowing Base.


 


Section 6.05                                Restricted
Payments.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, make any
Restricted Payments except that if no Default has occurred both before and
after giving effect to the making of such Restricted Payment, (a) the
Subsidiaries may make Restricted Payments to the Borrower, (b) the Borrower
may make Restricted Payments in an amount not to exceed $1,500,000 in the
aggregate in the form of cash to officers, directors, consultants and employees
who are no longer employed or associated with the Borrower in such capacity;
provided that such Restricted Payments are in consideration for the retirement,
purchase, redemption or other acquisition of the Equity Interests of the
Borrower held by such Person, and (c) with respect to the Series A
Preferred Shares and to the extent such payments would be permitted under the
subordination terms in effect in favor of the Obligations and covering such Series A
Preferred Shares, the Borrower may make Restricted Payments which are mandatory
pursuant to the terms thereof; provided that, the aggregate annual amount of
Restricted Payments made with respect to the Series A Preferred Shares may
not exceed $766,000.


 


Section 6.06                                Investments.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, make or permit to exist any loans, advances, or
capital contributions to, or make any investment in (including, without
limitation, the making of any Acquisition), or purchase or commit to purchase
any stock or other securities or evidences of indebtedness of or interests in
any Person or any Oil and Gas Properties or activities related to Oil and Gas
Properties, except:


 


(a)                                  Liquid
Investments;


 


(b)                                 trade and
customer accounts receivable which are for goods furnished or services rendered
in the ordinary course of business and are payable in accordance with customary
trade terms;


 


(c)                                  creation of any
additional Subsidiaries in compliance with Section 6.15;


 


(d)                                 the loans,
advances, capital contributions, investments, and commitments  made prior to the date hereof and identified in the Interim
Financial Statements; provided that, the respective amounts of such loans,
advances, capital contributions, investments, and commitments shall not be
increased (other than by appreciation);


 


(e)                                  investments
received in connection with the bankruptcy or reorganization of, or settlement
of delinquent accounts and disputes with, customers and suppliers, in each case
in the ordinary course of business; provided that, the aggregate amount of such
investment shall not exceed $1,000,000 (other than by appreciation);


 


(f)                                    investments
consisting of any deferred portion of the sales price received by the Borrower
or any Subsidiary in connection with any sale of assets permitted hereunder;


 


57

















 


(g)                                 loans, advances
and other investments (including capital contributions) in general or limited
partnerships or other types of entities (each a “venture”) entered into by the
Borrower or one of the Guarantors with others; provided that (i) any such
venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation, (ii) the
interest in such venture is acquired on fair and reasonable terms, (iii) the
amount of such loans, advances and other investments shall not exceed $5,000,000
in the aggregate, and (iv) if such investment is of Property (other than
cash), such transfer of Property is otherwise permitted under Section 6.04(b) above;


 


(h)                                 investments in
direct ownership interests in additional Oil and Gas Properties and gas
gathering systems related thereto or related to farm-out, farm-in, joint
operating, joint venture or area of mutual interest agreements, gathering
systems, pipelines or other similar arrangements which are usual and customary
in the oil and gas exploration and production business located within the
geographic boundaries of the United States of America; provided that if
requested by the Administrative Agent, such assets are pledged as Collateral
pursuant to Section 5.08;


 


(i)                                     loans or
advances to employees, officers, directors or managers of the Borrower or its
Subsidiaries, as the case may be, made in the ordinary course and to the extent
that such investment is permitted by Legal Requirements, including (to the
extent applicable) Section 402 of the Sarbanes Oxley Act of 2002; provided
that the aggregate outstanding amount of investments under this clause (h) shall
not exceed $500,000 in the aggregate at any time;


 


(j)                                     Debt permitted
under Section 6.02(g);


 


(k)                                  Hedge Contracts
to the extent permitted under Section 6.14;


 


(l)                                     Acquisitions;
provided that (i) any newly acquired Subsidiary shall promptly comply with
the requirements of Section 6.15, (ii) no Event of Default exists
before and after giving effect to such investment, (iii) immediately after
giving effect to such Acquisition, the aggregate Unused Commitment Amounts of
the Lenders is greater than or equal to 5% of the Borrowing Base then in
effect, and (iv) after giving effect to such Acquisition, the Borrower
shall be in pro forma compliance with Sections 6.17, 6.18 and 6.19;  and


 


(m)                               other loans,
advances and investments not to exceed $1,000,000 in the aggregate.


 


Notwithstanding the foregoing, from the
Effective Date until the date the Borrowing Base is first redetermined pursuant
to the terms of this Agreement, the Borrower shall not, nor shall it permit any
of its Subsidiaries to, make any Acquisition or purchase any interests in any
Person or any Oil and Gas Properties or activities related to Oil and Gas
Properties, unless (x) such Acquisition or purchase otherwise complies with the
terms set forth above in this Section 6.06, and (y) if the cash consideration
for such Acquisition or purchase individually, or in the aggregate, is for an
aggregate amount greater than $20,000,000 and the PV10
Value (as defined below) of the “proved, developed and producing” oil or gas
reserves involved in such Acquisition or purchase is less than 50% of the
applicable purchase price, the Administrative Agent shall have given its prior
written consent to such Acquisition or purchase.  For purposes of this Section 6.06, “PV10
Value” means, with respect to any oil or gas reserves expected to be
produced from any interests in Oil and Gas Properties to be acquired under an
applicable Acquisition or purchase, the net present value, discounted at 10%
per annum, of the future net revenues expected to accrue to such interests in
such reserves during the remaining expected economic lives of such reserves, as
set forth in an Independent Engineering Report; provided that such calculations
shall be made (i) in accordance with the then existing standards of the Society
of Petroleum Engineers, (ii) with appropriate deductions for all existing
burdens, severance and ad valorem taxes, and for operating (including
purchasing and injecting water), gathering, transportation and marketing costs
required for the production 


 


58

















 


and sale of such reserves, (iii) with the
pricing assumptions and escalations based upon the Strip Price (as defined below),
and (iv) with the cash-flows derived from the pricing assumptions set forth in
the preceding clause (iii) further adjusted to account for the historical
basis  (i.e. the differential that exists
as of any time between the price at a pricing point and the price at the point
of sale) in a manner reasonably acceptable to the Administrative Agent.  For purposes of this Section 6.06, “Strip
Price” means, with respect to any month, (i) for crude oil, the closing
settlement price for the Light, Sweet Crude Oil futures contract for the first
nearby month, and (ii) for natural gas, the closing settlement price for the
Henry Hub Natural Gas futures contract for the first nearby month, in each
case, as published by a nationally recognized commodities exchange designated
by the Administrative Agent.


 


Section 6.07                                Affiliate
Transactions.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of
transactions (including, but not limited to, the purchase, sale, lease or
exchange of Property, the making of any investment, the giving of any guaranty,
the assumption of any obligation or the rendering of any service) with any of
their Affiliates (other than transactions (a) among the Borrower and any
Guarantor and (b) under the Torch Management Documents) unless such
transaction or series of transactions is on terms no less favorable to the
Borrower or the Subsidiary, as applicable, than those that could be obtained in
a comparable arm’s length transaction with a Person that is not such an
Affiliate.


 


Section 6.08                                Compliance with
ERISA.  The Borrower shall not, nor
shall it permit any of its Subsidiaries to, directly or indirectly, (a) engage
in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction
in connection with which the Borrower, any Subsidiary or any ERISA Affiliate
could be subjected to either a civil penalty assessed pursuant to section
502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle
D of the Code; (b) terminate, or permit any Subsidiary or ERISA Affiliate
to terminate, any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability to the Borrower, any Subsidiary
or any ERISA Affiliate to the PBGC; (c) fail to make, or permit any
Subsidiary or ERISA Affiliate to fail to make, full payment when due of all
amounts which, under the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required
to pay as contributions thereto; (d) permit to exist, or allow any
Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding
deficiency within the meaning of Section 302 of ERISA or section 412 of
the Code in excess of $1,000,000, whether or not waived, with respect to any
Plan; (e) permit, or allow any Subsidiary or ERISA Affiliate to permit,
the actuarial present value of the benefit liabilities (as “actuarial present
value of the benefit liabilities” shall have the meaning specified in section
4041 of ERISA) under any Plan maintained by the Borrower, any Subsidiary or any
ERISA Affiliate which is regulated under Title IV of ERISA to exceed the
current value of the assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such benefit liabilities by
more than $1,000,000; (f) contribute to or assume an obligation to
contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan; (g) acquire,
or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any
Person that causes such Person to become an ERISA Affiliate with respect to the
Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors,
maintains or contributes to, or at any time in the six-year period preceding
such acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV of
ERISA under which the actuarial present value of the benefit liabilities under
such Plan exceeds the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities; (h) incur, or permit any Subsidiary or ERISA
Affiliate to incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an
obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to
contribute to or assume an obligation to contribute to, any employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former employees of
such entities, that may not be terminated by such entities in their sole
discretion at


 


59














 


any
time without any material liability; (j) amend or permit any Subsidiary or
ERISA Affiliate to amend, a Plan resulting in an increase in current liability
such that the Borrower, any Subsidiary or any ERISA Affiliate is required to
provide security to such Plan under section 401(a)(29) of the Code; or (k) permit
to exist any occurrence of any Reportable Event (as defined in Title IV of
ERISA), or any other event or condition, which presents a material (in the
opinion of the Majority Lenders) risk of such a termination by the PBGC of any
Plan that could reasonably be expected to result in a Material Adverse Change.


 


Section 6.09                                Sale-and-Leaseback.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, sell or transfer to a Person any Property, whether
now owned or hereafter acquired, if at the time or thereafter the Borrower or a
Subsidiary shall lease as lessee such Property or any part thereof or other
Property which the Borrower or a Subsidiary intends to use for substantially
the same purpose as the Property sold or transferred.


 


Section 6.10                                Change of
Business; Change of Fiscal Year.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, make any material change in the character of its
business as an independent oil and gas exploration and production company, nor
will the Borrower or any Subsidiary operate any business in any jurisdiction
other than the United States, including the Gulf of Mexico.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, change its fiscal year end from June 30th.


 


Section 6.11                                Organizational
Documents, Name Change.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, amend,
supplement, modify or restate their articles or certificate of incorporation,
bylaws, limited liability company agreements, or other equivalent
organizational documents where such amendment, supplement, modification or
restatement could have an adverse effect on the Lenders as determined by the
Administrative Agent in its sole reasonable discretion, or amend its name or change its jurisdiction of incorporation, organization
or formation without at least 15-days prior written notice to, the
Administrative Agent.


 


Section 6.12                                Use of
Proceeds; Letters of Credit.  The Borrower will not permit the proceeds of
any Advance or Letters of Credit to be used for any purpose other than those
permitted by Section 5.09.  The
Borrower will not engage in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of
Regulation U).  Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or shall take, nor
permit any of the Borrower’s Subsidiaries to take any action which might cause
any of the Loan Documents to violate Regulation T, U or X or any other
regulation of the Board of Governors of the Federal Reserve System or to
violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect, including without limitation, the use of the proceeds
of any Advance or Letters of Credit to purchase or carry any margin stock in
violation of Regulation T, U or X.


 


Section 6.13                                Gas Imbalances,
Take-or-Pay or Other Prepayments.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, allow gas imbalances, take-or-pay or other
prepayments with respect to the Oil and Gas Properties of the Borrower or any
Subsidiary which would require the Borrower or any Subsidiary to deliver their
respective Hydrocarbons produced on a monthly basis from such Oil and Gas
Properties at some future time without then or thereafter receiving full
payment therefor other than that which do not result in the Borrower or any
Subsidiary having net aggregate liability in excess of $1,000,000.


 


Section 6.14                                Hedging
Requirements.  Other than
the Hedge Contracts required to be entered into and maintained pursuant to Section 5.12
hereof or the last sentence of this Section 6.14, the Borrower shall not,
nor shall it permit any of its Subsidiaries to, (a) purchase, assume, or
hold a speculative position in any commodities market or futures market or
enter into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or similar
hedge arrangement for speculative purposes, (b) be party to or otherwise 


 


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enter
into any Hedge Contract which (i) is entered into for reasons other than
as a part of its normal business operations as a risk management strategy
and/or hedge against changes resulting from market conditions related to the
Borrower’s operations, (ii) covers notional volumes in excess of 80% of
the anticipated production volumes attributable to “proved, developed and
producing” Proven Reserves of the Borrower and its Subsidiaries during the
period such hedge arrangement is in effect, or (iii) is longer than five
years in duration from the date such Hedge Contract is entered into, or (c) enter
into any Hedge Contract prior to January 1, 2011 which covers production
of natural gas unless the notional volumes of existing Hedge Contracts cover
less than 80% of the anticipated production volumes of natural gas attributable
to “proved, developed and producing” Proven Reserves of the Borrower and its
Subsidiaries.  Furthermore, on or prior
to the 10th Business Day following the Effective Date, the
Borrower shall have entered into and thereafter maintain (or shall have caused
the applicable Subsidiary to have entered into and thereafter maintain) Hedge
Contracts covering at least 75% of the anticipated production volumes
attributable to “proved, developed and producing” Proven Reserves of the
Borrower and its Subsidiaries through December 31, 2014, as set forth in
the initial Independent Engineering Report delivered under Section 3.01(a)(ix) and
at such prices acceptable to the Administrative Agent.


 


Section 6.15                                Additional
Subsidiaries.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, create or
acquire any additional Subsidiaries without (a) such new Subsidiary
executing and delivering to the Administrative Agent, at its request, a
Guaranty, a Pledge Agreement, a Security Agreement and a Mortgage, and such
other Security Instruments as the Administrative Agent or the Majority Lenders
may reasonably request, and (b) the delivery by the Borrower of any
certificates, opinions of counsel, title opinions or other documents as the
Administrative Agent may reasonably request; provided that, in any event, no
Subsidiary may be created or acquired if a Default has occurred before or after
giving effect to such creation or acquisition of the new Subsidiary.


 


Section 6.16                                Account
Payables.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, allow any
of its trade payables or other accounts payable to be outstanding for more than
90 days (except in cases where any such trade payable is being disputed in good
faith and adequate reserves under GAAP have been established).


 


Section 6.17                                Current Ratio.  As of each fiscal quarter end beginning with the
fiscal quarter ending June 30, 2010, the Borrower shall not permit the
ratio of (a) its current assets to (b) its current liabilities, to be
less 1.00 to 1.00.  For purposes of this
calculation (i) “current assets” shall include, as of the date of calculation,
the aggregate Unused Commitment Amounts of the Lenders but shall exclude any
assets representing a valuation account arising from the application of ASC 718
and 815, and (ii) “current liabilities” shall exclude, as of the date of
calculation, the current portion of long-term Debt existing under this
Agreement, the current portion of long-term Debt of the Series A Preferred
Shares, and any liabilities representing a valuation account arising from the
application of ASC 718 and 815.


 


Section 6.18                                Leverage Ratio.  As of each fiscal quarter end beginning with
the fiscal quarter ending September 30, 2010, the Borrower shall not
permit the ratio of (a) the consolidated Debt of the Borrower (other than
Excluded Ratio Debt) as of such fiscal quarter end to (b) the consolidated
EBITDA of the Borrower for the four fiscal quarter period then ended, to exceed
(i) 4.50 to 1.00 for the fiscal quarters ending September 30, 2010
and December 31, 2010, and (ii) 4.00 to 1.00 for each fiscal quarter
thereafter; provided that, in calculating such ratio (A) for the
fiscal quarter ending September 30, 2010, EBITDA shall be measured by
multiplying EBITDA for the fiscal quarter then ended by four; (B) for the
fiscal quarter ending December 31, 2010, EBITDA shall be measured by
multiplying EBITDA for the two fiscal quarters then ended by two; (C) for
the fiscal quarter ending March 31, 2011, EBITDA shall be measured by
multiplying EBITDA for the three fiscal quarters then ended by 4/3; and (D) for
each fiscal quarter ending on or after June 30, 2011, EBITDA shall EBITDA
for the four-fiscal quarter period then ended.


 


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Section 6.19                                Interest
Coverage Ratio.  As of each
fiscal quarter end beginning with the fiscal quarter ending September 30,
2010, the Borrower shall not permit the ratio of (a) the consolidated
EBITDA of the Borrower calculated for the four fiscal quarters then ended, to (b) the
consolidated Interest Expense of the Borrower for the four fiscal quarters then
ended, to be less than 3.00 to 1.00; provided that, in calculating such
ratio (A) for the fiscal quarter ending September 30, 2010, EBITDA
and Interest Expense, respectively, shall be measured by multiplying EBITDA and
Interest Expense for the fiscal quarter then ended by four; (B) for the
fiscal quarter ending December 31, 2010, EBITDA and Interest Expense,
respectively, shall be measured by multiplying EBITDA and Interest Expense, for
the two fiscal quarters then ended by two; (C) for the fiscal quarter
ending March 31, 2011, EBITDA and Interest Expense, respectively, shall be
measured by multiplying EBITDA and Interest Expense, for the three fiscal
quarters then ended by 4/3; and (D) for each fiscal quarter ending on or
after June 30, 2011, EBITDA and Interest Expense, respectively, shall be
measured as the EBITDA and Interest Expense for the four-fiscal quarter period
then ended.


 


Section 6.20                                Prepayments of
Debt.  The Borrower shall not, nor
shall it permit any of its Subsidiaries to, prepay, redeem, purchase, defease
or otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt
(including but not limited to the Series A Preferred Shares), except (a) the
prepayment of the Advances in accordance with the terms of this Agreement, (b) regularly
scheduled or required repayments or redemptions of Debt permitted under Section 6.02
other than Debt under the Series A Preferred Shares, (c) so long as
no Event of Default exists or would result therefrom, regularly scheduled or
required repayments or redemptions of Debt under the Series A Preferred
Shares, (d) Restricted Payments in respect of the Series A Preferred
Shares in compliance with Section 6.05, and (e) so long as no Event
of Default exists or would result therefrom, other prepayments of Debt
permitted under Section 6.02 other than Debt under the Series A
Preferred Shares.


 


Section 6.21                                Non-Guarantor
Subsidiary. 
Notwithstanding anything to the contrary contained herein, including any
provision of this Article VI, the Borrower shall not, nor shall it permit
any of its Subsidiaries to, (a) create, assume, incur or suffer to exist
any Lien on or in respect of any of its Property for the benefit of Tri-Flow, (b) sell,
assign, pledge, or otherwise transfer any of its Properties to Tri-Flow, or (c) make
or permit to exist any loans, advances, or capital contributions to, or make
any investment in, or purchase or commit to purchase any stock or other
securities or evidences of indebtedness of or interests in, Tri-Flow or in any
Properties of Tri-Flow other than the loans, advances, capital contributions,
investments, and commitments made prior December 17, 2008 in Tri-Flow; provided
that, the respective amounts of such loans, advances, capital contributions,
investments, and commitments shall not be increased (other than by
appreciation).


 


Section 6.22                                Equity Issuance.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, issue any preferred, convertible equity securities
or other Equity Interests other than common Equity Interests of the Borrower.


 


ARTICLE
VII


 


EVENTS
OF DEFAULT; REMEDIES


 


Section 7.01                                Events of
Default.  The occurrence of any of the
following events shall constitute an “Event of Default” under any Loan Document:


 


(a)                                  Payment.  The Borrower shall (i) fail to pay when
due any principal payable hereunder or under the Notes or (ii) fail to
pay, within 3 Business Days of when due, any other amounts (including 


 


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interest,
fees, reimbursements, and indemnifications) payable hereunder, under the Notes,
or under any other Loan Document;


 


(b)                                 Representation
and Warranties.  Any
representation or warranty made or deemed to be made (i) by the Borrower,
any Guarantor or any of their respective Subsidiaries (or any of their
respective officers) in this Agreement or in any other Loan Document, or (ii) by
the Borrower, any Guarantor or any of their respective Subsidiaries (or any of
their respective officers) in connection with this Agreement or any other Loan
Document, shall prove to have been incorrect in any material respect when made
or deemed to be made;


 


(c)                                  Covenant
Breaches.  The
Borrower, any Guarantor or any of their respective Subsidiaries shall fail to (i) perform
or observe any covenant contained in Section 5.02(a), Section 5.03, Section 5.06(e),
Section 5.09, Section 5.12, or Article VI of this Agreement or (ii) fail
to perform or observe any other term or covenant set forth in this Agreement or
in any other Loan Document which is not covered by clause (i) above
or any other provision of this Section 7.01 if such failure shall remain
unremedied for 30 days after the occurrence of such breach or failure;


 


(d)                                 Cross-Defaults.  (i) The Borrower, any Guarantor or any
of their respective Subsidiaries shall fail to pay any principal of or premium
or interest on its Debt which is outstanding in a principal amount of at least
$1,000,000 individually or when aggregated with all such Debt of the Borrower,
any Guarantor or any of their respective Subsidiaries so in default (but
excluding Debt evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; (ii) any
other event shall occur or condition shall exist under any agreement or
instrument relating to Debt which is outstanding in a principal amount of at
least $1,000,000 individually or when aggregated with all such Debt of the
Borrower, such Subsidiary, or such Guarantor so in default, and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or (iii) any such
Debt shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; provided that, for purposes of this subsection
7.01(d), the “principal amount” of the obligations in respect of any Hedging
Contracts at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that would be required to be paid if such Hedging
Contracts were terminated at such time;


 


(e)                                  Insolvency.  The Borrower, any Guarantor or any of their
respective Subsidiaries shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower, any of its Subsidiaries, or any
Guarantor seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or other similar
official for it or for any substantial part of its Property and, in the case of
any such proceeding instituted against the Borrower, any such Subsidiary or any
such Guarantor either such proceeding shall remain undismissed for a period of
60 days or any of the actions sought in such proceeding shall occur; or the
Borrower, any of its Subsidiaries, or any Guarantor shall take any corporate
action to authorize any of the actions set forth above in this
paragraph (e);


 


(f)                                    Judgments.  Any judgment or order for the payment of
money in excess of $1,000,000 shall be rendered against the Borrower, any
Guarantor or any of their respective Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) 


 


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there
shall be any period of 30 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect;


 


(g)                                 Termination
Events.  Any Termination Event with
respect to a Plan shall have occurred, and, 30 days after notice thereof shall
have been given to the Borrower by the Administrative Agent, (i) such
Termination Event shall not have been corrected and (ii) the then present
value of such Plan’s vested benefits exceeds the then current value of assets
accumulated in such Plan by more than the amount of $1,000,000 (or in the case
of a Termination Event involving the withdrawal of a “substantial employer” (as
defined in Section 4001(a)(2) of ERISA), the withdrawing employer’s
proportionate share of such excess shall exceed such amount);


 


(h)                                 Plan
Withdrawals.  The
Borrower or any member of the Controlled Group as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from such
Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability in an annual amount exceeding $1,000,000.


 


(i)                                     Change in
Control.  The Borrower shall have
discontinued its usual business or a Change in Control shall have occurred;


 


(j)                                     Borrowing Base.  Any failure to cure any Borrowing Base
deficiency in accordance with Section 2.05;


 


(k)                                  Loan Documents.  Any material provision of any Loan Document
shall for any reason cease to be valid and binding on the Borrower or a
Guarantor or any of their respective Subsidiaries or any such Person shall so
state in writing;


 


(l)                                     Security
Instruments.  (i) The
Administrative Agent shall fail to have an Acceptable Security Interest in any
portion of the Collateral in excess of $1,000,000.00 in the aggregate at any
one time, or (ii) any Security Instrument shall at any time and for any
reason cease to create the Lien on the Property purported to be subject to such
agreement in accordance with the terms of such agreement, or cease to be in
full force and effect, or shall be contested by the Borrower, any Guarantor or
any of their respective Subsidiaries;


 


(m)                               Material
Adverse Change.  An event
resulting in a Material Adverse Change shall have occurred;


 


(n)                                 Casualty.  Loss, theft, substantial damage or
destruction of a material portion of the Collateral the subject of any Security
Instrument and not fully covered by insurance (except for deductibles and
allowing for the depreciated value of such Collateral) shall have occurred;


 


Section 7.02                                Optional
Acceleration of Maturity.  If
any Event of Default (other than an Event of Default pursuant to
paragraph (e) of Section 7.01) shall have occurred and be
continuing, then, and in any such event,


 


(a)                                  the
Administrative Agent (i) shall at the request, or may with the consent, of
the Majority Lenders, by notice to the Borrower, declare the obligation of each
Lender and the Issuing Lender to make extensions of credit hereunder, including
making Advances and issuing, increasing or extending Letters of Credit, to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Majority Lenders, by notice to
the Borrower, declare all principal, interest, fees, reimbursements,
indemnifications, and all other amounts payable under this Agreement, the
Notes, and the other Loan Documents to be forthwith due and payable, whereupon
all such amounts shall 


 


64

















 


become
and be forthwith due and payable in full, without notice of intent to demand,
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and all other notices, all of which are hereby expressly waived
by the Borrower;


 


(b)                                 the Borrower
shall, on demand of the Administrative Agent at the request or with the consent
of the Majority Lenders, deposit with the Administrative Agent into the Cash
Collateral Account an amount of cash equal to the Letter of Credit Exposure as
security for the Obligations; and


 


(c)                                  the
Administrative Agent shall at the request of, or may with the consent of, the
Majority Lenders proceed to enforce its rights and remedies under the Security
Instruments, the Guaranties, and any other Loan Documents for the ratable
benefit of the Secured Parties by appropriate proceedings.


 


Section 7.03                                Automatic
Acceleration of Maturity.  If
any Event of Default pursuant to paragraph (e) of Section 7.01
shall occur,


 


(a)                                  (i) the
obligation of each Lender and the Issuing Lender to make extensions of credit
hereunder, including making Advances and issuing, increasing or extending
Letters of Credit, shall terminate, and (ii) all principal, interest,
fees, reimbursements, indemnifications, and all other amounts payable under
this Agreement, the Notes, and the other Loan Documents shall become and be
forthwith due and payable in full, without notice of intent to demand, demand,
presentment for payment, notice of nonpayment, protest, notice of protest,
grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and all other notices, all of which are hereby expressly waived
by the Borrower;


 


(b)                                 the Borrower
shall deposit with the Administrative Agent into the Cash Collateral Account an
amount of cash equal to the outstanding Letter of Credit Exposure as security
for the Obligations; and


 


(c)                                  the
Administrative Agent shall at the request of, or may with the consent of, the
Majority Lenders proceed to enforce its rights and remedies under the Security
Instruments, the Guaranties, and any other Loan Document for the ratable
benefit of the Secured Parties by appropriate proceedings.


 


Section 7.04                                Right of
Set-off.  Upon the occurrence and during
the continuance of any Event of Default, the Administrative Agent, the Issuing
Lender and each Lender is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Administrative Agent, the
Issuing Lender or such Lender to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement, the Notes held by the Administrative
Agent, the Issuing Lender or such Lender, and the other Loan Documents,
irrespective of whether or not the Administrative Agent, the Issuing Lender or
such Lender shall have made any demand under this Agreement, such Notes, or
such other Loan Documents, and although such obligations may be unmatured.  The Administrative Agent, the Issuing Lender
and each Lender agrees to promptly notify the Borrower after any such set-off
and application made by the Administrative Agent, the Issuing Lender or such
Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application. 
The rights of the Administrative Agent, the Issuing Lender and each
Lender under this Section 7.04 are in addition to any other rights and
remedies (including, without limitation, other rights of set-off) that the
Administrative Agent, the Issuing Lender or such Lender may have.


 


Section 7.05                                Non-exclusivity
of Remedies.  No remedy
conferred upon the Administrative Agent, the Issuing Lender and the Lenders is
intended to be exclusive of any other remedy, and each 


 


65

















 


remedy
shall be cumulative of all other remedies existing by contract, at law, in
equity, by statute or otherwise.


 


Section 7.06                                Application of
Proceeds.  From and
during the continuance of any Event of Default, any monies or Property actually
received by the Administrative Agent pursuant to this Agreement or any other
Loan Document, the exercise of any rights or remedies under any Security
Instrument or any other agreement with the Borrower, any Guarantor or any of
their respective Subsidiaries which secures any of the Obligations, shall be
applied in the following order:


 


(a)                                  First, to the
payment of all amounts, including costs and expenses incurred in connection
with the collection of such proceeds and the payment of any part of the
Obligations, due to the Administrative Agent under any of the expense
reimbursement or indemnity provisions of this Agreement or any other Loan
Document, any Security Instrument or other collateral documents, and any
applicable law;


 


(b)                                 Second,
ratably, according to the then unpaid amounts thereof, without preference or
priority of any kind among them, to the payment of the Obligations then due and
payable, including Obligations with respect to Letters of Credit and any
obligations of the Borrower or its Subsidiaries owing to any Swap Counterparty
under any Hedge Contract; and


 


(c)                                  Third, the
remainder, if any, to the Borrower, its Subsidiaries, their respective
successors or assigns, or such other Person as may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.


 


ARTICLE
VIII


 


THE
ADMINISTRATIVE AGENT AND THE ISSUING LENDER


 


Section 8.01                                Authorization
and Action.  Each Lender
hereby appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof and of the other Loan
Documents, together with such powers as are reasonably incidental thereto.  As to any matters not expressly provided for
by this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes; provided,
however, that the Administrative Agent shall not be required to take any action
which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement, any other Loan Document, or applicable law.


 


Section 8.02                                Administrative
Agent’s Reliance, Etc. 
Neither the Administrative Agent nor any of its directors, officers,
agents, or employees shall be liable for any action taken or omitted to be
taken (INCLUDING THE ADMINISTRATIVE AGENT’S OWN
NEGLIGENCE) by it or them under or in connection with this Agreement
or the other Loan Documents, except for its or their own gross negligence or
willful misconduct.  Without limitation
of the generality of the foregoing, the Administrative Agent:  (a) may treat the payee of any Note as
the holder thereof until the Administrative Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form
satisfactory to the Administrative Agent; (b) may consult with legal
counsel (including counsel for the Borrower), independent public accountants,
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants, or experts; (c) makes no warranty or representation
to any Lender and shall not be 


 


66

















 


responsible
to any Lender for any statements, warranties, or representations made in or in
connection with this Agreement or the other Loan Documents; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement or any other Loan
Document on the part of the Borrower or its Subsidiaries or to inspect the
Property (including the books and records) of the Borrower or its Subsidiaries;
(e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency, or value of this
Agreement or any other Loan Document; and (f) shall incur no liability
under or in respect of this Agreement or any other Loan Document by acting upon
any notice, consent, certificate, or other instrument or writing (which may be
by telecopier or telex) believed by it to be genuine and signed or sent by the
proper party or parties.


 


Section 8.03                                The
Administrative Agent and Its Affiliates.  With respect to its Commitment, the Advances
made by it and the Notes issued to it, the Administrative Agent shall have the
same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Administrative Agent.  The term “Lender” or “Lenders” shall, unless
otherwise expressly indicated, include the Administrative Agent in its
individual capacity.  The Administrative
Agent and its Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of business with,
the Borrower or any of its Subsidiaries, and any Person who may do business
with or own securities of the Borrower or any such Subsidiary, all as if the
Administrative Agent were not an agent hereunder and without any duty to
account therefor to the Lenders.


 


Section 8.04                                Lender Credit
Decision.  Each Lender
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on the Financial Statements
and the Interim Financial Statements and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement.  Each Lender
also acknowledges that it shall, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.


 


Section 8.05                                Indemnification.  THE LENDERS SEVERALLY
AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH
AFFILIATE THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND
AGENTS (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO THEIR
RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY
ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE AGENT’S
AND THE ISSUING LENDER’S OWN NEGLIGENCE), AND INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL LIABILITIES, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE
ADMINISTRATIVE AGENT’S OR THE ISSUING LENDER’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.  WITHOUT LIMITATION OF THE
FOREGOING, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET
EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN
CONNECTION WITH THE 


 


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PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT OR THE ISSUING
LENDER IS NOT REIMBURSED FOR SUCH BY THE BORROWER.  To
the extent that the indemnity obligations provided in this Section 8.05
are for the benefit of the Administrative Agent as the named secured party
under the Liens granted under the Security Instruments, each Lender hereby
agrees that if such Lender ceases to be a Lender hereunder but Obligations
owing to such Lender or an Affiliate of such Lender continue to be secured by
such Liens, then such Lender shall continue to be bound by the provisions of
this Section 8.05 until such time as such Obligations have been satisfied
or terminated in full and subject to the terms of the last sentence of Section 9.09.    In such event, in determining the pro rata
shares under this Section 8.05, the Lenders shall include the aggregate
amount (giving effect to any netting agreements) that would be owing to such
Swap Counterparty if such Hedge Contracts were terminated at the time of determination.


 


Section 8.06                                Successor
Administrative Agent and Issuing Lender.  The Administrative Agent or the Issuing
Lender may resign at any time by giving written notice thereof to the Lenders
and the Borrower and may be removed at any time with or without cause by the
Majority Lenders upon receipt of written notice from the Majority Lenders to
such effect.  Upon receipt of notice of
any such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Administrative Agent or Issuing Lender with, if no Event of
Default has occurred and is continuing, the consent of the Borrower, which
consent shall not be unreasonably withheld. 
If no successor Administrative Agent or Issuing Lender shall have been
so appointed by the Majority Lenders with the consent of the Borrower, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent’s or Issuing Lender’s giving of notice of resignation or
the Majority Lenders’ removal of the retiring Administrative Agent or Issuing
Lender, then the retiring Administrative Agent or Issuing Lender may, on behalf
of the Lenders and the Borrower, appoint a successor Administrative Agent or
Issuing Lender, which shall be, in the case of a successor agent, a commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.00
and, in the case of the Issuing Lender, a Lender; provided that, if the
Administrative Agent or Issuing Lender shall notify the Borrower and the
Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice
and (1) the retiring Administrative Agent or Issuing Lender shall be
discharged from its duties and obligations hereunder and under the other Loan
Documents (except that (A) in the case of any collateral security held by
the Administrative Agent on behalf of the Lenders or the Issuing Lender under
any of the Loan Documents, the retiring Administrative Agent shall continue to
hold such collateral security until such time as a successor Administrative Agent
is appointed and (B) the retiring Issuing Lender shall remain the Issuing
Lender with respect to any Letters of Credit outstanding on the effective date
of its resignation or removal and the provisions affecting the Issuing Lender
with respect to such Letters of Credit shall inure to the benefit of the
retiring Issuing Lender until the termination of all such Letters of Credit)
and (2) all payments, communications and determinations provided to be
made by, to or through the retiring Administrative Agent shall instead be made
by or to each Lender and the Issuing Lender directly, until such time as the
Majority Lenders appoint a successor Administrative Agent or Issuing Lender, as
applicable, as provided for above in this paragraph.  Upon the acceptance of any appointment as
Administrative Agent or Issuing Lender by a successor Administrative Agent or
Issuing Lender, such successor Administrative Agent or Issuing Lender shall
thereupon succeed to and become vested with all the rights, powers, privileges,
and duties of the retiring Administrative Agent or Issuing Lender, and the
retiring Administrative Agent or Issuing Lender shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents,
except that the retiring Issuing Lender shall remain the Issuing Lender with
respect to any Letters of Credit outstanding on the effective date of its
resignation or 


 


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removal
and the provisions affecting the Issuing Lender with respect to such Letters of
Credit shall inure to the benefit of the retiring Issuing Lender until the
termination of all such Letters of Credit. 
After any retiring Administrative Agent’s or Issuing Lender’s
resignation or removal hereunder as Administrative Agent or Issuing Lender, the
provisions of this Article VIII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent or
Issuing Lender under this Agreement and the other Loan Documents.


 


Section 8.07                                Collateral
Matters.


 


(a)                                  Administrative
Agent is authorized on behalf of the Secured Parties, without the necessity of
any notice to or further consent from the Secured Parties, from time to time,
to take any actions with respect to any Collateral or Security Instruments
which may be necessary to perfect and maintain Acceptable Security Interests in
and Liens upon the Collateral granted pursuant to the Security
Instruments.  Administrative Agent is
further authorized on behalf of the Secured Parties, without the necessity of
any notice to or further consent from the Secured Parties, from time to time,
to take any action (other than enforcement actions requiring the consent of, or
request by, the Majority Lenders as set forth in Section 7.02 or Section 7.03
above) in exigent circumstances as may be reasonably necessary to preserve any
rights or privileges of the Secured Parties under the Loan Documents or
applicable law.  By accepting the benefit
of the Liens granted pursuant to the Security Instruments, each Secured Party
not party hereto hereby agrees to the terms of this paragraph (a).


 


(b)                                 Each Secured
Party irrevocably authorizes Administrative Agent to release any Lien granted
to or held by the Administrative Agent upon any Collateral: (i) upon
termination of the Commitments, termination or expiration of all Letters of
Credit (other than Letters of Credit as to which other arrangements
satisfactory to the Administrative Agent and the Issuing Lender have been
made), termination of all Hedge Contracts with Swap Counterparties that are
secured by the Liens on the Collateral (other than Hedge Contracts with any
Swap Counterparty with respect to which other arrangements satisfactory to the
Swap Counterparty and the Borrower have been made; provided that, unless
a Swap Counterparty notifies the Administrative Agent in writing at least 2
Business Days prior to the expected termination of the Commitments that such
arrangements have not been made, then solely for purposes of this clause (b),
it shall be deemed that such satisfactory arrangements have been made), and
payment in full of all Obligations (other than Obligations arising under Hedge
Contracts with any Swap Counterparty with respect to which other arrangements
satisfactory to the Swap Counterparty and the Borrower have been made; provided
that, unless a Swap Counterparty notifies the Administrative Agent in writing
at least 2 Business Days prior to the expected termination of the Commitments
that such arrangements have not been made, then solely for purposes of this
clause (b), it shall be deemed that such satisfactory arrangements have been
made); (ii) constituting Property sold or to be sold or otherwise disposed
of as part of or in connection with any disposition permitted under this
Agreement or the other Loan Documents; (iii) constituting Property in
which the Borrower or any Subsidiary owned no interest at the time the Lien was
granted or at any time thereafter; (iv) constituting Property leased to
the Borrower or any Subsidiary under a lease which has expired or has been
terminated in a transaction permitted under this Agreement or is about to
expire and which has not been, and is not intended by the Borrower or such
Subsidiary to be, renewed or extended; or (v) if approved, authorized or
ratified in writing by the applicable Majority Lenders or all the Lenders, as
the case may be, as required by Section 9.01.  Upon the request of the Administrative Agent
at any time, the Secured Parties will confirm in writing the Administrative
Agent’s authority to release particular types or items of Collateral pursuant
to this Section 8.07.  By accepting
the benefit of the Liens granted pursuant to the Security Instruments, each
Secured Party not party hereto hereby agrees to the terms of this paragraph
(b).


 


(c)                                  Notwithstanding
anything contained in any of the Loan Documents to the contrary, the Borrower,
the Administrative Agent, and each Secured Party hereby agree that no Secured
Party shall


 


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have
any right individually to realize upon any of the Collateral or to enforce the
Guaranties, it being understood and agreed that all powers, rights and remedies
hereunder and under the Security Instruments may be exercised solely by
Administrative Agent on behalf of the Secured Parties in accordance with the
terms hereof.  By accepting the benefit
of the Liens granted pursuant to the Security Instruments, each Secured Party
not party hereto hereby agrees to the terms of this paragraph (c).


 


ARTICLE IX


 


MISCELLANEOUS


 


Section 9.01                                Amendments, Etc.  No amendment or waiver of
any provision of this Agreement, the Notes, or any other Loan Document (other
than the Fee Letter), nor consent to any departure by the Borrower or any
Subsidiary therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Majority Lenders and the Borrower, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment,
waiver, or consent shall, unless in writing and signed by all the Lenders, do
any of the following:  (a) waive any
of the conditions specified in Section 3.01, (b) increase the
Borrowing Base or the Commitments of the Lenders, (c) reduce the principal
of, or interest on, the Notes or any fees or other amounts payable hereunder or
under any other Loan Document, (d) postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder or extend the Maturity Date or the Commitment Termination Date, (e) change
the percentage of Lenders which shall be required for the Lenders or any of
them to take any action hereunder or under any other Loan Document, (f) amend
Section 2.11 or this Section 9.01, (g) amend the definition of “Majority
Lenders,” (h) release any Guarantor from its obligations under any
Guaranty other than as a result of a transaction permitted hereby, (i) permit
the Borrower or any Subsidiary to enter into any merger or consolidation with
or into any other Person or amend Section 6.04(a), or (j) release any
Collateral securing the Obligations, except for releases of Collateral sold as
permitted by this Agreement and except for releases of Collateral as permitted
under Section 8.08(b); and provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Administrative
Agent or the Issuing Lender in addition to the Lenders required above to take
such action, affect the rights or duties of the Administrative Agent or the
Issuing Lender, as the case may be, under this Agreement or any other Loan
Document.  No Lender or any Affiliate of
a Lender shall have any voting rights under any Loan Document as a result of
the existence of obligations owed to it under Hedge Contracts.


 


Section 9.02                                Notices, Etc.  All notices and other communications shall be
in writing (including, without limitation, telecopy or telex) and mailed by
certified mail, return receipt requested, telecopied, telexed, hand delivered,
or delivered by a nationally recognized overnight courier, at the address for
the appropriate party specified in Schedule II or at such other address as
shall be designated by such party in a written notice to the other parties.  All such notices and communications shall,
when so mailed, telecopied, telexed, or hand delivered or delivered by a
nationally recognized overnight courier, be effective when received if mailed,
when telecopy transmission is completed, when confirmed by telex answer-back,
or when delivered by such messenger or courier, respectively, except that
notices and communications to the Administrative Agent pursuant to Article II
or VIII shall not be effective until received by the Administrative Agent.


 


Section 9.03                                No Waiver;
Remedies.  No failure
on the part of any Lender, the Administrative Agent, or the Issuing Lender to
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right.  The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.


 


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Section 9.04                                Costs and
Expenses.  The
Borrower agrees to pay on demand (a) all reasonable out-of-pocket costs
and expenses of the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, and amendment of this
Agreement, the Notes, the Guaranties, and the other Loan Documents including
the reasonable fees and out-of-pocket expenses of outside legal counsel for the
Administrative Agent with respect to advising the Administrative Agent as to
its rights and responsibilities under this Agreement and (b) all
out-of-pocket costs and expenses, if any, of the Administrative Agent, the
Issuing Lender, and each Lender (including, without limitation, reasonable
counsel fees and expenses of the Administrative Agent, the Issuing Lender, and
each Lender) in connection with the enforcement (whether through negotiations,
legal proceedings, or otherwise) of this Agreement, the Notes, the Guaranties,
and the other Loan Documents.


 


Section 9.05                                Binding Effect.  This Agreement shall become effective when it
shall have been executed by the Borrower and the Administrative Agent, and when
the Administrative Agent shall have, as to each Lender, either received a
counterpart hereof executed by such Lender or been notified by such Lender that
such Lender has executed it and thereafter shall be binding upon and inure to
the benefit of the Borrower, the Administrative Agent, the Issuing Lender, and
each Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights or delegate its duties
under this Agreement or any interest in this Agreement without the prior
written consent of each Lender.


 


Section 9.06                                Lender
Assignments and Participations.


 


(a)                                  Assignments.  Any Lender may assign to one or more Eligible
Assignees all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Advances owing to it, the Notes held by it, and the participation interest in
the Letter of Credit Obligations held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of
such Lender’s rights and obligations assigned under this Agreement and shall be
an equal percentage with respect to both its obligations owing in respect of
the Commitments and the related Advances and Letters of Credit, (ii) the
amount of the Commitments and Advances of such Lender being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall be, if to an entity other
than a Lender, not less than $5,000,000 and shall be an integral multiple of
$1,000,000 in excess thereof, (iii) each such assignment shall be to an
Eligible Assignee, (iv) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording in
the Register, an Assignment and Acceptance, together with the Notes subject to
such assignment, and (v) each Eligible Assignee (other than the Eligible
Assignee of the Administrative Agent or an Affiliate of a Lender) shall pay to
the Administrative Agent a $3,500 administrative fee.  Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least three Business Days after
the execution thereof, (A) the assignee thereunder shall be a party hereto
for all purposes and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (B) such Lender thereunder
shall, to the extent that rights and obligations hereunder have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of such Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto).


 


(b)                                 Terms of
Assignments.  By
executing and delivering an Assignment and Acceptance, the Lender thereunder
and the assignee thereunder confirm to and agree with each other and the other
parties hereto as follows:  (i) other
than as provided in such Assignment and Acceptance, such Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or 


 


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representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency of value of this Agreement
or any other instrument or document furnished pursuant hereto; (ii) such
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or its Subsidiaries or the
performance or observance by the Borrower or its Subsidiaries of any of their
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy
of this Agreement, together with copies of the Financial Statements and Interim
Financial Statements referred to in Section 4.05 and such other documents
and information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Administrative
Agent, such Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees
that it will perform in accordance with their terms all of the obligations
which by the terms of this Agreement are required to be performed by it as a
Lender.


 


(c)                                  The Register.  The Administrative Agent shall maintain at
its address referred to in Section 9.02 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the recordation
of the names and addresses of the Lenders and the Commitments of, and principal
amount of the Advances owing to, each Lender from time to time (the “Register”).  The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent, the Issuing Lender, and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement.  The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.


 


(d)                                 Procedures.  Upon its receipt of an Assignment and
Acceptance executed by a Lender and an Eligible Assignee, together with the
Notes subject to such assignment, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form
of the attached Exhibit A, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register, and (iii) give
prompt notice thereof to the Borrower. 
Within five Business Days after its receipt of such notice, the Borrower
shall execute and deliver to the Administrative Agent in exchange for the
surrendered Notes (A) if such Eligible Assignee has acquired a Commitment,
a new Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it pursuant to such Assignment and Acceptance and (B) if
such Lender has retained any Commitment hereunder, a new Note to the order of
such Lender in an amount equal to the Commitment retained by it hereunder.  Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of the attached Exhibit E.


 


(e)                                  Participations.  Each Lender may sell participations to one or
more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitments, the Advances owing to it, its participation
interest in the Letter of Credit Obligations, and the Notes held by it); provided,
however, that (i) such Lender’s obligations under this Agreement
(including, without limitation, its Commitments to the Borrower hereunder)
shall remain unchanged, (ii) such Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii) such
Lender shall remain the holder of any such Notes for all purposes of this
Agreement, (iv) the Borrower, the Administrative Agent, and the Issuing
Lender and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender’s rights and obligations under this
Agreement, and (v) such Lender shall not require the participant’s consent
to any 


 


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matter
under this Agreement, except for change in the principal amount of the Notes,
reductions in fees or interest, releasing all or substantially all of any
Collateral, permitting the Borrower or any Subsidiary to enter into any merger
or consolidation with or into any other, 
postponement of any date fixed for any payment of principal of, or interest
on, the Notes or any fees or other amounts payable hereunder, or extensions of
the Maturity Date or the Commitment Termination Date.  The Borrower hereby agrees that participants
shall have the same rights under Sections 2.12, 2.13, 2.14(c), and 9.07 as
a Lender to the extent of their respective participations.


 


Section 9.07                                Indemnification;
Waiver.


 


(a)                                  Indemnification.  THE BORROWER SHALL, AND DOES HEREBY
INDEMNIFY, THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT THEREOF), EACH LENDER
AND THE ISSUING LENDER, AND EACH OFFICER, DIRECTOR, EMPLOYEE, AGENT,
ATTORNEY-IN-FACT AND AFFILIATE  OF
ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”)
AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES AND RELATED EXPENSES (INCLUDING THE FEES, CHARGES AND
DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE), INCURRED BY ANY INDEMNITEE OR
ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY THE BORROWER OR ANY
SUBSIDIARY OF THE BORROWER ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE
PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR
THEREUNDER, THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, OR, IN THE CASE OF THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT,
OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY-IN-FACT AND AFFILIATE THEREOF) THE
ADMINISTRATION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, (II) ANY
ADVANCE OR LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS
THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR
PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH
SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY
ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY THE
BORROWER OR ANY GUARANTOR, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY
THERETO, IN ALL CASES, WHETHER OR NOT
CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY
OR SOLE NEGLIGENCE OF THE INDEMNITEE; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH
LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A
COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.


 


(b)                                 Waiver
of Damages.  To
the fullest extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual


 


73

















 


damages) arising out of,
in connection with, or as a result of, this Agreement, any other Loan Document
or any agreement or instrument contemplated hereby, the transactions
contemplated hereby or thereby, any Advance or Letter of Credit or the use of
the proceeds thereof.  No Indemnitee
referred to in subsection (a) above shall be liable for any damages
arising from the use by unintended recipients of any information or other
materials distributed by it through telecommunications, electronic or other
information transmission systems in connection with this Agreement or the other
Loan Documents or the transactions contemplated hereby or thereby.


 


Section 9.08                                Execution in
Counterparts.  This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.  Delivery of
an executed counterpart signature page of this Agreement by facsimile is
as effective as executing and delivering this Agreement in the presence of the
other parties to this Agreement.


 


Section 9.09                                Survival of
Representations, Etc.  All
representations and warranties contained in this Agreement or made in writing
by or on behalf of the Borrower in connection herewith shall survive the
execution and delivery of this Agreement and the Loan Documents, the making of
the Advances and any investigation made by or on behalf of the Lenders, none of
which investigations shall diminish any Lender’s right to rely on such
representations and warranties.  All
obligations of the Borrower provided for in Sections 2.12, 2.13, 2.14(c),
9.04, and 9.07 and all of the obligations of the Lenders in Section 8.05
shall survive any termination of this Agreement and repayment in full of the
Obligations.


 


Section 9.10                                Severability.  In case one or more provisions of this
Agreement or the other Loan Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality,
and enforceability of the remaining provisions contained herein or therein
shall not be affected or impaired thereby.


 


Section 9.11                                Business Loans.  The Borrower warrants and represents that the
Loans evidenced by the Notes are and shall be for business, commercial,
investment, or other similar purposes and not primarily for personal, family,
household, or agricultural use, as such terms are used in Chapter One (“Chapter
One”) of the Texas Credit Code.  At all
such times, if any, as Chapter One shall establish a Maximum Rate, the Maximum
Rate shall be the “indicated rate ceiling” (as such term is defined in Chapter
One) from time to time in effect.


 


Section 9.12                                Governing Law;
Submission to Jurisdiction.  This Agreement, the Notes and the other Loan
Documents shall be governed by, and construed and enforced in accordance with,
the laws of the State of Texas.  Without
limiting the intent of the parties set forth above, (a) Chapter 346 of the
Texas Finance Code, as amended (relating to revolving loans and revolving
tri-party accounts (formerly Tex.  Rev.
Civ.  Stat.  Ann. 
Art.  5069, Ch.  15)), shall not apply to this Agreement, the
Notes, or the transactions contemplated hereby and (b) to the extent that
any Lender may be subject to Texas law limiting the amount of interest payable
for its account, such Lender shall utilize the indicated (weekly) rate ceiling
from time to time in effect.  Each Letter
of Credit shall be governed by either the Uniform Customs and Practice for
Documentary Credits (2007 Revision), International Chamber of Commerce
Publication No. 600, or the International Standby Practices (ISP98),
International Chamber of Commerce Publication No. 590 (and any subsequent
revisions thereof approved by a Congress of the International Chamber of
Commerce and adhered to by the Issuing Lender). 
The Borrower hereby irrevocably submits to the jurisdiction of any Texas
state or federal court sitting in Dallas, Texas in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, and
the Borrower hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such court.  The Borrower hereby unconditionally and
irrevocably waives, to the fullest extent it may 


 


74

















 


effectively
do so, any right it may have to the defense of an inconvenient forum to the
maintenance of such action or proceeding. 
The Borrower hereby agrees that service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding may be made by mailing or delivering a copy of such process to such
Borrower at its address set forth in this Agreement.  The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.  Nothing in this Section shall
affect the rights of any Lender to serve legal process in any other manner
permitted by the law or affect the right of any Lender to bring any action or
proceeding against the Borrower or its Property in the courts of any other
jurisdiction.


 


Section 9.13                                [Reserved].


 


Section 9.14                                USA Patriot Act.  Each Lender that is subject to the Patriot
Act and the Administrative Agent (for itself and not on behalf of any Lender)
hereby notifies the Borrower that pursuant to the requirements of the Patriot
Act it is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and other
information that will allow such Lender or the Administrative Agent, as
applicable, to identify the Borrower in accordance with the Patriot Act.


 


Section 9.15                                WAIVER
OF JURY TRIAL.  THE
BORROWER, THE LENDERS, THE ISSUING LENDER AND THE ADMINISTRATIVE AGENT HEREBY
ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL
OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.


 


Section 9.16                                ORAL
AGREEMENTS.  THIS
WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS AGREEMENT,
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.


 


THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.


 


[Remainder of this page intentionally left blank.  Signature page follows.]


 


75

















 


EXECUTED
as of the date first above written.


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  RESACA
  EXPLOITATION, INC. a Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


 


Signature
page to Second Amended and Restated Credit Agreement


(Resaca
Exploitation, Inc.)


 

















 


	
   

  	
  ADMINISTRATIVE
  AGENT/LENDERS:

  
	
   

  	
   

  
	
   

  	
  UNION
  BANK, N.A.,

  
	
   

  	
  as
  Administrative Agent, Issuing Lender and Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Paul
  Cornell

  
	
   

  	
   

  	
  Senior Vice President

  



 


 


Signature
page to Second Amended and Restated Credit Agreement


(Resaca
Exploitation, Inc.)


 

















 


	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  NATIXIS
  NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Donovan
  Broussard

  
	
   

  	
   

  	
  Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


 


Signature
page to Second Amended and Restated Credit Agreement


(Resaca
Exploitation, Inc.)


 

















 


	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  REGIONS
  BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


 


Signature
page to Second Amended and Restated Credit Agreement


(Resaca
Exploitation, Inc.)


 














 


SCHEDULE I


 


PRICING GRID


 


Applicable Margins


 


	
   

  	
  Utilization Level*

  	
   

  	
  Reference Rate

  Advances

  	
   

  	
  Eurodollar Rate

  Advances

  	
   

  	
  Commitment Fee

  	
   

  	
   

  
	
   

  	
  Level I

  	
   

  	
  1.50

  	
  %

  	
  2.50

  	
  %

  	
  0.50

  	
  %

  	
   

  
	
   

  	
  Level II

  	
   

  	
  1.75

  	
  %

  	
  2.75

  	
  %

  	
  0.50

  	
  %

  	
   

  
	
   

  	
  Level III

  	
   

  	
  2.00

  	
  %

  	
  3.00

  	
  %

  	
  0.50

  	
  %

  	
   

  
	
   

  	
  Level IV

  	
   

  	
  2.25

  	
  %

  	
  3.25

  	
  %

  	
  0.50

  	
  %

  	
   

  



 






* Utilization Levels are described below and are
determined in accordance with the definition of “Utilization Level”.


 


1.
 Level
I: If the Utilization Level is less than 50%.


2.  Level II:
If the Utilization Level is greater than or equal to 50% but less than 75%.


3.  Level III: If
the Utilization Level is greater than or equal to 75% but less than 90%.


4.  Level IV: If
the Utilization Level is greater than or equal to 90%.


 

















 


SCHEDULE II


NOTICE INFORMATION AND COMMITMENTS


 


Each
of the commitments to lend set forth herein is governed by the terms of the
Credit Agreement which provides for, among other things, borrowing base
limitations which may restrict the Borrower’s ability to request (and the
Lenders’ obligation to provide) Credit Extensions to a maximum amount which is
less than the commitments set forth in this Schedule II.


 


Administrative Agent/Issuing Lender:


 


Union
Bank, N.A.


Lincoln
Plaza


500
N. Akard Street, Suite 4200


Dallas,
Texas  75201


Attention:


Facsimile:
(214) 922-4209


 


with a copy to:


 


Union
Bank, N.A.


1331
Lamar Street, Suite 1360


Houston,
Texas 77010


Attention:
Paul E. Cornell


Facsimile:
(713) 286-3051


 


Borrower:


 


Resaca
Exploitation, Inc.


1331
Lamar Street


Houston,
TX 77010-3122


Attention:


Facsimile:
(713) 650-1246


 




	
  Lenders:

  	
   

  	
  Commitments

  	
   

  
	
  Union Bank, N.A.

  	
   

  	
  $

  	
  77,777,778.00

  	
   

  
	
  Natixis New York Branch

  	
   

  	
  $

  	
  77,777,778.00

  	
   

  
	
  Regions Bank

  	
   

  	
  $

  	
  44,444,444.00

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  200,000,000.00

  	
   

  






 

















 


SCHEDULE 4.01


 


SUBSIDIARIES OF BORROWER


 


[borrower to provide]


 


1

















 


SCHEDULE 4.05


 


EXISTING DEBT


 


[borrower to provide]


 


1

















 


Schedule 4.07


 


LITIGATION


 


 


[borrower to provide]


 


1

















 


SCHEDULE 4.14(a)


 


AGREEMENTS WHICH COULD CREATE A MATERIAL ADVERSE
CHANGE


 


[borrower to provide]


 


Certificate
of Designation


 


Merger
Agreement


 

















 


SCHEDULE 4.20


 


HEDGING CONTRACTS


 


[Union Bank to provide]


 


1