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Exhibit 10.4    
    


 
 

CREDIT AGREEMENT    
    
    DATED AS OF
  FEBRUARY 3, 2006    
    
    AMONG    
    
    ELLORA ENERGY INC.
  AND
  ELLORA OIL & GAS INC.,
  AS BORROWERS,    


    JPMORGAN CHASE BANK, N.A.,
  AS ADMINISTRATIVE AGENT    
    
    AND    
    
    THE LENDERS PARTY HERETO    
    
    $400,000,000    
    
    J.P. MORGAN SECURITIES INC.,    
    
    AS LEAD
ARRANGER AND BOOK MANAGER    









 
 
 

TABLE OF CONTENTS    
    



	 
	 	 
	 	Page:

	ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS
	

SECTION 1.01	
 	

TERMS DEFINED ABOVE	
 	

1
	SECTION 1.02	 	CERTAIN DEFINED TERMS	 	1
	SECTION 1.03	 	TYPES OF LOANS AND BORROWINGS	 	17
	SECTION 1.04	 	TERMS GENERALLY; RULES OF CONSTRUCTION	 	17
	SECTION 1.05	 	ACCOUNTING TERMS AND DETERMINATIONS; GAAP	 	17
	
ARTICLE II

THE CREDITS
	

SECTION 2.01	
 	

COMMITMENTS	
 	

18
	SECTION 2.02	 	LOANS AND BORROWINGS	 	18
	SECTION 2.03	 	REQUESTS FOR BORROWINGS	 	19
	SECTION 2.04	 	INTEREST ELECTIONS	 	19
	SECTION 2.05	 	FUNDING OF BORROWINGS	 	20
	SECTION 2.06	 	CHANGES IN THE AGGREGATE MAXIMUM CREDIT AMOUNT	 	21
	SECTION 2.07	 	BORROWING BASE	 	21
	SECTION 2.08	 	LETTERS OF CREDIT	 	24
	
ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
	

SECTION 3.01	
 	

REPAYMENT OF LOANS	
 	

28
	SECTION 3.02	 	INTEREST	 	28
	SECTION 3.03	 	ALTERNATE RATE OF INTEREST	 	28
	SECTION 3.04	 	PREPAYMENTS	 	29
	SECTION 3.05	 	FEES	 	30
	SECTION 3.06	 	JOINT AND SEVERAL LIABILITY	 	31
	
ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.
	

SECTION 4.01	
 	

PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS	
 	

32
	SECTION 4.02	 	PRESUMPTION OF PAYMENT BY THE BORROWERS	 	33
	SECTION 4.03	 	CERTAIN DEDUCTIONS BY THE ADMINISTRATIVE AGENT	 	33
	SECTION 4.04	 	DISPOSITION OF PROCEEDS	 	34
	
ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
	

SECTION 5.01	
 	

INCREASED COSTS	
 	

34
	SECTION 5.02	 	BREAK FUNDING PAYMENTS	 	35
	SECTION 5.03	 	TAXES	 	35
	SECTION 5.04	 	MITIGATION OBLIGATIONS	 	36
	SECTION 5.05	 	ILLEGALITY	 	36
	 	 	 	 	 





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ARTICLE VI

CONDITIONS PRECEDENT
	

SECTION 6.01	
 	

EFFECTIVE DATE; INITIAL LOANS	
 	

37
	SECTION 6.02	 	EACH CREDIT EVENT	 	39
	
ARTICLE VII

REPRESENTATIONS AND WARRANTIES
	

SECTION 7.01	
 	

ORGANIZATION; POWERS	
 	

40
	SECTION 7.02	 	AUTHORITY; ENFORCEABILITY	 	40
	SECTION 7.03	 	APPROVALS; NO CONFLICTS	 	40
	SECTION 7.04	 	FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE	 	40
	SECTION 7.05	 	LITIGATION	 	41
	SECTION 7.06	 	ENVIRONMENTAL MATTERS	 	41
	SECTION 7.07	 	COMPLIANCE WITH THE LAWS AND AGREEMENTS; NO DEFAULTS	 	42
	SECTION 7.08	 	INVESTMENT COMPANY ACT	 	42
	SECTION 7.09	 	PUBLIC UTILITY HOLDING COMPANY ACT	 	42
	SECTION 7.10	 	TAXES	 	42
	SECTION 7.11	 	ERISA	 	43
	SECTION 7.12	 	DISCLOSURE; NO MATERIAL MISSTATEMENTS	 	43
	SECTION 7.13	 	INSURANCE	 	44
	SECTION 7.14	 	RESTRICTION ON LIENS	 	44
	SECTION 7.15	 	SUBSIDIARIES	 	44
	SECTION 7.16	 	LOCATION OF BUSINESS AND OFFICES	 	44
	SECTION 7.17	 	PROPERTIES; TITLES, ETC.	 	44
	SECTION 7.18	 	MAINTENANCE OF PROPERTIES	 	45
	SECTION 7.19	 	GAS IMBALANCES, PREPAYMENTS	 	46
	SECTION 7.20	 	MARKETING OF PRODUCTION	 	46
	SECTION 7.21	 	SWAP AGREEMENTS	 	46
	SECTION 7.22	 	USE OF LOANS AND LETTERS OF CREDIT	 	46
	SECTION 7.23	 	SOLVENCY	 	46
	
ARTICLE VIII

AFFIRMATIVE COVENANTS
	

SECTION 8.01	
 	

FINANCIAL STATEMENTS; OTHER INFORMATION	
 	

47
	SECTION 8.02	 	NOTICES OF MATERIAL EVENTS	 	48
	SECTION 8.03	 	EXISTENCE; CONDUCT OF BUSINESS	 	49
	SECTION 8.04	 	PAYMENT OF OBLIGATIONS	 	49
	SECTION 8.05	 	PERFORMANCE OF OBLIGATIONS UNDER LOAN DOCUMENTS	 	49
	SECTION 8.06	 	OPERATION AND MAINTENANCE OF PROPERTIES	 	49
	SECTION 8.07	 	INSURANCE	 	50
	SECTION 8.08	 	BOOKS AND RECORDS; INSPECTION RIGHTS	 	50
	SECTION 8.09	 	COMPLIANCE WITH LAWS	 	50
	SECTION 8.10	 	ENVIRONMENTAL MATTERS	 	50
	SECTION 8.11	 	FURTHER ASSURANCES	 	51
	SECTION 8.12	 	RESERVE REPORTS	 	51
	SECTION 8.13	 	TITLE INFORMATION	 	52
	SECTION 8.14	 	ADDITIONAL COLLATERAL; ADDITIONAL GUARANTORS	 	53
	SECTION 8.15	 	ERISA COMPLIANCE	 	53
	 	 	 	 	 



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ARTICLE IX

NEGATIVE COVENANTS
	

SECTION 9.01	
 	

FINANCIAL COVENANTS	
 	

54
	SECTION 9.02	 	DEBT	 	54
	SECTION 9.03	 	LIENS	 	55
	SECTION 9.04	 	RESTRICTED PAYMENTS	 	55
	SECTION 9.05	 	INVESTMENTS, LOANS AND ADVANCES	 	55
	SECTION 9.06	 	NATURE OF BUSINESS; INTERNATIONAL OPERATIONS	 	56
	SECTION 9.07	 	LIMITATION ON LEASES	 	57
	SECTION 9.08	 	PROCEEDS OF NOTES/LOANS	 	57
	SECTION 9.09	 	ERISA COMPLIANCE	 	57
	SECTION 9.10	 	SALE OR DISCOUNT OF RECEIVABLES	 	58
	SECTION 9.11	 	MERGERS, ETC.	 	58
	SECTION 9.12	 	SALE OF PROPERTIES	 	58
	SECTION 9.13	 	ENVIRONMENTAL MATTERS	 	59
	SECTION 9.14	 	TRANSACTIONS WITH AFFILIATES	 	59
	SECTION 9.15	 	SUBSIDIARIES	 	59
	SECTION 9.16	 	SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK	 	59
	SECTION 9.17	 	NEGATIVE PLEDGE AGREEMENTS	 	59
	SECTION 9.18	 	TAKE-OR-PAY OR OTHER PREPAYMENTS	 	59
	SECTION 9.19	 	SWAP AGREEMENTS	 	59
	SECTION 9.20	 	ELLORA HOLDINGS	 	60
	
ARTICLE X

EVENTS OF DEFAULT; REMEDIES
	

SECTION 10.01	
 	

EVENTS OF DEFAULT	
 	

60
	SECTION 10.02	 	REMEDIES	 	62
	
ARTICLE XI

THE AGENTS
	

SECTION 11.01	
 	

APPOINTMENT; POWERS	
 	

62
	SECTION 11.02	 	DUTIES AND OBLIGATIONS OF ADMINISTRATIVE AGENT	 	62
	SECTION 11.03	 	ACTION BY ADMINISTRATIVE AGENT	 	63
	SECTION 11.04	 	RELIANCE BY ADMINISTRATIVE AGENT	 	63
	SECTION 11.05	 	SUBAGENTS	 	64
	SECTION 11.06	 	RESIGNATION OF AGENTS	 	64
	SECTION 11.07	 	AGENTS AS LENDERS	 	64
	SECTION 11.08	 	NO RELIANCE	 	64
	SECTION 11.09	 	AUTHORITY TO RELEASE COLLATERAL AND LIENS	 	65
	SECTION 11.10	 	THE ARRANGER AND AGENTS	 	65
	SECTION 11.11	 	FILING OF PROOFS OF CLAIM	 	65
	
ARTICLE XII

MISCELLANEOUS
	

SECTION 12.01	
 	

NOTICES	
 	

66
	SECTION 12.02	 	WAIVERS; AMENDMENTS	 	66
	SECTION 12.03	 	EXPENSES, INDEMNITY; DAMAGE WAIVER	 	67
	SECTION 12.04	 	SUCCESSORS AND ASSIGNS	 	69
	SECTION 12.05	 	SURVIVAL; REVIVAL; REINSTATEMENT	 	72
	SECTION 12.06	 	COUNTERPARTS; INTEGRATION; EFFECTIVENESS	 	72
	 	 	 	 	 





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	SECTION 12.07	 	SEVERABILITY	 	72
	SECTION 12.08	 	RIGHT OF SETOFF	 	73
	SECTION 12.09	 	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	 	73
	SECTION 12.10	 	HEADINGS	 	74
	SECTION 12.11	 	CONFIDENTIALITY	 	74
	SECTION 12.12	 	EXCULPATION PROVISIONS	 	74
	SECTION 12.13	 	NO THIRD PARTY BENEFICIARIES	 	75
	SECTION 12.14	 	COLLATERAL MATTERS; SWAP AGREEMENTS	 	75
	SECTION 12.15	 	US PATRIOT ACT NOTICE	 	75
	
ANNEXES, EXHIBITS AND SCHEDULES
	

Annex I	
 	

List of Maximum Credit Amounts	
 	

 
	

Exhibit A	
 	

Form of Note	
 	

 
	Exhibit B	 	Form of Borrowing Request	 	 
	Exhibit C	 	Form of Interest Election Request	 	 
	Exhibit D	 	Form of Compliance Certificate	 	 
	Exhibit E	 	Form of Assignment and Assumption	 	 
	Exhibit F	 	Form of Borrower Pledge Agreement	 	 
	Exhibit G	 	Form of Subsidiary Pledge Agreement	 	 
	Exhibit H	 	Form of Guaranty Agreement	 	 
	

Schedule 7.05	
 	

Litigation	
 	

 
	Schedule 7.15	 	Subsidiaries and Partnerships	 	 
	Schedule 7.17	 	Properties; Title Defects	 	 
	Schedule 7.19	 	Gas Imbalances	 	 
	Schedule 7.20	 	Marketing Contracts	 	 
	Schedule 7.21	 	Swap Agreements	 	 
	Schedule 9.05	 	Investments	 	 




iv









 
 

ELLORA ENERGY INC.
  CREDIT AGREEMENT    
    


        This
CREDIT AGREEMENT, dated as of February 3, 2006, is among ELLORA
ENERGY INC., a Delaware corporation ("Ellora Energy"), ELLORA OIL &
GAS INC., a Delaware corporation ("Ellora O&G" and, together with Ellora Energy, collectively the
"Borrowers" and each individually a "Borrower"), each of the Lenders from time to time party hereto,  JPMORGAN CHASE BANK,
N.A. (in its individual capacity, "JPMorgan"), as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). 


 
 

R E C I T A L S    
    


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


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



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


 
 

ARTICLE I
  DEFINITIONS AND ACCOUNTING MATTERS    
    


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


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



        "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate. 


        "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. 


        "Administrative Agent" has the meaning given in the introductory paragraph. 


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


        "Affected Loans" has the meaning assigned to such term in Section 5.05. 



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


        "Agents" means, collectively, the Administrative Agent and any other agent appointed hereunder from time to time; and
"Agent" shall mean any of them, as the context requires. 


        "Aggregate Maximum Credit Amount" at any time shall equal the sum of the Maximum Credit Amounts, as the same may be reduced or terminated
pursuant to Section 2.06. The Aggregate Maximum Credit Amount of the Lenders is $400,000,000. 


        "Agreement" means this Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated. 


        "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and
(b) the Federal Funds Effective Rate in effect on such day 








 




plus
1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate, respectively. 


        "Annualized Consolidated EBITDAX" means, for purposes of calculating the financial ratio set forth in Section 9.01(b) for each
fiscal quarter, the Borrowers' actual Consolidated EBITDAX for the two (2) consecutive fiscal quarters ending on the calculation date multiplied by 2. 


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



	Borrowing Base Utilization Grid
	 
	Borrowing Base Utilization Percentage
 
	 	<50%
	 	350% <75%
	 	375% <90%
	 	390%
	 
	Eurodollar Loans	 	1.250	%	1.500	%	1.750	%	2.000	%
	ABR Loans	 	0.000	%	0.250	%	0.500	%	0.750	%
	Commitment Fee Rate	 	0.300	%	0.375	%	0.375	%	0.500	%






        Each
change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the
next such change. 


        "Applicable Percentage" means, with respect to any Lender, the percentage of the Aggregate Maximum Credit Amount represented by such
Lender's Maximum Credit Amount as such percentage is set forth on Annex I. 



        "Approved Counterparty" means (a) any Lender or any Affiliate of a Lender, or (b) any other Person whose long term senior
unsecured debt rating at the time of entry into the applicable Swap Agreement is A-/A3 by S&P or Moody's (or their equivalent) or higher. 


        "Approved Fund" means (a) a CLO and (b) with respect to any Lender that is a fund which invests in bank loans and similar
extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment
advisor. 


        "Approved Petroleum Engineer" means an independent petroleum engineer proposed by the Borrowers and reasonably acceptable to the
Administrative Agent. 


        "Arranger" mean J.P. Morgan Securities Inc., in its capacity as lead arranger and book manager hereunder. 


        "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor
provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States of America;  provided that if,
 as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be reasonably determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders. 


        "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party
whose consent is required by Section 12.04(b)), and 



2







 




accepted
by the Administrative Agent, in the form of Exhibit E or any other form approved by the Administrative Agent. 


        "Availability Period" means the period from and including the Effective Date to but excluding the Termination Date. 



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


        "Borrower" and "Borrowers" have the meanings given in the introductory paragraph. 


        "Borrower Pledge Agreement" means an agreement executed by a Borrower and being substantially in the form of  Exhibit F, pursuant to which such Borrower pledges to
the Administrative Agent, for the ratable benefit of the Lenders, all of the issued and
outstanding Equity Interests owned by such Borrower of each existing or hereafter acquired Subsidiary to secure the Indebtedness. 


        "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect. 


        "Borrowing Base" means at any time an amount equal to the amount determined in accordance with Section 2.07, as the same may be
adjusted from time to time pursuant to Section 8.13(c) or Section 9.12(d). 



        "Borrowing Base Utilization Percentage" means, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of
the Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day. 


        "Borrowing Request" means a request by the Borrowers for a Borrowing in accordance with Section 2.03. 


        "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois or Dallas, Texas
are authorized or required by law to remain closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or
the Interest Period for, a Eurodollar Loan or a notice by the Borrowers with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a
day on which dealings in dollar deposits are carried out in the London interbank market. 


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



        "Casualty Event" means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by
condemnation or similar proceeding of, any Property of a Borrower or any of its Subsidiaries having a fair market value in excess of $1,000,000. 


        "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof) of Equity Interests representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding Equity Interests of a Borrower or (b) the occupation of a majority of the seats (other than vacant seats) on the board of
directors of a Borrower by Persons who were neither (i) nominated by the board of directors of such Borrower nor (ii) appointed by directors so nominated. 



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        "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in
any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank
(or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such Lender's or such Issuing Bank's holding company, if any) with any request, guideline or directive (whether
or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. 


        "CLO" means any entity (whether a corporation, partnership, limited liability company, trust or otherwise) that is engaged in making,
purchasing, holding or otherwise investing in bank loans and
similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender. 


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


        "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) modified from time to time pursuant
to Section 2.06 and (b) modified from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b), and
"Commitments" means the aggregate amount of the Commitments of all the Lenders. The amount representing each Lender's Commitment shall at any time be
the lesser of (i) such Lender's Maximum Credit Amount and (ii) such Lender's Applicable Percentage of the then effective Borrowing Base. 


        "Commitment Fee Rate" is the rate per annum set forth in the definition of "Applicable
Margin". 


        "Consolidated EBITDAX" means, with respect to the Borrowers and the Consolidated Subsidiaries for any period: (a) Consolidated Net
Income of the Borrowers and the Consolidated Subsidiaries for such period, plus, to the extent deducted in the calculation of Consolidated Net Income, (b) the sum of (i) income or
franchise Taxes paid or accrued; (ii) Consolidated Net Interest Expense; (iii) amortization, depletion and depreciation expense; (iv) any non-cash losses or charges on
any Swap Agreement resulting from the requirements of SFAS 133 for that period; (v) other non-cash charges (excluding accruals for cash expenses made in the ordinary course
of business), including, without limitation, non-cash employee compensation; and (vi) costs and expenses associated with, and attributable to, oil and gas capital expenditures that
are expensed rather than capitalized; less, to the extent included in the calculation of Consolidated Net Income, (c) the sum of (i) the
income of any Person (other than wholly-owned Subsidiaries of such Person) unless such income is received by such Person in a cash distribution; (ii) gains or losses from sales or other
dispositions of assets (other than Hydrocarbons produced in the normal course of business); (iii) any non-cash gains on any Swap Agreement resulting from the requirements of
SFAS 133 for that period; (iv) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring "cash" losses; and (v) costs and
expenses associated with, and attributable to, oil and gas capital expenditures that are expensed rather than capitalized. Notwithstanding anything to the contrary contained herein, all calculations
of Consolidated EBITDAX shall be (A) in all respects, acceptable to, and approved by, the Administrative Agent, and (B) for any applicable period of determination during which a Borrower
has consummated an acquisition or disposition (to the extent permitted hereunder) of properties or assets, calculated and determined on a pro forma basis as if such acquisition or disposition was
consummated on the first day of such applicable period. 



4







 




        "Consolidated Net Income" means with respect to the Borrowers and the Consolidated Subsidiaries, for any period, the aggregate of the net
income (or loss) of the Borrowers and the Consolidated Subsidiaries after allowances for taxes for such period determined on a consolidated basis in accordance with GAAP;  provided that there shall be
excluded from such net income (to the extent otherwise included therein) the following: (a) the net income of any
Person in which a Borrower or any Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrowers and
the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in cash during such period by such other Person to a Borrower or
to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) during such period of any Consolidated Subsidiary to the extent that the declaration or payment of dividends
or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (d) any extraordinary gains or losses during such period;
(e) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets; and (f) any writeups or writedowns of
non-current assets. 


        "Consolidated Net Interest Expense" means, with respect to the Borrowers and the Consolidated Subsidiaries for any period, the remainder
of the following for such period: (a) interest expense, minus (b) interest income. 


        "Consolidated Subsidiaries" means each Subsidiary of a Borrower (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated with the financial statements of such Borrower and/or the Borrowers in accordance with GAAP. 


        "Consolidated Total Debt" means, with respect to the Borrowers and the Consolidated Subsidiaries as of the last day of any fiscal quarter,
all Debt of the Borrowers and the Consolidated Subsidiaries determined on a consolidated basis as of the last day of any fiscal quarter. 


        "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns
directly or indirectly 20% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such
other Person) will be deemed to "control" such other Person. "Controlling" and "Controlled" have
meanings correlative thereto. 


        "Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and
its LC Exposure at such time. 


        "Debt" means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money
or evidenced by bonds, bankers' acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of
credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of
Property or services; (d) all obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of
others secured by a Lien on any Property of such Person, whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses of this 



5







 




definition)
of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of
the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or Property of others; (i) all obligations to deliver commodities, goods or services, including, without limitation,
Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (j) all obligations to pay for goods or services
whether or not such goods or services are actually received or utilized by such Person; (k) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or
by a Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of any production payment created by such Person
or for the creation of which such Person directly or indirectly received payment. The Debt of any Person shall include all obligations of such Person of the character described above to the extent
such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP. 


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


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


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



        "Domestic Subsidiary" means any Subsidiary that is organized under the laws of the United States of America or any state thereof or the
District of Columbia. 


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


        "Election Notice" has the meaning assigned to such term in Section 3.04(c)(ii). 



        "Ellora Energy" has the meaning given in the introductory paragraph. 


        "Ellora Holdings" means Ellora Holdings, LLC. 


        "Ellora O&G" has the meaning given in the introductory paragraph. 


        "Engineering Reports" has the meaning assigned such term in Section 2.07(c)(i). 



        "Environmental Laws" means any and all Governmental Requirements pertaining in any way to health, safety, the environment or the
preservation or reclamation of natural resources, in effect in any and all jurisdictions in which any Borrower or any Subsidiary is conducting or at any time has conducted business, or where any
Property of any Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and 



6







 




Recovery
Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements. The term
"oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or
"threatened release") have the meanings specified in CERCLA, the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA and the term "oil
and gas waste" shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code
("Section 91.1011"); provided, however, that
(a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of any Borrower or any Subsidiary is located establish a meaning for
"oil," "hazardous substance," "release,"
"solid waste," "disposal" or "oil and gas waste" which
is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply. 


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


        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statutes, and all regulations and
guidances promulgated thereunder. 


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



        "ERISA Event" means (a) a "Reportable Event" described in section 4043 of ERISA, other than a Reportable Event as to which
the provisions of 30 days notice to the PBGC is expressly waived under applicable regulations, (b) the withdrawal of a Borrower, a Subsidiary or any ERISA Affiliate 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, (e) receipt of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute grounds under
section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 


        "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate. 


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



        "Excepted Liens" means: (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which
are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workers' compensation,
unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP; (c) statutory landlord's liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics', suppliers', workers',
materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the 



7







 




exploration,
development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens that arise in the ordinary course of business under operating agreements,
joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith
by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this
clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by any Borrower or any Subsidiary or materially impair the value of such
Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies
and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a
dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is
intended by any Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property of any Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, which in the aggregate do not materially impair the use of
such Property for the purposes of which such Property is held by any Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (g) Liens on cash or securities
pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory
obligations and other obligations of a like nature incurred in the ordinary course of business; (h) judgment and attachment Liens not giving rise to an Event of Default,  provided that any
appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; and (i) Liens arising from Uniform
Commercial Code financing statement filings regarding operating leases entered into by the Borrowers and the Subsidiaries in the ordinary course of business covering only the Property under lease;  provided, further that Liens described in clauses (a) through (e) shall remain "Excepted
Liens" only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to
be hereby implied or
expressed by the permitted existence of such Excepted Liens. 


        "Excluded Taxes" means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of any Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United
States of America or such other jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable
lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any 



8







 




other
jurisdiction in which any Borrower or any Guarantor is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under
Section 5.04(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending
office) or is attributable to such Foreign Lender's failure to comply with Section 5.03(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding tax pursuant to Section 5.03(a) or Section 5.03(c). 


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



        "Fee Letter" means that certain letter agreement among the Borrowers (or either one of them), JPMorgan and Arranger related to the payment
of certain fees by the Borrowers. 


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


        "Financial Statements" means the financial statement or statements of the Borrowers and their Consolidated Subsidiaries referred to in
Section 7.04(a). 


        "First Redetermination Date" means the first Interim Redetermination Date or Scheduled Redetermination Date after the Effective Date. 


        "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which a Borrower is located. For
purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. 


        "Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary. 



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


        "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government over any Borrower, any Subsidiary, any of their Properties, any Agent, any Issuing Bank or any Lender. 



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


        "Guarantors" means each Domestic Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b). 



9







 




        "Guaranty Agreement" means an agreement executed by the Guarantors and being substantially in the form of  Exhibit H, pursuant to which such Guarantors
unconditionally guarantee on a joint and several basis, payment of the Indebtedness, as the same may
be amended, modified or supplemented from time to time. 


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


        "Hydrocarbon Interests" means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas
and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any
reserved or residual interests of whatever nature. 


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


        "Indebtedness" means any and all amounts owing or to be owing by any Borrower, any Subsidiary or any Guarantor: (a) to any Agent,
any Issuing Bank or any Lender under any Loan Document; (b) to any Secured Swap Provider under any Swap Agreement including any Swap Agreement in existence prior to the date hereof, but
excluding any additional transactions or confirmations entered into (i) after such Secured Swap Provider ceases to be a Lender or an Affiliate of a Lender or (ii) after assignment by a
Secured Swap Provider to another Secured Swap Provider that is not a Lender or an Affiliate of a Lender and (c) all renewals, extensions and/or rearrangements of any of the above whether such
Person (or in the case of its Affiliate, the Person affiliated therewith) remains a Lender hereunder. 


        "Indemnified Taxes" means Taxes other than Excluded Taxes. 



        "Initial Borrowing Base" means a Borrowing Base in the amount of $110,000,000, which shall be in effect during the period commencing on
the Effective Date and continuing until the First Redetermination Date. 


        "Initial Reserve Report" means an engineering and economic analysis of the oil and gas reserves attributable to the Borrowers' Oil and Gas
Properties prepared by an Approved Petroleum Engineer in connection with establishment of the Initial Borrowing Base. 



        "Interest Election Request" means a request by the Borrowers to convert or continue a Borrowing in accordance with Section 2.04. 


        "Interest Payment Date" means (a) with respect to any ABR Loan, each Monthly Date, and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. 



        "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrowers may elect; provided, that
(a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day
would 



10







 




fall
in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences
on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of
the most recent conversion or continuation of such Borrowing. 


        "Interim Redetermination" means any redetermination of the Borrowing Base under Section 2.07(b)(ii). 



        "Interim Redetermination Date" means the date on which a Borrowing Base that has been redetermined pursuant to an Interim Redetermination
becomes effective as provided in Section 2.07(d). 


        "Investment" means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity
Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned
by the Person entering into such short sale) or any capital contribution to any other Person; (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt
of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person); or (c) the entering into of any guarantee of, or other contingent obligation
(including the deposit of any Equity Interests to be sold, and including the issuance of a letter of credit for the account of such Person) with respect to, Debt or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or extended to such other Person. 



        "Issuing Bank" means JPMorgan and each Lender that agrees to act as an issuer of Letters of Credit hereunder at the request of the
Administrative Agent, in each case, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.08(i). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued
by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by
such Affiliate. 


        "JPMorgan" has the meaning given in the introductory paragraph. 


        "LC Commitment" at any time means Ten Million dollars ($10,000,000). 


        "LC Disbursement" means a payment made by any Issuing Bank pursuant to a Letter of Credit issued by such Issuing Bank. 


        "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time
plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrowers at such time. The LC Exposure of any Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time. 


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


        "Letter of Credit" means any letter of credit issued pursuant to this Agreement. 



11







 




        "Letter of Credit Agreements" means all letter of credit applications and other agreements (including any amendments, modifications or
supplements thereto) submitted by a Borrower, or entered into by a Borrower, with any Issuing Bank relating to any Letter of Credit issued by such Issuing Bank. 



        "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones
Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such
page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then
the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a
maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. 


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


        "Loan Documents" means this Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security Instruments. 


        "Loans" means the loans made by the Lenders to the Borrowers pursuant to this Agreement. 


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


        "Material Indebtedness" means Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements,
of any one or more of the Borrowers and their Subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the
obligations of any Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that any such Borrower or
such Subsidiary would be required to pay if such Swap Agreement were terminated at such time. 



12







 




        "Maturity Date" means February 3, 2010. 


        "Maximum Credit Amount" means, as to each Lender, the amount set forth opposite such Lender's name on Annex
I under the caption "Maximum Credit Amount," as the same may be (a) reduced or terminated from time to time in connection with a reduction or termination of the
Aggregate Maximum Credit Amount pursuant to Section 2.06(b) or (b) modified from time to time pursuant to any assignment permitted by Section 12.04(b). 


        "Monthly Date" means the last day of each calendar month. 


        "Moody's" means Moody's Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency. 



        "Mortgaged Property" means any Property owned by a Borrower or any Guarantor that is subject to the Liens existing and to exist under the
terms of the Security Instruments. 


        "Mortgages" means all mortgages, deeds of trust and similar documents, instruments and agreements (and all amendments, modifications and
supplements thereof) creating, evidencing, perfecting or otherwise establishing the Liens on Mortgaged Property to secure payment of the Indebtedness or any party thereof. All Mortgages shall be in
form and substance satisfactory to the Administrative Agent in its sole discretion. 


        "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of ERISA. 


        "New Borrowing Base Notice" has the meaning assigned such term in Section 2.07(d). 


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



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



13







 




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


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


        "Patriot Act" has the meaning set forth in Section 12.15. 


        "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. 


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


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


        "Pledge Agreement" means any Borrower Pledge Agreement or any Subsidiary Pledge Agreement, and "Pledge
Agreements" means all of such Pledge Agreements. 


        "Prime Rate" means the rate of interest per annum publicly announced from time to time by JPMorgan as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. Such rate is set by the
Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate; it being understood that many of the Administrative
Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make
various commercial or other loans at rates of interest having no relationship to such rate. 



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


        "Proposed Borrowing Base" has the meaning assigned to such term in Section 2.07(c)(i). 


        "Proposed Borrowing Base Notice" has the meaning assigned to such term in Section 2.07(c)(ii). 



        "Redemption" means with respect to any Debt, the repurchase, redemption, prepayment, repayment or defeasance (or the segregation of funds
with respect to any of the foregoing) of such Debt. "Redeem" has the correlative meaning thereto. 


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


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



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


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


        "Required Lenders" means, at any time while no Loans or LC Exposure is outstanding, Lenders having at least sixty-six and two
thirds percent (662/3%) of the Aggregate Maximum Credit 



14







 




Amount;
and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least sixty-six and two thirds percent (662/3%) of the outstanding aggregate
principal amount of the Loans or participation interests in such Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)). 



        "Reserve Report" means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each
January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the proved Oil and Gas Properties of the Borrowers and
their Subsidiaries (or as for Interim Redeterminations, the proved Oil and Gas Properties of the Borrowers and their Subsidiaries acquired since the last redetermination of the Borrowing Base),
together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions
consistent with SEC reporting requirements at the time, and reflecting Swap Agreements in place with respect to such production. Until superseded by the delivery of a subsequent Reserve Report
pursuant to the terms of this Agreement, the Initial Reserve Report shall be considered the Reserve Report. 


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


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


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


        "Scheduled Redetermination" has the meaning assigned such term in Section 2.07(b)(i). 



        "Scheduled Redetermination Date" means the date on which a Borrowing Base that has been redetermined pursuant to a Scheduled
Redetermination becomes effective as provided in Section 2.07(d). 


        "SEC" means the U.S. Securities and Exchange Commission or any successor Governmental Authority. 


        "Secured Swap Provider" means any (a) Person that is a party to a Swap Agreement with any Borrower or any of its Subsidiaries that
entered into such Swap Agreement while such Person was a Lender or an Affiliate of a Lender, whether or not such Person at any time ceases to be a Lender or an Affiliate of a Lender, as the case may
be, or (ii) assignee of any Person described in clause (a) above so long as such assignee is an Approved Counterparty. 


        "Security Instruments" means any Guaranty Agreement, any Pledge Agreement, any Mortgage, security agreements and any and all other
agreements, instruments or certificates now or hereafter executed and delivered by any Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate of a Lender or
participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment
or performance of the Indebtedness, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time
to time. 



15









  




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



        "Subsidiary" means: (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or
classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by a Borrower or one or more of
its Subsidiaries and (b) any partnership of which any Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated herein, (i) each reference to the term
"Subsidiary" shall mean a Subsidiary of a Borrower, and (ii) Ellora Holdings shall not be deemed a Subsidiary of a Borrower. 


        "Subsidiary Pledge Agreement" means an agreement executed by each existing and future Subsidiary and being substantially in the form of  Exhibit G, pursuant to which
such Subsidiary pledges to the Administrative Agent, for the ratable benefit of the Lenders, all of the issued and
outstanding Equity Interests owned by such Subsidiary of any other Subsidiary to secure the Obligations. 


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


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


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


        "Termination Date" means the earlier of the Maturity Date and the date of termination of the Commitments. 


        "Transactions" means, with respect to (a) each Borrower, the execution, delivery and performance by such Borrower of this
Agreement, each other Loan Document to which it is a 



16







 




party,
the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, and the grant of Liens by such Borrower on Mortgaged Properties and other Properties
pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the
Indebtedness and the other obligations under a Guaranty Agreement by such Guarantor and such Guarantor's grant of the security interests and provision of collateral thereunder, and the grant of Liens
by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Instruments. 



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


        "Wholly-Owned Subsidiary" means any Subsidiary of which all of the outstanding Equity Interests (other than any directors' qualifying
shares mandated by applicable law), on a fully-diluted basis, are owned by a Borrower or one or more of the Wholly-Owned Subsidiaries or by a Borrower and one or more of the Wholly-Owned Subsidiaries. 




        Section
1.03    Types of Loans and Borrowings.    For purposes of this Agreement, Loans and Borrowings, respectively,
may be classified and referred to by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing"). 


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


        Section
1.05    Accounting Terms and Determinations; GAAP.    Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters
required to be furnished to the Agents or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which
Borrowers' independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders
pursuant to Section 8.01(a); provided that, unless the Borrowers and the Required Lenders shall otherwise agree in writing, no such change shall
modify or affect the manner in which compliance 


17







 



with
the covenants contained herein is computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods. 


 
 

ARTICLE II
  THE CREDITS    
    



        Section
2.01    Commitments.    Subject to the terms and conditions set forth herein, each Lender agrees to make Loans
to the Borrowers during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Credit Exposure exceeding the lesser of (i) such Lender's
Maximum Credit Amount and (ii) such Lender's Applicable Percentage of the then effective Borrowing Base or (b) the total Credit Exposures exceeding the lesser of (i) the total
Maximum Credit Amount and (ii) the then effective Borrowing Base. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, repay and
reborrow the Loans. 


        Section
2.02    Loans and Borrowings.    



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



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


        (c)    Minimum Amounts; Limitation on Number of Borrowings.    At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made, such
Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $2,500,000; provided that an ABR Borrowing may be
in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.08(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a
total of five (5) Eurodollar Borrowings outstanding. Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. 


        (d)    Notes.    Any Lender may request that Loans made by it be evidenced by a single promissory note. In such event,
the Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender in substantially the form of  Exhibit A, dated, in the case of (i) any
Lender party hereto as of the date of this Agreement, as of the date of this Agreement, or
(ii) any Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of the Assignment and Assumption, payable to the order of such Lender in a
principal amount equal to its Maximum Credit Amount as in effect on such date, and otherwise duly completed. If any Lender's Maximum Credit Amount increases or decreases for any reason (whether
pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrowers shall deliver or cause to be delivered on the effective date of such increase or decrease, a new Note payable to
the order of any Lender who requested a Note hereunder in a principal amount equal to its Maximum Credit Amount after giving effect to such increase or decrease, and otherwise duly 



18







 




completed,
and such Lender agrees to promptly thereafter return the previously issued Note held by such Lender marked canceled or otherwise similarly defaced. The date, amount, Type, interest rate
and, if applicable, Interest Period of each Loan made by each Lender that receives a Note, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for
its Note, and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to
make any such notation or to attach a schedule shall not affect any Lender's or any Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of
its Note. 




        Section
2.03    Requests for Borrowings    To request a Borrowing, the Borrowers shall notify the Administrative Agent
of such request by telephone or by written Borrowing Request in substantially the form of Exhibit B and signed by the Borrowers (a
"written Borrowing Request"): (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, Chicago, Illinois time, three Business Days
before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, Chicago, Illinois time, on the Business Day of the proposed Borrowing;  provided that no
such notice shall be required for any deemed request of an ABR Borrowing to finance the reimbursement of an LC Disbursement as provided
in Section 2.08(e). Each telephonic and written Borrowing Request shall be irrevocable and each telephonic Borrowing Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: 




          (i)  the
aggregate amount of the requested Borrowing; 


         (ii)  the
date of such Borrowing, which shall be a Business Day; 


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


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


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


        (vi)  the
location and number of the Borrowers' account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. 




If
no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing,
then the Borrowers shall be deemed to have selected an Interest Period of one month's duration. Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing
shall not cause the total Credit Exposures to exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amount and the then effective Borrowing Base). Promptly following receipt
of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part
of the requested Borrowing. 




        Section
2.04    Interest Elections.    



        (a)    Conversion and Continuance.    Each Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrowers may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04. The Borrowers
may elect different options with respect to different portions of the affected Borrowing, 



19







 

in
which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate
Borrowing. 


        (b)    Interest Election Requests.    To make an election pursuant to this Section 2.04, the Borrowers shall
notify the Administrative Agent of such election by telephone or by a written Interest Election Request in substantially the form of Exhibit Cand
signed by the Borrowers (a "written Interest Election Request") by the time that a Borrowing Request would be required under Section 2.03 if the
Borrowers were requesting a Borrowing of the Type resulting from such election to be made on the effective date of
such election. Each telephonic and written Interest Election Request shall be irrevocable and each telephonic Interest Election Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request. 



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



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


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


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


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




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


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



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




        Section
2.05    Funding of Borrowings.    



        (a)    Funding by Lenders.    Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 1:00 p.m., Chicago, Illinois time, to the account of the Administrative Agent most recently designated by it for such 



20







 

purpose
by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrowers by promptly crediting the amounts so received, in like funds, to an account of the Borrowers
maintained with the Administrative Agent in Chicago, Illinois and designated by the Borrowers in the applicable Borrowing Request; provided that ABR
Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing Bank that made such LC Disbursement. 


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




        Section
2.06    Changes in the Aggregate Maximum Credit Amount.    



        (a)    Scheduled Termination of Commitments.    Unless previously terminated, the Commitments shall terminate on the
Maturity Date. If at any time the Aggregate Maximum Credit Amount or the Borrowing Base is terminated or reduced to zero, then the Commitments shall terminate on the effective date of such termination
or reduction. 


        (b)    Optional Termination and Reduction of Aggregate Maximum Credit Amount.    



          (i)  The
Borrowers may at any time terminate, or from time to time reduce, the Aggregate Maximum Credit Amount; provided that
(A) each reduction of the Aggregate Maximum Credit Amount shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (B) the Borrowers shall not
terminate or reduce the Aggregate Maximum Credit Amount if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the total Credit Exposures would
exceed the total Commitments. 


         (ii)  The
Borrowers shall notify the Administrative Agent of any election to terminate or reduce the Aggregate Maximum Credit Amount under Section 2.06(b)(i) at
least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrowers pursuant to this Section 2.06(b)(ii) shall be irrevocable. Any termination
or reduction of the Aggregate Maximum Credit Amount shall be permanent and may not be reinstated. Each reduction of the Aggregate Maximum Credit Amount shall be made ratably among the Lenders in
accordance with each Lender's Applicable Percentage. 





        Section
2.07    Borrowing Base.    



        (a)    Initial Borrowing Base.    The Borrowing Base in effect during the period from and including the Effective Date
to but excluding the First Redetermination Date shall be the Initial Borrowing Base. The Initial Borrowing Base shall remain in effect until redetermined in 



21







 

accordance
with the procedures set forth in this Section 2.07. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to
Section 8.13(c) or Section 9.12. 


        (b)    Scheduled and Interim Redeterminations.    



          (i)  The
Borrowing Base shall be redetermined semi-annually in accordance with this Section 2.07 (a "Scheduled
Redetermination"), and, subject to Section 2.07(d), such redetermined Borrowing Base shall become effective and applicable to the Borrowers, the Agents, each Issuing
Bank and the Lenders on May 1st and November 1st of each year, commencing May 1, 2006. 


         (ii)  The
Administrative Agent may, at the direction of the Required Lenders, by notifying the Borrowers thereof, one time during any calendar year, elect to cause the
Borrowing Base to be redetermined in accordance with this Section 2.07. 


        (iii)  The
Borrowers may elect, not more often than once in any calendar year, to have the Borrowing Base redetermined in accordance with this Section 2.07. 




        (c)    Scheduled and Interim Redetermination Procedure.    



          (i)  Each
Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows: upon receipt by the Administrative Agent of (A) the Reserve
Report and the certificate required to be delivered by the Borrowers, in the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an Interim
Redetermination, pursuant to Section 8.12(b) and (c), and (B) such other reports, data and supplemental information, including, without limitation, the information provided pursuant to
Section 8.12(c), as may, from time to time, be reasonably requested by the Required Lenders (the Reserve Report, such certificate and such other reports, data and supplemental information being
the "Engineering Reports"), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall, in good faith,
propose a new Borrowing Base (the "Proposed Borrowing Base") based upon such information and such other information (including, without limitation, the
status of title information with respect to the proved Oil and Gas Properties as described in the Engineering Reports and the existence of any other Debt) as the Administrative Agent deems appropriate
in its sole discretion and consistent with its normal oil and gas lending criteria as it exists at the particular time. In no event shall the Proposed Borrowing Base exceed the Aggregate Maximum
Credit Amount. 


         (ii)  The
Administrative Agent shall notify the Borrowers and the Lenders of the Proposed Borrowing Base (the "Proposed Borrowing Base
Notice"): 



        (A)  in
the case of a Scheduled Redetermination (1) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrowers
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or before April 15th (or such date promptly thereafter as reasonably practicable) and
September 15th (or such date promptly thereafter as reasonably practicable) of such year following the date of delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then promptly after the Administrative Agent has
received complete Engineering Reports from the Borrowers and has had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.07(c)(i), and in any event
within fifteen (15) days after the Administrative Agent has received the required Engineering Reports; and 





22







 



        (B)  in
the case of an Interim Redetermination, promptly, and in any event, within fifteen (15) days after the Administrative Agent has received the required
Engineering Reports. 




        (iii)  Any
Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by all of the Lenders as provided in
this Section 2.07(c)(iii); and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by the Required
Lenders as provided in this Section 2.07(c)(iii). Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base
or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval in
writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base. If, at the end of such 15-day period, all of the Lenders, in the case of
a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base
then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).
If, however, at the end of such 15-day period, all of the Lenders or the Required Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the
Administrative Agent shall (A) notify the Borrowers of the Proposed Borrowing Base and which Lenders have not approved or been deemed to have approved of the Proposed Borrowing Base and
(B) poll the Lenders to ascertain the highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required Lenders for purposes of this Section 2.07 and,
so long as such amount does not increase the Borrowing Base then in effect, such amount shall become the new Borrowing Base, effective on the date specified in Section 2.07(d). 




        (d)    Effectiveness of a Redetermined Borrowing Base.    After a redetermined Borrowing Base is approved or is deemed
to have been approved by all of the Lenders or the Required Lenders, as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the Borrowers and the Lenders of the
amount of the redetermined Borrowing Base (the "New Borrowing Base Notice"), and such amount shall become the new Borrowing Base, effective and
applicable to the Borrowers, the Agents, each Issuing Bank and the Lenders: 



          (i)  in
the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrowers
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the May 1st or November 1st, as applicable, following such notice, or (B) if the
Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then
on the Business Day next succeeding delivery of such notice; and 


         (ii)  in
the case of an Interim Redetermination, on the Business Day next succeeding delivery of such notice. 




Such
amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under
Section 8.13(c) or Section 9.12, whichever occurs first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrowers. 



23







 

        Section
2.08    Letters of Credit.    



        (a)    General.    Subject to the terms and conditions set forth herein, a Borrower may request any Issuing Bank to
issue Letters of Credit in dollars for its own account or for the account of any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent and such Issuing Bank, at any time and
from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by a Borrower to, or entered into by a Borrower with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall
control. 


        (b)    Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.    To request the issuance of a Letter
of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrowers shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to any Issuing Bank and the Administrative Agent (not less than three (3) Business Days in advance of the requested date of issuance, amendment,
renewal or extension) a notice: (i) requesting the issuance of a Letter of Credit or identifying the outstanding Letter of Credit issued by such Issuing Bank to be amended, renewed or extended;
(ii) specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day); (iii) specifying the date on which such Letter of Credit is to expire (which shall
comply with Section 2.08(c)); (iv) specifying the amount of such Letter of Credit; (v) specifying the name and address of the beneficiary thereof and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit; and (vi) specifying the amount of the then effective Borrowing Base, the current total Credit Exposures (without
regard to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit) and the pro forma total
Credit Exposures (giving effect to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit). If requested by any Issuing Bank, the Borrowers
shall submit a letter of credit application on such Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended
only if (and with respect to each notice provided by the Borrowers above and any issuance, amendment, renewal or extension of each Letter of Credit, the Borrowers shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or extension (A) the LC Exposure shall not exceed the LC Commitment and (B) the total Credit Exposures shall not
exceed the total Commitments (i.e. the lesser of the Aggregate Maximum Credit Amount and the then effective Borrowing Base). 



        (c)    Expiration Date.    Each Letter of Credit shall expire at or prior to the close of business on the earlier of
(i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal, which renewal may be provided for in the initial Letter of Credit, or extension
thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. 


        (d)    Participations.    By the issuance of a Letter of Credit (or an amendment to an existing Letter of Credit
increasing the amount thereof) and without any further action on the part of the Issuing Bank that issues such Letter of Credit or the Lenders, each Issuing Bank that issues a Letter of Credit
hereunder hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of any Issuing Bank that issues a Letter of Credit hereunder, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the
Borrowers on the date due as 



24







 




provided
in Section 2.08(e), or of any reimbursement payment required to be refunded to the Borrowers for any reason. Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. 



        (e)    Reimbursement.    If any Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued by
such Issuing Bank, the Borrowers shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, Chicago, Illinois time,
on the date that such LC Disbursement is made, if the Borrowers shall have received notice of such LC Disbursement prior to 10:00 a.m., Chicago, Illinois time, on such date, or, if such notice
has not been received by the Borrowers prior to such time on such date, then not later than 12:00 noon, Chicago, Illinois time, on (i) the Business Day that the Borrowers receive such notice,
if such notice is received prior to 10:00 a.m., Chicago, Illinois time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrowers receive such
notice, if such notice is not received prior to such time on the day of receipt; provided that if such LC Disbursement is not less than $1,000,000, the
Borrowers shall, subject to the conditions to Borrowing set forth herein, be deemed to have requested, and the Borrowers do hereby request under such circumstances, that such payment be financed with
an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrowers' obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing. If the
Borrowers fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrowers in respect thereof and such
Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the
Borrowers, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis
mutandis, to the payment obligations of the
Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank that issued such Letter of Credit the amounts so received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrowers pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment to the Issuing Bank that issued such Letter of
Credit or, to the extent that Lenders have made payments pursuant to this Section 2.08(e) to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may
appear. Any payment made by a Lender pursuant to this Section 2.08(e) to reimburse any Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not
constitute a Loan and shall not relieve the Borrowers of their joint and several obligation to reimburse such LC Disbursement. 


        (f)    Obligations Absolute.    The Borrowers' obligation to reimburse LC Disbursements as provided in
Section 2.08(e) shall be absolute, unconditional, joint and several and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all
circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision
therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in
any respect, (iii) payment by any Issuing Bank under a Letter of Credit issued by such Issuing Bank against presentation of a draft or other document that does not comply with the terms of such
Letter of Credit or any Letter of Credit Agreement, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of
this Section 2.08(f), constitute a legal or equitable discharge of, or provide a right of setoff against, 



25







 




the
Borrowers' obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor any of their Related Parties shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of any Issuing Bank;  provided that the foregoing shall
not be construed to excuse any Issuing Bank from liability to the Borrowers to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by such Issuing
Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the
absence of gross negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised all
requisite care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on
their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank that issued such Letter of Credit may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit. 


        (g)    Disbursement Procedures.    Each Issuing Bank shall, promptly following its receipt thereof, examine all
documents purporting to represent a demand for payment under a Letter of Credit issued by such Issuing Bank. Such Issuing Bank shall promptly notify the Administrative Agent and the Borrowers by
telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided
that any failure to give or delay in giving such notice shall not relieve the Borrowers of their joint and several obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC
Disbursement. 


        (h)    Interim Interest.    If any Issuing Bank shall make any LC Disbursement, then, until the Borrowers shall have
reimbursed such Issuing Bank for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that the Borrowers reimburse such LC Disbursement, at the rate per annum then applicable to ABR Loans. Interest accrued
pursuant to this Section 2.08(h) shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to Section 2.08(e) to
reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment. 


        (i)    Replacement of an Issuing Bank.    Any Issuing Bank may be replaced or resign at any time by written agreement
among the Borrowers, the Administrative Agent, such resigning or replaced Issuing Bank and, in the case of a replacement, the successor Issuing Bank. The Administrative Agent shall notify the Lenders
of any such resignation or replacement of an Issuing Bank. At the time any such resignation or replacement shall become effective, the Borrowers shall pay all unpaid fees accrued for the account of
the resigning or replaced Issuing Bank pursuant to Section 3.05(b). In the case of the replacement of an Issuing Bank, from and after the effective date of such replacement, (i) the
successor Issuing Bank shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued 



26







 




thereafter
and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks,
as the context shall require. After the resignation or replacement of an Issuing Bank hereunder, the resigning or replaced Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such resignation or replacement, but shall not be required to issue additional
Letters of Credit. 


        (j)    Cash Collateralization.    If (i) any Event of Default shall occur and be continuing and the Borrowers
receive notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrowers are required to pay
to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then the Borrowers shall deposit, in an account with the
Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of such date plus any accrued and unpaid interest thereon;  provided that the obligation to
deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower or any Subsidiary described in Section 10.01(h) or
Section 10.01(i). The Borrowers hereby grant to the Administrative Agent, for the benefit of each Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security
interest in and Lien on such account and all cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in such account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such account, all interest, dividends, cash, instruments, financial assets and other Property from time to time received, receivable
or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any substitutions and
replacements therefor. The Borrowers' obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such
Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any
defense or be affected by a right of set-off, counterclaim or recoupment which any Borrower or any of its Subsidiaries may now or hereafter have against any such beneficiary, any Issuing
Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit shall be held as collateral securing the payment and performance of the Borrowers' and the
Guarantors' obligations under this Agreement and the other Loan Documents in a "securities account" (within the meaning of Article 8 of the Uniform Commercial Code in effect from time to time
in the State of Texas, the "UCC") over which the Administrative Agent shall have "control" (within the meaning of the UCC). Notwithstanding the
foregoing, the Borrowers may direct the Administrative Agent and the "securities intermediary" (within the meaning of the UCC) to invest amounts credited to the securities account, at the Borrowers'
risk and expense, in Investments described in Section 9.05(c) through (f). Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse, on a pro rata basis, each Issuing Bank for LC Disbursements for which it has not been reimbursed and,
to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been
accelerated, be applied to satisfy other obligations of the Borrowers and the Guarantors under this Agreement or the other Loan Documents. If the Borrowers are required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, and the Borrowers are not otherwise required to pay to the 



27







 




Administrative
Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall be
returned to the Borrowers within three Business Days after all Events of Default have been cured or waived. 



 
 

ARTICLE III
  PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES    
    


        Section
3.01    Repayment of Loans.    The Borrowers hereby unconditionally, and jointly and severally, promise to pay
to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Termination Date. 


        Section
3.02    Interest.    



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


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


        (c)    Post-Default Rate.    Notwithstanding the foregoing, if any principal of or interest on any Loan or
any fee or other amount payable by any Borrower or any Guarantor hereunder or under any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans as provided in Section 3.02(a), but in
no event to exceed the Highest Lawful Rate. 


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


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




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



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



28









  




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


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




        Section
3.04    Prepayments.    



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



        (b)    Notice and Terms of Optional Prepayment.    The Borrowers shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, Chicago, Illinois time, three Business Days before the
date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 12:00 noon, Chicago, Illinois time, on the Business Day of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 3.02. 


        (c)    Mandatory Prepayments.    



          (i)  If,
after giving effect to any termination or reduction of the Aggregate Maximum Credit Amount pursuant to Section 2.06(b), the total Credit Exposures exceeds
the total Commitments, then the Borrowers shall (A) prepay the Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). 


         (ii)  Upon
any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.07 or Section 8.13(c), if the total Credit
Exposure exceeds the redetermined or adjusted Borrowing Base, then the Borrowers shall, within 30 days following receipt of the New Borrowing Base Notice in accordance with
Section 2.07(d) or the date the adjustment occurs, provide written notice (the "Election Notice") to the Administrative Agent stating the action
which the Borrowers propose to take to remedy such excess, and the Borrowers shall thereafter, at their option, either (A) within 60 days following the delivery of the Election Notice,
prepay the Borrowings in an aggregate principal amount equal to such excess, (B) within 60 days following the delivery of the Election Notice, submit (and pledge as collateral)
additional Oil and Gas Properties owned by the Borrowers for consideration in connection with the determination of the Borrowing Base which the Administrative Agent and 




29







 





the
Lenders deem sufficient in their sole discretion to eliminate such excess, or (C) within 60 days following the delivery of the Election Notice, eliminate such excess through a
combination of prepayments and submission of additional Oil and Gas Properties as set forth in subclauses (A) and (B) above. If any excess remains after prepaying all of the Borrowings
as a result of an LC Exposure, then the Borrowers shall pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in
Section 2.08(j). The Borrowers shall be obligated to deposit such cash collateral amount within five (5) days following its receipt of the New Borrowing Base Notice in accordance with
Section 2.07(d) or the date the adjustment occurs; provided that all payments required to be made pursuant to this
Section 3.04(c)(ii) must be made on or prior to the Termination Date. 


        (iii)  Upon
any adjustments to the Borrowing Base pursuant to Section 9.12, if the total Credit Exposures exceeds the Borrowing Base as adjusted, then the Borrowers
shall (A) prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure,
pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). The Borrowers shall be obligated to make
such prepayment and/or deposit of cash collateral on the date it receives cash proceeds as a result of such disposition or such incurrence of Debt; provided  that all payments required to be made
pursuant to this Section 3.04(c)(iii) must be made on or prior to the Termination Date. 


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


         (v)  Each
prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the Loans included in the prepaid Borrowings. Prepayments pursuant to
this Section 3.04(c) shall be accompanied by accrued interest to the extent required by Section 3.02. 




        (d)    No Premium or Penalty.    Prepayments permitted or required under this Section 3.04 shall be without
premium or penalty, except as required under Section 5.02. 




        Section
3.05    Fees.    



        (a)    Commitment Fees.    The Borrowers jointly and severally agree to pay to the Administrative Agent for the
account of each Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate on the average daily amount of the unused amount of the Commitment of such Lender during the period
from and including the date of this Agreement to but excluding the Termination Date. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each
year and on the Termination Date, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). 



30







 

        (b)    Letter of Credit Fees.    The Borrowers agree to pay (i) to the Administrative Agent for the account of
each Lender a participation fee with respect to its participations in Letters of Credit, which shall equal a percentage (being the same Applicable Margin used to determine the interest rate applicable
to Eurodollar Loans) of the stated amount of each such Letter of Credit during the period from and including the date of this Agreement to but excluding the later of the date on which such Lender's
Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (ii) to each Issuing Bank, for its own account, a fronting fee equal to 0.125% per annum of the stated
amount of each such Letter of Credit during the period from and including the date of this Agreement to but excluding the later of the date of termination of the Commitments and the date on which
there ceases to be any LC Exposure, provided that in no event shall such fee be less than $500, and (iii) to each Issuing Bank, for its own
account, its standard and customary fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or processing of drawings thereunder.
Participation fees and fronting fees with respect to any Letter of Credit shall be payable at the time of issuance of such Letter of Credit. Any other fees payable to an Issuing Bank pursuant to this
Section 3.05(b) shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). 


        (c)    Administrative Agent Fees.    The Borrowers agree to pay to the Administrative Agent, for its own account, fees
payable in the amounts and at the times separately agreed upon between or among the Borrowers and the Administrative Agent, including the fees set forth in the Fee Letter. 




        Section 3.06    Joint and Several Liability.    


        (a)   Each
Borrower states and acknowledges that: (i) pursuant to this Agreement, Borrowers desire to utilize their borrowing potential on a consolidated basis to the
same extent possible if they were merged into a single corporate entity; (ii) each Borrower has determined that it will benefit specifically and materially from the advances of credit
contemplated by this Agreement; (iii) it is both a condition precedent to the obligations of Agents and Lenders hereunder and a desire of each Borrower that each Borrower execute and deliver
this Agreement; and (iv) each Borrower has requested and bargained for the structure and terms of and security for the advances contemplated by this Agreement. 


        (b)   Each
Borrower hereby irrevocably and unconditionally: (i) agrees that it is jointly and severally liable to Agents and Lenders for the full and prompt payment and
performance of the obligations of each Borrower under this Agreement and each other Loan Document that may specify that a particular Borrower is responsible for a given payment or performance;
(ii) agrees to fully and promptly perform all of its obligations hereunder with respect to each advance of credit hereunder as if such advance had been made directly to it; and
(iii) agrees as a primary obligation to indemnify each Agent and each Lender, on demand, for and against any loss incurred by any Agent or any Lender as a result of any of the obligations of
any Borrower (the "subject Borrower") being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to
the subject Borrower or any Person, the amount of such loss being the amount which such Agent or Lender would otherwise have been entitled to recover from Borrowers. 


        (c)   It
is the intent of each Borrower that the indebtedness, obligations and liabilities hereunder of no one of them be subject to challenge on any basis related to any
federal or state Law dealing with fraudulent conveyances or any other Law related to transfers for less than fair or reasonably equivalent value. Accordingly, as of the date hereof, the liability of
each Borrower under this Section 3.06 together with all of its other liabilities to all Persons as of the date hereof and as of any other date on which a 


31







 



transfer
is deemed to occur by virtue of this Agreement, calculated in amount sufficient to pay its probable net liabilities on its existing indebtedness as the same become absolute and matured
("Dated Liabilities"), is and is to be, less than the amount of the aggregate of a fair valuation of its property as of such corresponding date
("Dated Assets"). To this end, each Borrower under this Section 3.06: (i) grants to and recognizes in each other Borrower ratably, rights
of subrogation and contribution in the amount, if any, by which the Dated Assets of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed
the Dated Liabilities of such Borrower, or (ii) as the case may be, acknowledges receipt of and recognizes its right to subrogation and contribution ratably from the other Borrowers in the
amount, if any, by which the Dated Liabilities of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Assets of such Borrower
under this Section 3.06. In recognizing the value of the Dated Assets and the Dated Liabilities, it is understood that each Borrower will recognize, to at least the same extent of their
aggregate recognition of liabilities hereunder, their rights to subrogation and contribution hereunder. It is a material objective of this Section 3.06 that each Borrower recognizes rights to
subrogation and contribution rather than be deemed to be insolvent (or in contemplation thereof) by reason of an arbitrary interpretation of its joint and several obligations hereunder. 


        (d)   Each
Borrower agrees and acknowledges that the present structure of the credit facilities detailed in this Agreement is based in part upon the financial and other
information presently known to Agents and Lenders regarding each Borrower, the corporate and other organizational structure of Borrowers, and the present financial condition of each Borrower. Upon or
after the occurrence of an Event of Default and so long as it is continuing, each Borrower hereby agrees that Required Lenders shall have the right, in their sole credit judgment, to require that any
or all of the following changes be made to these credit facilities: (i) restrict loans and advances between Borrowers, (ii) separate the Loans into separate loans to each Borrower as
shall be determined by Required Lenders, and (iii) establish such other procedures as shall be reasonably deemed by Required Lenders to be useful in tracking where Loans are made under this
Agreement and the source of payments received by Lenders on such Loans. 


 
 

ARTICLE IV
  PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.    
    



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



        (a)    Payments by the Borrowers.    The Borrowers shall make each payment required to be made by it hereunder
(whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00 noon,
Chicago, Illinois time, on the date when due, in dollars that constitute immediately available funds, without defense, deduction, recoupment, set-off or counterclaim. Fees, once paid,
shall not be refundable under any circumstances absent manifest error (e.g., as a result of a clerical mistake). Any amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at
its offices specified in Section 12.01, except payments to be made directly to an Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for
the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall
be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be
made in dollars. 



32







 

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


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




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


        Section
4.03    Certain Deductions by the Administrative Agent.    If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such
Sections until all such unsatisfied obligations are fully paid. 


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


 
 

ARTICLE V
  INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY    
    


        Section
5.01    Increased Costs.    



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



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


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





and
the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce
the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrowers will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered. 



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


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



34







 




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




        Section 5.02    Break Funding Payments.    In the event of (a) the payment of any principal of any
Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto, or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrowers pursuant to
Section 5.04(b), then, in any such event, the Borrowers shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost
or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current
Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this
Section 5.02 and reasonably detailed calculations therefor shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof. 


        Section
5.03    Taxes.    



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



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


        (c)    Indemnification by the Borrowers.    Each Borrower shall indemnify each Agent, each Lender and each Issuing
Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by such Agent, such Lender or such Issuing Bank, as 



35







 




the
case may be, on or with respect to any payment by or on account of any obligation of any Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section 5.03) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate of such Agent, a Lender or an Issuing Bank as to the amount of such payment or liability under this
Section 5.03 shall be delivered to the Borrowers and shall be conclusive absent manifest error. 



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


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


        (f)    Tax Refunds.    If an Agent or a Lender determines, in its reasonable discretion, that it has received a refund
of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 5.03, it shall pay
over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 5.03 with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of such Agent or such Lender and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, that the Borrowers, upon the request of such Agent or such Lender, agrees to repay the
amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to such Agent or such Lender in the event such Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section 5.03 shall not be construed to require any Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to the Borrowers or any other Person. 




        Section
5.04    Mitigation Obligations.    



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



        (b)    Replacement of Lenders.    If (i) any Lender requests compensation under Section 5.01,
(ii) any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, (iii) any Lender
defaults in its 



36







 




obligation
to fund Loans hereunder, or (iv) any Lender has not approved (or is not deemed to have approved) an increase in the Borrowing Base proposed by the Administrative Agent pursuant to
Section 2.07(c)(iii), then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, (A) require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained in Section 12.04(b)), all its interests, rights and obligations under this Agreement to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) or (B) require such Lender to be removed as a Lender under this Agreement and the other Loan
Documents with a corresponding reduction in the Aggregate Maximum Credit Amount equal to the Maximum Credit Amount of such Lender; provided that
(1) if a Lender is removed as a Lender hereunder, the Borrowers have paid such Lender all amounts due and owing under this Agreement and the other Loan Documents, including, without limitation,
all principal, accrued interest, fees and breakage costs, (2) in the case of a required assignment of interest, the Borrowers shall have received the prior written consent of the Administrative
Agent, which consent shall not unreasonably be withheld, (3) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC
Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or
the Borrowers (in the case of all other amounts) and (4) in the case of any such assignment resulting from a claim for compensation under Section 5.01 or payments required to be made
pursuant to Section 5.03, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply. 




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


 
 

ARTICLE VI
  CONDITIONS PRECEDENT    
    


        Section
6.01    Effective Date; Initial Loans.    This Agreement, and the obligations of the Lenders to make the
initial Loans and any Issuing Bank to issue Letters of Credit hereunder, shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with
Section 12.02): 



        (a)   The
Administrative Agent, the Arranger and the Lenders shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. 


        (b)   The
Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Borrower and its Subsidiaries setting forth
(i) resolutions of their 



37







 




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


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



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


        (e)   The
Administrative Agent shall have received duly executed Notes payable to the order of each Lender that has requested a Note in a principal amount equal to its Maximum
Credit Amount dated as of the date hereof. 


        (f)    The
Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the
applicable Security Instruments. In connection with the execution and delivery of the Security Instruments, the Administrative Agent shall be reasonably satisfied that the Security Instruments create
first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such
definition) on at least 80% of the total value of the proved Oil and Gas Properties evaluated in the Initial Reserve Report. 


        (g)   The
Administrative Agent shall have received opinions of special counsel to the Borrowers and their Subsidiaries, and, as applicable and necessary (as determined by the
Administrative Agent in its sole reasonable discretion), opinions of local counsel, in each case, in a form reasonably acceptable to the Administrative Agent and its counsel. 



        (h)   The
Administrative Agent shall have received a certificate of insurance coverage of the Borrowers and their Subsidiaries evidencing that the Borrowers and their
Subsidiaries are carrying insurance in accordance with Section 7.13. 


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


        (j)    The
Administrative Agent shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrowers and their Subsidiaries. 



        (k)   The
Administrative Agent shall have received the Initial Reserve Report accompanied by a certificate covering the matters described in Section 8.12(c). 


        (l)    The
Administrative Agent shall have received appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrowers and their
Subsidiaries in each jurisdiction requested by the Administrative Agent, other than Liens permitted by Section 9.03. 



38







 




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


        (n)   The
Administrative Agent shall have received a certificate of a Responsible Officer of each Borrower and its Subsidiaries certifying that such Borrower and its
Subsidiaries have (i) received all consents and approvals required by Section 7.03 and (ii) no other Debt in respect of borrowed money. 



        (o)   The
Administrative Agent shall have received the financial statements referred to in Section 7.04(a). 


        (p)   The
Administrative Agent shall have received such other documents as the Administrative Agent or its special counsel may reasonably request. 




        The
Administrative Agent shall notify the Borrowers and the Lenders of the Effective Date, and such notice shall be conclusive and binding. 


        Section
6.02    Each Credit Event.    The obligation of each Lender to make a Loan on the occasion of any Borrowing
(including the initial funding), and of each Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: 



        (a)   At
the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default
shall have occurred and be continuing. 


        (b)   At
the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no event,
development or condition that has or could reasonably be expected to have a Material Adverse Effect shall have occurred. 



        (c)   The
representations and warranties of the Borrowers and their Subsidiaries set forth in this Agreement and in the other Loan Documents shall be true and correct on and
as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, such
representations and warranties shall continue to be true and correct as of such specified earlier date. 



        (d)   The
making of such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, would not conflict with, or cause any Lender or any
Issuing Bank to violate or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to
any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by this Agreement or any other Loan Document. 



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




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


39







 
 
 

ARTICLE VII
  REPRESENTATIONS AND WARRANTIES    
    


        Each Borrower jointly and severally represents and warrants to the Lenders that: 


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


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


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


        Section
7.04    Financial Condition; No Material Adverse Change.    


        (a)   The
Borrowers have heretofore furnished to the Lenders a pro forma balance sheet as of the Effective Date, and such other supporting financial information as the Lenders
have requested, and such balance sheet and other information does not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. 


        (b)   Since
the date of the last delivery of financial statements pursuant to Section 8.01, (i) there has been no event, development or circumstance that has had
or could reasonably be expected to have 


40







 



a
Material Adverse Effect and (ii) the business of the Borrowers and their Subsidiaries has been conducted only in the ordinary course consistent with past business practices. 



        (c)   Except
as set forth on Schedule 7.21, on the most recent financial statement of the Borrowers delivered pursuant
to Section 8.01(a) or (b), or in a certificate delivered pursuant to Section 8.01(d), neither any Borrower nor any Subsidiary has any material Debt (including Disqualified Capital Stock)
or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes or unrealized or anticipated losses from any unfavorable commitments. 


        Section
7.05    Litigation.    



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


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


        Section
7.06    Environmental Matters.    Except as could not reasonably be expected to have a Material Adverse Effect
(or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect): 



        (a)   neither
any Property of any Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or
any Environmental Laws. 


        (b)   no
Property of any Borrower or any Subsidiary nor the operations currently conducted thereon or, to the knowledge of the Borrowers, by any prior owner or operator of
such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or
to any remedial obligations under Environmental Laws. 


        (c)   all
notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any
and all Property of each Borrower and each Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or solid waste
into the environment, have been duly obtained or filed, and each Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar
authorizations. 


        (d)   to
the knowledge of the Borrowers all hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of any Borrower or any
Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare
or the environment, and all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws. 



        (e)   the
Borrowers have taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been
disposed of or 



41







 




otherwise
released and there has been no threatened release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of any Borrower or any Subsidiary except in
compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment. 



        (f)    to
the extent applicable, all Property of each Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by OPA, and the
Borrowers do not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with OPA requirements during the term of this Agreement. 


        (g)   neither
any Borrower nor any Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous
substance, solid waste or oil and gas waste into the environment. 




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


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



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


        (c)   No
Default has occurred and is continuing. 


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


        Section
7.09    Public Utility Holding Company Act.    Neither any Borrower nor any Subsidiary is a "holding company,"
or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public-utility company" within the meaning of, or
subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. 


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


42









   
        Section 7.11    ERISA.    


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



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


        (c)   Except
as could not reasonably be expected to result in liability in excess of $500,000, no act, omission or transaction has occurred which could result in imposition on
any Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to subsections (c), (i) or (l) of
section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. 



        (d)   No
liability to the PBGC (other than for the payment of current premiums which are not past due) by any Borrower, any Subsidiary or any ERISA Affiliate has been or is
expected by any Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. 


        (e)   Full
payment when due has been made of all amounts which the Borrowers, the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or applicable
law to have paid as contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or
not waived, exists with respect to any Plan. 


        (f)    The
actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrowers' most recently
ended fiscal year, 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. The term
"actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 


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


        (h)   Neither
the Borrowers, the Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any Multiemployer Plan. 


        (i)    Neither
the Borrowers, the Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the Plan. 



        Section
7.12    Disclosure; No Material Misstatements.    The Borrowers have disclosed to the Administrative Agent and
the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect. Taken as a whole, none of the other reports, financial statements, certificates or other information furnished by or on
behalf of any Borrower or any Subsidiary to the Administrative Agent or any Lender or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or
delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contain material misstatements of fact or omit to state material facts necessary to
make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected
financial information, prospect 


43







 



information,
geological and geophysical data and engineering projections, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable
at the time. To the knowledge of the Borrowers, there is no fact peculiar to any Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect or in the future is
reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and written statements furnished to
the Administrative Agent or the Lenders by or on behalf of any Borrower or any Subsidiary prior to, or on, the date hereof in connection with the transactions contemplated hereby. There are no
statements or conclusions known to the Borrowers in any Reserve Report which are based upon or include misleading information or fail to take into account material information regarding the matters
reported therein, it being understood that projections concerning volumes attributable to the Oil and Gas Properties and production and cost estimates contained in each Reserve Report are necessarily
based upon professional opinions, estimates and projections and that the Borrowers and the Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been
accurate. 


        Section
7.13    Insurance.    The Borrowers have, and have caused all their Subsidiaries to have, (a) all
insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and (b) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and
operations of the Borrowers and their Subsidiaries. The Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss insurance. 


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


        Section
7.15    Subsidiaries.    Except as set forth on  Schedule 7.15, (a) the Borrowers have no Subsidiaries,
(b) each Subsidiary is a Wholly-Owned Subsidiary and (c) neither any
Borrower nor any Subsidiary has any Foreign Subsidiaries. 



        Section
7.16    Location of Business and Offices.    Each Borrower's jurisdiction of organization is Delaware, and the
name of each Borrower as listed in the public records of Delaware is Ellora Energy Inc. and Ellora Oil & Gas Inc., as applicable (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(i) in accordance with Section 12.01). Each Borrower's principal place of business is located at the address
specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(i) and Section 12.01(c)). Each Subsidiary's jurisdiction of organization, name as
listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business is
stated on Schedule 7.15 (or as set forth in a notice delivered pursuant to Section 8.01(i)). 


        Section 7.17    Properties; Titles, Etc.    


        (a)   Except
as disclosed in Schedule 7.17, each of the Borrowers and their Subsidiaries have good and defensible title
in all material respects to the proved Oil and Gas Properties evaluated in the most recently delivered Reserve Report (excluding, to the extent this representation and warranty is deemed to be made
after the Effective Date, any such Oil and Gas Properties sold or transferred in compliance with Section 9.12) and good title in all material respects to all its personal Properties, in each
case, free and clear of all Liens except Liens permitted by Section 9.03. After giving full effect to the Excepted 


44







 



Liens,
a Borrower or its Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report,
and the ownership of such Properties shall not in any material respect obligate such Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations
of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate
increase in such Borrower's or such Subsidiary's net revenue interest in such Property. 


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


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


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


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


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


45







 

those
the failure of which to maintain in accordance with this Section 7.18 could not reasonably be expect to have a Material Adverse Effect). 


        Section
7.19    Gas Imbalances, Prepayments.    As of the date hereof, except as set forth on  Schedule 7.19 or on the
most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas imbalances, take or
pay or other prepayments which would require any Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor exceeding 50 mmcf equivalent in the aggregate. 


        Section
7.20    Marketing of Production.    Except for contracts listed and in effect on the date hereof on  Schedule 7.20, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report
(with respect to all of which contracts the Borrowers represent that they or their Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance
with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property's delivery capacity), no material agreements exist which are not cancelable on
60 days notice or less without penalty or detriment for the sale of production from a Borrower's or its Subsidiaries' Hydrocarbons (including, without limitation, calls on or other rights to
purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer
than six (6) months from the date hereof. 


        Section
7.21    Swap Agreements.    Schedule 7.21, as of the
date hereof, and after the date hereof, each report required to be delivered by the Borrowers pursuant to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements of each
Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit
support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. 


        Section
7.22    Use of Loans and Letters of Credit.    The proceeds of the Loans and the Letters of Credit shall be
used to provide working capital for exploration and production, and for general corporate purposes of the Borrowers and their Subsidiaries, including the acquisition of exploration and production
properties. The Borrowers and their Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate,
incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan or Letter of Credit will be used for
any purpose which violates the provisions of Regulations T, U or X of the Board. 


        Section
7.23    Solvency.    Before and after giving effect to the transactions contemplated hereby, (a) the
aggregate assets, at a fair valuation, of the Borrowers and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrowers and the Guarantors on a consolidated basis, as the Debt
becomes absolute and matures, (b) each of the Borrowers and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Debt beyond its ability to pay
such Debt as such Debt becomes absolute and matures and (c) each of the Borrowers and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably
small capital for the conduct of its business. 


ARTICLE VIII

AFFIRMATIVE COVENANTS  


        Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable
under the Loan Documents shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC 


46







 



Disbursements
shall have been reimbursed, each Borrower jointly and severally covenants and agrees with the Lenders that: 


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



        (a)    Annual Financial Statements.    As soon as available, but in any event in accordance with then applicable law
and not later than 105 days after the end of each fiscal year of the Borrowers, their audited consolidated balance sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by a firm of independent public accountants proposed
by the Borrowers and approved by the Administrative Agent (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrowers and their Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied. 


        (b)    Quarterly Financial Statements.    As soon as available, but in any event in accordance with then applicable
law and not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrowers, their consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures
for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of the Borrowers and their Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments and the absence of footnotes. 


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


        (d)    Certificate of Financial Officer—Swap Agreements.    Concurrently with the delivery of each Reserve
Report hereunder, a certificate of a Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent, setting forth as of a recent date, a true and complete list of all
Swap Agreements of each Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.21, any margin
required or supplied under any credit support document, and the counterparty to each such agreement. 


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


        (f)    Notices Under Material Instruments.    Promptly after the furnishing thereof, copies of any financial
statement, report or notice furnished to or by any Person pursuant to the terms of any 



47







 

preferred
stock designation, indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision
of this Section 8.01. 


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



        (h)    Notice of Casualty Events.    Prompt written notice, and in any event within five Business Days, of the
occurrence of any Casualty Event or the commencement of any action or proceeding that could reasonably be expected to result in a Casualty Event. 


        (i)    Information Regarding Borrowers and Guarantors.    Prompt written notice (and in any event within ten
(10) Business Days prior thereto) of any change (i) in any Borrower's or any Guarantor's corporate name or in any trade name used to identify such Person in the conduct of its business
or in the ownership of its Properties, (ii) in the location of any Borrower's or any Guarantor's chief executive office or principal place of business, (iii) in any Borrower's or any
Guarantor's identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, (iv) in any Borrower's or any Guarantor's jurisdiction of organization or such
Person's organizational identification number in such jurisdiction of organization, and (v) in any Borrower's or any Guarantor's federal taxpayer identification number. 


        (j)    Production Report and Lease Operating Statements.    Concurrently with the delivery of each Reserve Report
pursuant to Section 8.12(a) hereof, a report setting forth, for the six (6) month period ending the preceding December 31 and June 30, respectively, the volume of
production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such six (6) month period from the Oil and Gas
Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such period. 


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


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




        Section
8.02    Notices of Material Events.    The Borrowers will furnish to the Administrative Agent prompt written
notice of the following: 



        (a)   the
occurrence of any Default; 


        (b)   the
filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental
Authority against any Borrower or any Affiliate thereof not previously disclosed in writing to the Lenders or any material adverse development in any action, suit, proceeding, investigation or
arbitration previously disclosed to the Lenders that, if adversely determined, could reasonably be expected to result in liability in excess of $1,000,000; 



48







 




        (c)   the
occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the
Borrowers and their Subsidiaries in an aggregate amount exceeding $1,000,000; and 


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




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


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


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


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


        Section
8.06    Operation and Maintenance of Properties.    Except, in each case, where the failure to comply could
not reasonably be expected to have a Material Adverse Effect, the Borrowers, at their own expense, will, and will cause each Subsidiary to: 



        (a)   operate
its Oil and Gas Properties and other material Properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and
efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including,
without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to
regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom. 



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


        (c)   promptly
pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing
under the 



49







 




leases
or other agreements affecting or pertaining to its proved Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any
forfeiture thereof or default thereunder. 


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



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


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




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



        Section
8.08    Books and Records; Inspection Rights.    The Borrowers will, and will cause each Subsidiary to, keep
proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrowers will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its
books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as
reasonably requested on an individual and aggregate basis. 



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


        Section
8.10    Environmental Matters.    


        (a)   The
Borrowers shall at their sole expense: (i) comply, and shall cause its Properties and operations and each Subsidiary and each Subsidiary's Properties and
operations to comply, with all applicable Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not dispose of or otherwise release, and
shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any Borrower's or any of its Subsidiaries'
Properties or any other Property to the extent caused by any Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the disposal or release of which
could reasonably be expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all notices, permits, licenses,
exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of a Borrower's or
its Subsidiaries' Properties, which failure to obtain or file could reasonably be 


50







 



expected
to have a Material Adverse Effect; (iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the
"Remedial Work") in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with
the actual or suspected past, present or future disposal or other release of any oil, oil and gas waste, hazardous substance or solid waste on, under, about or from any Borrower's or any of its
Subsidiaries' Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; and (v) establish and implement, and
shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrowers' and their Subsidiaries' obligations under this
Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect 



        (b)   The
Borrowers will promptly, but in no event later than five Business Days of the occurrence thereof, or of a Borrower obtaining knowledge thereof, notify the
Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against a
Borrower or its Subsidiaries or their Properties of which the Borrowers have knowledge in connection with any applicable Environmental Laws (excluding routine testing and corrective action) if the
Borrowers reasonably anticipate that such action will result in liability (whether individually or in the aggregate) in excess of $1,000,000, not fully covered by insurance, subject to normal
deductibles. 


        (c)   The
Borrowers will, and will cause each Subsidiary to, undertake reasonable environmental audits and tests upon reasonable request by the Administrative Agent no more
than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority), in connection with any
future acquisitions of Oil and Gas Properties or other Properties. 


        Section
8.11    Further Assurances.    



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


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


        Section
8.12    Reserve Reports.    


        (a)   On
or before April 1st and September 1st of each year, commencing April 1, 2006, the Borrowers shall furnish to the Administrative Agent and the
Lenders a Reserve Report prepared as of the immediately preceding January 1st or July 1st, respectively. The Reserve Report as of January 1 of 


51







 



each
year and the Reserve Report delivered in connection with the first redetermination shall be prepared by the Borrowers and reviewed or audited by one or more Approved Petroleum Engineers, and the
July 1 Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of the Borrowers. In each case, the chief engineer of the Borrowers shall certify that
such Reserve Report is based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time and to have been prepared in accordance with the procedures
used in the immediately preceding Reserve Report. 


        (b)   In
the event of an Interim Redetermination, except in connection with the first redetermination, the Borrowers shall furnish to the Administrative Agent and the Lenders
a Reserve Report prepared by or under the supervision of the chief engineer of the Borrowers who shall certify such Reserve Report to be based on information that was prepared in good faith based upon
assumptions believed to be reasonable at the time and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report except that the Properties covered by
such report may, in the discretion of the Borrowers, be limited to the proved Oil and Gas Properties acquired since the last redetermination of the Borrowing Base. For any Interim Redetermination
requested by the Administrative Agent or the Borrowers pursuant to Section 2.07(b)(ii), the Borrowers shall provide such Reserve Report with an "as of" date as required by the Administrative
Agent as soon as possible, but in any event no later than forty-five (45) days following the receipt of such request. 


        (c)   With
the delivery of each Reserve Report, the Borrowers shall provide to the Administrative Agent and the Lenders a certificate from a Responsible Officer certifying
that to his knowledge, after reasonable investigation, in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith
is based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time, (ii) the Borrowers or their Subsidiaries owns good and defensible title to
the proved Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an
exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.19 with respect to its Oil and Gas
Properties evaluated in such Reserve Report which would require any Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor, (iv) none of their proved Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set
forth on an exhibit to the certificate, which certificate shall list all of its proved Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent,
(v) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most recently delivered Reserve Report which the Borrowers
could reasonably be expected to have been obligated to list on Schedule 7.20 had such agreement been in effect on the date hereof and
(vi) attached thereto is a schedule of the proved Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of the Borrowing Base
that the value of such Mortgaged Properties represent. 


        Section
8.13    Title Information.    



        (a)   As
of the date hereof, the Administrative Agent or its counsel shall have received satisfactory title information on at least 80% of the total value of the proved Oil
and Gas Properties evaluated in the Initial Reserve Report. Additionally, on or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by
Section 8.12(a), the Borrowers will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the proved Oil and Gas Properties evaluated by such
Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together 


52







 



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


        (b)   If
the Borrowers have provided title information for additional Properties under Section 8.13(a), the Borrowers shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as
to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted
Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such definition) having an equivalent value or (iii) deliver title information in form and substance
acceptable to the Administrative Agent so that they shall have received, together with title information previously delivered, satisfactory title information on at least 80% of the value of the Oil
and Gas Properties evaluated by such Reserve Report. 


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


        Section
8.14    Additional Collateral; Additional Guarantors.    


        (a)   In
connection with each redetermination of the Borrowing Base, the Borrowers shall review the Reserve Report and the list of current Mortgaged Properties (as described
in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the proved Oil and Gas Properties evaluated in the most recently completed
Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such
total value, then the Borrowers shall, and shall cause their Subsidiaries to, grant to the Administrative Agent as security for the Indebtedness a first-priority Lien interest (subject only to
Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on additional proved Oil and Gas
Properties not already subject to a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such total value. All such Liens
will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements or other Security Instruments, all in form and
substance satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. 


        (b)   The
Borrowers shall promptly cause each Domestic Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the
Borrowers shall, or shall cause such Domestic Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement executed by such Domestic Subsidiary, (ii) pledge all of the
Equity Interests of such Domestic Subsidiary (including, without limitation, delivery of original stock certificates or other certificates evidencing the Equity Interests of such Domestic Subsidiary,
together with an appropriate 


53







 



undated
stock powers for each certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver such other additional closing documents, certificates and legal
opinions as shall reasonably be requested by the Administrative Agent. 


        Section
8.15    ERISA Compliance.    Except as could not reasonably be expected to result in liability to the
Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Administrative Agent (a) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other
report with respect to each Plan or any trust created thereunder, (b) promptly upon becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in
section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial
Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrowers, the Subsidiary or the ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (c) promptly upon receipt thereof,
copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan) except as could not
reasonably be expected to result in liability to the Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers will, and will cause each Subsidiary and
ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all
of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge
or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. 


ARTICLE IX

NEGATIVE COVENANTS  


        Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under
the Loan Documents have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, each Borrower jointly and severally covenants and
agrees with the Lenders that: 


        Section
9.01    Financial Covenants.    


        (a)    Current Ratio.    Commencing with the fiscal quarter ending March 31, 2006, the Borrowers will not
permit, as of the last day of any fiscal quarter, their ratio of (i) consolidated current assets (including the unused amount of the total Commitments, but excluding non-cash assets
under FAS 133) to (ii) consolidated current liabilities (excluding non-cash obligations under FAS 133) to be less than 1.0 to 1.0. 



        (b)    Consolidated Total Debt to Consolidated EBITDAX.    Commencing with the fiscal quarter ending March 31,
2006, the Borrowers will not permit, as of the last day of any fiscal quarter, their ratio of Consolidated Total Debt (for the fiscal quarter ending on such date) to Annualized Consolidated EBITDAX to
be greater than 3.0 to 1.0 for each fiscal quarter. 


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



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



54







 

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



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


        (d)   Debt
under Capital Leases or non-recourse purchase money Debt not to exceed $1,000,000 at any time. 



        (e)   Debt
associated with worker's compensation claims, performance, bid, surety or similar bonds or surety obligations required by Governmental Requirements or third parties
in connection with the operation of the Oil and Gas Properties. 


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


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


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




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



        (a)   Liens
securing the payment of any Indebtedness. 


        (b)   Excepted
Liens. 


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



        (d)   Liens
on Property not constituting collateral for the Indebtedness and not otherwise permitted by the foregoing clauses of this Section 9.03;  provided that the aggregate principal or face amount of all
Debt of the type described in this Section 9.03(d) shall not exceed $500,000. 




        Section
9.04    Restricted Payments.    The Borrowers will not, and will not permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment, return any capital to its stockholders or make any distribution of its Property to its Equity Interest holders, except,
provided no Default or Event of Default exists on the date any such distribution is declared or paid, (a) Subsidiaries may declare and pay dividends ratably with respect to their Equity
Interests, and (b) Ellora Energy may make a one-time repurchase of its common stock from management of Ellora Energy for an aggregate cash consideration not to exceed $6,000,000. 


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



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


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



55









  




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


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


        (e)   deposits
maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United
States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as
of the date of such bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or
Moody's, respectively or, in the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which the Foreign Subsidiary conducts operations having assets in excess of $500,000,000 (or its
equivalent in another currency). 


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


        (g)   Investments
(i) made by any Borrower in or to any Subsidiary which is a Guarantor and with respect to which 100% of the issued and outstanding Equity Interests
have been pledged to Administrative Agent, and (ii) made by any Guarantor in or to any Borrower or any other Guarantor. 



        (h)   subject
to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties, gas gathering, processing and
transportation systems and all other assets contemplated by the permitted business of the Borrowers and their Subsidiaries located within the geographic boundaries of the United States of America
including the outer continental shelf thereof. 


        (i)    entry
into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary
agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course
of the oil and gas business, excluding,
however, Investments in other Persons; provided, however, that none of the foregoing shall involve the
incurrence of any Debt not permitted by Section 9.02. 


        (j)    repurchase
agreements of a commercial bank in the United States and Canada if the commercial paper of such bank or of the bank holding company of which such bank is a
wholly owned subsidiary is rated in the highest rating categories of S&P, Moody's, or any other rating agency satisfactory to the Required Lenders, that are fully secured by securities described in
Section 9.05(c). 


        (k)   Investments
arising from the endorsement of financial instruments in the ordinary course of business. 


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




        Section
9.06    Nature of Business; International Operations.    The Borrowers will not, and will not permit any
Subsidiary to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. The Borrowers will not, and will not permit any
Subsidiary to conduct marketing and trading of Hydrocarbons, except that each Borrower and each Subsidiary may market its own Hydrocarbon production, and each Subsidiary that owns and operates
gathering systems may buy and sell gas from third parties in the ordinary course of their 


56







 

business.
From and after the date hereof, the Borrowers and their Subsidiaries will not acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or
related to, any Oil and Gas Properties not located within the geographical boundaries of the United States including the outer continental shelf thereof. 


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


        Section
9.08    Proceeds of Notes/Loans.    The Borrowers will not permit the Loans or the proceeds of the Notes to be
used for any purpose other than those permitted by Section 7.22. Neither any Borrower nor any Person acting on behalf of any Borrower has taken or will take any action which might cause any of
the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each
case as now in effect or as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrowers will furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board,
as the case may be. 


        Section
9.09    ERISA Compliance.    Except as could not reasonably be expected to result in liability to the
Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers and the Subsidiaries will not at any time: 



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


        (b)   terminate,
or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could reasonably be expected to
result in any liability of a Borrower, a Subsidiary or any ERISA Affiliate to the PBGC. 



        (c)   fail
to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or
applicable law, a Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto if such failure could reasonably be expected to have a Material Adverse Effect. 


        (d)   permit
to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan which exceeds $500,000. 



        (e)   permit,
or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by a Borrower, a 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. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 


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



        (g)   acquire,
or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to a Borrower or a
Subsidiary or with 



57







 




respect
to any ERISA Affiliate of a Borrower or a Subsidiary 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, (i) any Multiemployer Plan, or (ii) 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 by
any amount in excess of $500,000. 


        (h)   incur,
or permit any 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 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 any time without any material liability. 


        (j)    amend,
or permit any ERISA Affiliate to amend, a Plan resulting in a material increase in current liability such that a Borrower, a Subsidiary or any ERISA Affiliate is
required to provide security to such Plan under section 401(a)(29) of the Code. 




        Section
9.10    Sale or Discount of Receivables.    Except for receivables obtained by any Borrower or any Subsidiary
out of the ordinary course of business or the settlement of joint interest billing accounts in the ordinary course of business or discounts granted to settle collection of accounts receivable or the
sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, neither any Borrower
nor any Subsidiary will discount or sell (with or without recourse) to any other Person that is not a Borrower or a Guarantor any of its notes receivable or accounts receivable. 


        Section
9.11    Mergers, Etc.    Neither any Borrower nor any Subsidiary will merge into or with or consolidate with
any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person (any such transaction,
a "consolidation"); provided that (a) Ellora O&G may participate in a consolidation with Ellora Energy (provided that  Ellora Energy shall be the
continuing or surviving entity), and (b) any Subsidiary may participate in a consolidation with any Borrower (provided  that a Borrower shall be the continuing or surviving entity) or any other
Subsidiary that is a Domestic Subsidiary (provided  that if one of such parties to the consolidation is a Foreign Subsidiary, such Domestic Subsidiary shall be the continuing or
surviving Person) and if one of such Subsidiaries is a Wholly-Owned Subsidiary, then the surviving Person shall be a Wholly-Owned Subsidiary. 


        Section
9.12    Sale of Properties.    The Borrowers will not, and will not permit any Subsidiary to, sell, assign,
farm-out, convey or otherwise transfer any property containing proved reserves constituting a portion of the Borrowing Base except for (a) the sale of Hydrocarbons in the ordinary
course of business; (b) farmouts, sales or other dispositions of undeveloped acreage and assignments in connection with such transactions; (c) the sale or transfer of equipment in the
ordinary course of business or that is no longer necessary for the business of a Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; and (d) provided
no Event of Default exists, and provided further the total Credit Exposure does not exceed the Borrowing Base at the time of such sale or disposition, the sale or other disposition of any Oil and Gas
Property; provided that (i) the aggregate value (which, for purposes hereof, shall mean the value the Administrative Agent attributes to such Oil
and Gas Property for purposes of the most recent redetermination of the Borrowing Base) of such Oil and Gas Properties sold or disposed of pursuant to this clause (d) in any period between
Scheduled Redeterminations shall not exceed five percent (5%) of the Borrowing Base then in effect, (ii) the Borrowing Base shall be reduced, effective immediately upon such sale or
disposition, by an 


58







 



amount
equal to the value, if any, assigned such Property by the Administrative Agent in the most recently redetermined Borrowing Base, and (iii) no sale or other disposition shall be permitted
pursuant to this clause (d) unless all mandatory prepayments required by Section 3.04(c)(iii) are made concurrently therewith. 


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


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


        Section
9.15    Subsidiaries.    The Borrowers will not, and will not permit any Subsidiary to, create or acquire any
additional Subsidiary unless the Borrowers give prior written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b). The Borrowers will not, and
will not permit any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary. Neither any Borrower nor any Subsidiary shall have any Foreign Subsidiaries. 



        Section
9.16    Subsidiary Indebtedness and Preferred Stock.    The Borrowers will not and will not, permit any
Subsidiary to, issue preferred stock or create, incur or assume any Debt, except for Debt permitted under Section 9.02. 


        Section
9.17    Negative Pledge Agreements.    The Borrowers will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any contract, agreement or understanding which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in
favor of the Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or making distributions to any Borrower or any Guarantor, or which requires the consent of or notice
to other Persons in connection therewith; provided, however, that the preceding restrictions will not
apply to encumbrances or restrictions arising under or by reason of (a) this Agreement or the Security Instruments, (b) any leases or licenses or similar contracts as they affect any
Property or Lien subject to a lease or license, (c) any contract, agreement or understanding creating Liens on Capital Leases permitted by Section 9.03(c) (but only to the extent related
to the Property on which such Liens were created), or (d) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the direct or indirect sale or
disposition of all or substantially all the equity or Property of such Subsidiary (or the Property that is subject to such restriction) pending the closing of such sale or disposition. 


        Section
9.18    Take-or-Pay or Other Prepayments.    The Borrowers will not allow
take-or-pay or other prepayments with respect to the Oil and Gas Properties of any Borrower or any Subsidiary. 


        Section
9.19    Swap Agreements.    The Borrowers will not, and will not permit any Subsidiary to, enter into any Swap
Agreements with any Person other than (a) Swap Agreements in respect of commodities (i) with an Approved Counterparty and (ii) the notional volumes for which (when aggregated with
other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date such Swap Agreement is
executed, 80% of the reasonably anticipated projected production from proved, developed, producing Oil and Gas Properties for each month during the period during which such Swap Agreement is in effect
for each of crude oil and natural gas, calculated separately, and (b) Swap 


59







 



Agreements
in respect of interest rates with an Approved Counterparty, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrowers and their Subsidiaries then in
effect in respect of interest rates) do not exceed 100% of the then outstanding principal amount of the Borrowers' Debt for borrowed money; provided,  that,
the Borrowers may enter into Swap Agreements consisting solely of a floor price (i.e., floor, put or option) so long as the amount of Hydrocarbons
which are the subject of any such Swap Agreement in existence at any such time do not exceed 100% of the Borrowers' anticipated total proved production during the term of any such existing Swap
Agreement. In no event shall any Swap Agreement to which any Borrower or any Subsidiary is a party contain any requirement, agreement or covenant for any Borrower or any Subsidiary to post cash or
other collateral or margin to secure their obligations under such Swap Agreement or to cover market exposures. 


        Section
9.20    Ellora Holdings.    The Borrowers will not, and will not permit any Subsidiary to, incur any
liability, Debt or obligation to Ellora Holdings of any nature, or have any liability (whether by operation of law or otherwise) for any liability, Debt or obligation of Ellora Holdings. The Borrowers
will not permit Ellora Holdings to own any Property or conduct any operations other than to act as a nominee to hold record title to certain assets for the benefit of unrelated third parties. 


 
 

ARTICLE X
  EVENTS OF DEFAULT; REMEDIES    
    


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



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


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



        (c)   any
representation or warranty made or deemed made by or on behalf of any Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or
modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other material document furnished pursuant to or in connection with any Loan
Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect when made or deemed made. As used herein, "material
document" means a document that may not be terminated by a Borrower or a Subsidiary in its sole discretion at any time without material liability. 



        (d)   any
Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.01, Section 8.02,
Section 8.03, Section 8.07, Section 8.15 or in Article IX. 


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



60







 




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


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



        (h)   an
involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any
Borrower or any Subsidiary or its debts,
or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered. 



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


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


        (k)   one
or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 (to the extent not covered by independent third party insurance provided by
insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding) shall be rendered against any
Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon any assets of any Borrower or any Subsidiary to enforce any such judgment. 


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


        (m)  an
ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrowers and their Subsidiaries in an aggregate amount exceeding (i) $1,000,000 in any year or (ii) $2,000,000 for all periods. 



        (n)   a
Change in Control shall occur. 



61







 





        Section
10.02    Remedies.    



        (a)   In
the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent shall, at the request of the Required Lenders, by notice to the Borrowers, take either or both of the following actions, at
the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Notes and the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor; and in case of an
Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and the Notes and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor. 



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


        (c)   All
proceeds realized from the liquidation or other disposition of collateral or otherwise received after maturity of the Loans or the Notes, whether by acceleration or
otherwise, shall be applied: first, to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments;  second, to
accrued interest on the Loans; third, to fees;  fourth, pro rata to principal outstanding on the Loans and Indebtedness referred to in Clause (b) of
the definition of Indebtedness owing to a
Lender or an Affiliate of a Lender; fifth, to any other Indebtedness; sixth, to serve as cash collateral
to be held by the Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrowers or as otherwise required by any Governmental Requirement. 



 
 

ARTICLE XI
  THE AGENTS    
    


        Section
11.01    Appointment; Powers.    Each of the Lenders and each Issuing Bank hereby irrevocably (subject to
Section 11.06) appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. 


        Section
11.02    Duties and Obligations of Administrative Agent.    The Administrative Agent shall not have any duties
or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent (a) shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is continuing, (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except
as provided in Section 11.03, and (c) except as expressly set forth herein, shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information
relating to any Borrower or any of its 


62







 



Subsidiaries
that is communicated to or obtained by the bank serving as an Agent or any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any Default
unless and until written notice thereof is given to it by the Borrowers or a Lender, and shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty
or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or under any other
Loan Document or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the satisfaction
of any condition set forth in Article VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to it or as to those conditions precedent specifically
required to be to its satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrowers and their Subsidiaries or
any other obligor or guarantor, or (vii) any failure by any Borrower or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the
performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein. 


        Section
11.03    Action by Administrative Agent.    The Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that it is required to exercise in writing as directed by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) and in all cases it shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall
(a) receive written instructions from the Required Lenders or the Lenders, as applicable, (or such other number or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by
it by reason of taking or continuing to take any such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. If a Default
has occurred and is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with
indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the
Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the
Loan Documents or applicable law. If a Default has occurred and is continuing, the Arranger shall not have any obligation to perform any act in respect thereof. No Agent shall be liable for any action
taken or not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise no Agent shall be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument
referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct. 



        Section
11.04    Reliance by Administrative Agent.    The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent
by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability
for relying thereon and each of the Borrowers, the Lenders and each Issuing Bank hereby 


63







 



waives
the right to dispute the Administrative Agent's record of such statement, except in the case of gross negligence or willful misconduct by such Agent. The Administrative Agent may consult with
legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts. The Agents may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. 


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


        Section
11.06    Resignation of Agents.    Subject to the appointment and acceptance of a successor Agent as provided
in this Section 11.06, any Agent may resign at any time by notifying the Lenders, each Issuing Bank and the Borrowers. Upon any such resignation, the Required Lenders shall have the right, in
consultation with and upon the approval of the Borrowers (so long as no Event of Default has occurred and is continuing), which approval shall not be unreasonably withheld, to appoint a successor. If
no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the
retiring Agent may, on behalf of the Lenders and each Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrowers to a successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Borrowers and such successor. After the Agent's resignation hereunder, the provisions of this Article XI and Section 12.03 shall continue in effect for the
benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. 


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



        Section
11.08    No Reliance.    Each Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent, any other Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Agent or any
other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder. The Agents shall not be required to keep themselves informed as to the performance or
observance by any Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the
Borrowers or their Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, 


64







 



neither
the Agents nor the Arranger shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of any
Borrower (or any of its Affiliates) which may come into the possession of such Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in
this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. 



        Section
11.09    Authority to Release Collateral and Liens.    Each Lender and each Issuing Bank hereby authorizes the
Administrative Agent to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender and each Issuing Bank hereby authorizes the
Administrative Agent to execute and deliver to the Borrowers, at the Borrowers' sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably
requested by the Borrowers in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.12 or is otherwise
authorized by the terms of the Loan Documents. 


        Section
11.10    The Arranger and Agents.    Neither the Arranger, any syndication agent (if any), nor any
documentation agent (if any) shall have any duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than their duties, responsibilities and liabilities in their
capacity as Lenders hereunder. 


        Section
11.11    Filing of Proofs of Claim.    In case of any Default or Event of Default under
Section 10.01(g), Section 10.01(h) or Section 10.01(i), the Administrative Agent (regardless of whether the principal of any Loan or LC Exposure shall then be due and payable and
regardless of whether the Administrative Agent has made any demand on any Borrower or any Guarantor) shall be entitled and empowered, by intervention in such proceeding or otherwise: 



        (a)   to
(i) file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Exposure and all other Indebtedness
that is owing and unpaid and (ii) file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders, the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Administrative
Agent under Section 3.05 and Section 12.03) allowed in such judicial proceeding; and 


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




        Each
Lender hereby authorizes any custodian, receiver, assignee, trustee, conservator, sequestrator or other similar official in any such judicial proceeding: (i) to make such
payments to the Administrative Agent; and (ii) if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount
due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under
Section 3.05 and Section 12.03. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any
plan of reorganization, arrangement, adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any
Lender in any such proceeding. Each Lender retains its right to file and prove a claim separately. 


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ARTICLE XII
  MISCELLANEOUS    
    


        Section
12.01    Notices.    



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



          (i)  if
to the Borrowers, to them at 5480 Valmont, Suite 350, Boulder, Colorado 80301, Attention: James R. Casperson (Telecopy No. (303) 417-1000); 


         (ii)  if
to the Administrative Agent, to it at JPMorgan Chase Bank, N.A., 1717 Main Street, 4th Floor, Mail Code TX1-2448, Dallas, Texas 75201, Attention: J.
Scott Fowler (Telecopy No. (214) 290-2332); with a copy to: JPMorgan Chase Bank, N.A., 10 S. Dearborn, Suite 0010, Chicago, Illinois 60670-0010, Attention: Nanette
Wilson (Telecopy No. (312) 385-7096); and 



        (iii)  if
to any other Lender, in its capacity as such, or any other Lender in its capacity as an Issuing Bank, to it at its address (or telecopy number) set forth in its
Administrative Questionnaire. 




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


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




        Section
12.02    Waivers; Amendments.    



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


        (b)   Neither
this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement
or agreements 


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in
writing entered into by the Borrowers and the Required Lenders or by the Borrowers and the Administrative Agent with the consent of the Required Lenders; provided  that no such agreement shall
(i) increase the Commitment or the Maximum Credit Amount of any Lender without the written consent of such Lender, (ii) increase the
Borrowing Base without the written consent of each Lender, or modify Section 2.07 without the consent of each Lender, (iii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder or under any other Loan Document, without the written consent of each Lender
affected thereby, (iv) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or any other
Indebtedness hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Termination Date without the written consent of each
Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent
of each Lender, (vi) waive or amend Section 8.14 or change the definition of the terms "Domestic Subsidiary", "Foreign Subsidiary" or "Subsidiary", without the written consent of each
Lender, (vii) release any Guarantor (except as set forth in the Guaranty Agreement), release any of the collateral (other than as provided in Section 11.09), or reduce the percentage set
forth in Section 8.14(a) to less than 80%, without the written consent of each Lender, (viii) change any of the provisions of Section 10.02(c), this Section 12.02(b) or the
definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders or Secured Swap Providers required to waive, amend or modify any rights hereunder or under
any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender and, if applicable, each Secured Swap Provider
or (ix) change the description of the obligations secured or guaranteed by the Security Instruments or the priority of payments set forth in Section 10.02(c) without the written consent
of each Lender or Secured Swap Provider adversely affected thereby, provided that the addition of a new secured obligation shall not be deemed to
adversely affect any other secured party; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of any
Agent or any Issuing Bank hereunder or under any other Loan Document without the prior written consent of such Agent or such Issuing Bank, as the case may be. Notwithstanding the foregoing, any
supplement to Schedule 7.15 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders. 


        Section
12.03    Expenses, Indemnity; Damage Waiver.    


        (a)   The
Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and their Affiliates, including,
without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative Agent, the reasonable travel, photocopy, mailing, courier, telephone
and other similar expenses, and the cost of environmental audits and surveys and appraisals, in connection with the syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the
Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by any Agent or any
Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to
therein, (iii) all reasonable out-of-pocket expenses incurred by each Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of
Credit issued by such Issuing Bank or any demand for payment thereunder, (iv) all out-of-pocket expenses incurred by any Agent, any Issuing Bank or any Lender, including
the fees, charges and disbursements of any counsel for any Agent, any 


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Issuing
Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this
Section 12.03, or in connection with the Loans made or Letters of Credit issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 



        (b)   EACH BORROWER SHALL INDEMNIFY THE ARRANGER, EACH AGENT, EACH ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY 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 OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF
(I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO
ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (II) THE FAILURE OF
ANY BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (III) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OR COVENANT OF ANY BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
(IV) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY ANY ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
CREDIT ISSUED BY SUCH ISSUING BANK IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (V) THE
OPERATIONS OF THE BUSINESS OF THE BORROWERS AND THEIR SUBSIDIARIES BY THE BORROWERS AND THEIR SUBSIDIARIES, (VI) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (VII) ANY ENVIRONMENTAL LAW APPLICABLE TO ANY BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE,
GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES, (VIII) THE BREACH OR NON-COMPLIANCE BY ANY BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO ANY BORROWER OR ANY SUBSIDIARY, (IX) THE PAST
OWNERSHIP BY ANY BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (X) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS
WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY ANY BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON
OR FROM ANY PROPERTY OWNED OR OPERATED BY ANY BORROWER OR  


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 ANY OF ITS SUBSIDIARIES, (XI) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO ANY BORROWER OR ANY OF ITS SUBSIDIARIES, OR (XII) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR
(XIII) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY
REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE
AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (A) 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) RELATE TO CLAIMS BETWEEN OR AMONG ANY OF THE LENDERS, THE AGENT, ARRANGER OR ANY OF THEIR SHAREHOLDERS, PARTNERS
OR MEMBERS OR (C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR
ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE).. 


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



        (d)   To
the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. 


        (e)   All
amounts due under this Section 12.03 shall be payable promptly after written demand therefor. 



        (f)    Notwithstanding
any other provisions of this Section 12.03, no transfer or assignment of the interests or obligations of any Lender or any grant of participations
therein shall be permitted if such transfer, assignment or grant would require the Borrowers and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state. 


        Section
12.04    Successors and Assigns.    


        (a)   The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that (i) no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender 


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(and
any attempted assignment or transfer by a Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder
except in accordance with this Section 12.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in Section 12.04(c)) and, to the
extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement. 


        (b)   (i)    Subject
to the conditions set forth in Section 12.04(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or
delayed) of: (A) the Borrowers, provided that no consent of any Borrower shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and (B) the Administrative Agent and any Issuing Bank,  provided that no such consent shall be
required for an assignment to an assignee that is a Lender immediately prior to giving effect to such assignment. 



         (ii)  Assignments
shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000, and the Commitments of any assigning Lender remaining a party
hereto after giving effect to the assignment shall be at least $10,000,000, unless, in each case, the Borrowers and the Administrative Agent otherwise consents,  provided that no such consent of the
Borrowers shall be required if an Event of Default has occurred and is continuing; (B) each partial
assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement; (C) the parties to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; (D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire and shall deliver notice of the Assignment and Assumption to the Borrowers; and (E) in the case of an assignment to a CLO, the assigning
Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and
Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to
Section 12.02 that affects such CLO. 


        (iii)  Subject
to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment
and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of
Section 5.01, Section 5.02, Section 5.03 and Section 12.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.04(c). 



70







 




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


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




        (c)   (i)    Any
Lender may, without the consent of the Borrowers, the Administrative Agent or any Issuing Bank, sell participations to one or more banks or other
entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such
Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrowers, the Administrative Agent, each Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender
sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;  provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the proviso to Section 12.02 that affects such Participant. In addition such agreement must provide that the Participant be bound by the provisions of
Section 12.03. Subject to Section 12.04(c)(ii), the Borrowers agree that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and
Section 5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b). To the extent permitted by law, each Participant also
shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to
Section 4.01(c) as though it were a Lender. 



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




        (d)   Any
Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including
any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply to any such pledge or assignment of a security interest;  provided that no such
pledge or assignment of a security 


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interest
shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. 


        Section
12.05    Survival; Revival; Reinstatement.    


        (a)   All
covenants, agreements, representations and warranties made by each Borrower herein and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any other
Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and
Article XI shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of
the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof. 


        (b)   To
the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and the Administrative Agent's, and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement
and each Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrowers shall take such action as may be reasonably
requested by the Administrative Agent or the Lenders to effect such reinstatement. 


        Section
12.06    Counterparts; Integration; Effectiveness.    


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


        (b)   This
Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Arranger and the Administrative Agent constitute the
entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter
hereof and thereof. This Agreement and the other Loan Documents represent the final agreement among the parties hereto and thereto and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. 



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


        Section
12.07    Severability.    Any provision of this Agreement or any other Loan Document held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to 


72







 



the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 



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


        Section
12.09    Governing Law; Jurisdiction; Consent to Service of Process.    


        (a)   THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.



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


        (c)   EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS
ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.



        (d)   EACH PARTY HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO
NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR  


73







 



 IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.


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


        Section
12.11    Confidentiality.    Each of the Agents, each Issuing Bank and the Lenders agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory authority or self-regulatory body, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan Document, (e) in connection with the exercise of any remedies hereunder or under any
other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section 12.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights
or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Swap Agreement relating to any Borrower and its obligations, (g) with the
consent of the Borrowers or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes
available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than a Borrower. For the purposes of this Section 12.11,
"Information" means all information received from any Borrower or any Subsidiary relating to a Borrower or any Subsidiary and their businesses, other
than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by a Borrower or a Subsidiary. Any Person
required to maintain the confidentiality of Information as provided in this Section 12.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything herein to the contrary, any party hereto
(and each employee, representative or other agent of such party) may disclose without limitation of any kind, any information with respect to the "tax treatment" and "tax structure" (in each case,
within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are
provided to that party relating to such tax treatment or tax structure; provided that with respect to any document or similar item that in either case
contains information concerning the tax treatment or tax structure of the transactions, as well as other information, this sentence shall only apply to such portions of the document or similar item
that relate to the tax treatment or tax structure of the transactions contemplated hereby. 


        Section 12.12    EXCULPATION
PROVISIONS.    EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT
AND THE OTHER LOAN  


74







 



 DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS MAY RESULT, SUBJECT TO THE TERMS HEREOF AND THEREOF AND APPLICABLE LAW, IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF
ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."


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


        Section
12.14    Collateral Matters; Swap Agreements.    No Lender or any Affiliate of a Lender shall have any voting
rights under any Loan Document as a result of the existence of obligations owed to it under any Swap Agreements. 



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


[SIGNATURES BEGIN NEXT PAGE] 


75









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



	BORROWERS:	 	ELLORA ENERGY INC.
	

 	
 	

By:	

/s/  JAMES R. CASPERSON      
 James R. Casperson,

Vice President and Chief Financial Officer
	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

/s/  JAMES R. CASPERSON      
 James R. Casperson,

Vice President and Chief Financial Officer






Signature Page - 1







 


	ADMINISTRATIVE AGENT/LENDER:	 	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and a Lender
	

 	
 	

By:	

/s/  J. SCOTT FOWLER      
 J. Scott Fowler,

Vice President






Signature Page - 2







 


	LENDER:	 	KEYBANK, N.A.,

as a Lender
	

 	
 	

By:	

/s/  THOMAS RAJAN      

	 	 	Name:	Thomas Rajan
	 	 	Title:	Vice President






Signature Page - 3







 


	LENDER:	 	BANK OF OKLAHOMA, N.A.,

as a Lender
	

 	
 	

By:	

/s/  MICHAEL M. LOGAN      

	 	 	Name:	Michael M. Logan

	 	 	Title:	Senior Vice President





Signature Page - 4







 


	LENDER:	 	BANK OF SCOTLAND,

as a Lender
	

 	
 	

By:	

/s/  KAREN WEICH      

	 	 	Name:	Karen Weich

	 	 	Title:	Assistant Vice President





Signature Page - 5







 


	LENDER:	 	COMERICA BANK,

as a Lender
	

 	
 	

By:	

/s/  MATTHEW J. PURCHASE      

	 	 	Name:	Matthew J. Purchase

	 	 	Title:	Vice President





Signature Page - 6







 


	LENDER:	 	FORTIS CAPITAL CORP.,

as a Lender
	

 	
 	

By:	

/s/  DAVID MONTGOMERY      

	 	 	Name:	David Montgomery

	 	 	Title:	Senior Vice President

	

 	
 	

By:	

/s/  DARRELL HOLLEY      

	 	 	Name:	Darrell Holley

	 	 	Title:	Managing Director





Signature Page - 7









 
 

ANNEX I
  LIST OF MAXIMUM CREDIT AMOUNTS    
    



	Name of Lender
 
	 	Applicable

Percentage
	 	Maximum Credit

Amount

	JPMorgan Chase Bank, N.A.	 	20.4545454545	%	$	81,818,181.80
	KeyBank, N.A.	 	15.9090909091	%	$	63,636,363.64
	Bank of Oklahoma, N.A.	 	15.9090909091	%	$	63,636,363.64
	Bank of Scotland	 	15.9090909091	%	$	63,636,363.64
	Comerica Bank	 	15.9090909091	%	$	63,636,363.64
	Fortis Capital Corp.	 	15.9090909091	%	$	63,636,363.64
	 	 	
	 	

	TOTAL	 	100.00000	%	$	400,000,000.00









 
 
 

EXHIBIT A
  FORM OF NOTE    
    



	$[                        ]	 	[                        ], 200    





        FOR VALUE RECEIVED, ELLORA ENERGY INC., a Delaware corporation, and ELLORA
OIL & GAS INC., a Delaware corporation (the "Borrowers") hereby jointly and severally promise to pay to the order
of [                        ] (the "Lender"), at the principal office of JPMorgan
Chase Bank, N.A. (the
"Administrative Agent"), at [                        ], the principal sum of
[                        ] Dollars
($[                        ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the
Lender to the Borrowers under the Credit Agreement, as
hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement. 


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


        This
Note is one of the Notes referred to in the Credit Agreement, dated as of February 3, 2006, among the Borrowers, the Administrative Agent, and the lenders signatory thereto
(including the Lender), and evidences Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. 


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


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



	 	 	ELLORA ENERGY INC.
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





A-1








   EXHIBIT B

FORM OF BORROWING REQUEST  


[                        ],
200[    ] 


        Ellora
Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation (the "Borrowers"),
pursuant to Section 2.03 of the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto, the
"Credit Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement),
hereby requests a Borrowing as follows: 



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


         (ii)  Date
of such Borrowing is [                        ], 200[    ]; 


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



        (iv)  In
the case of a Eurodollar Borrowing, the initial Interest Period applicable thereto is [                        ]; 


         (v)  Amount
of Borrowing Base in effect on the date hereof is $[                        ]; 


        (vi)  Total
Credit Exposures on the date hereof (i.e., outstanding principal amount of Loans and total LC Exposure) is $
[                        ]; and 


       (vii)  Pro forma total Credit Exposures (giving effect to the requested Borrowing) is
$[                        ]; and 


      (viii)  Location
and number of the Borrowers' account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05 of the Credit
Agreement, is as follows: 



	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 





B-1







 

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



	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





B-2








   EXHIBIT C

FORM OF INTEREST ELECTION REQUEST  


[                        ],
200[    ] 


        Ellora
Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation (the "Borrowers"),
pursuant to Section 2.04 of the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto, the
"Credit Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement),
hereby makes an Interest Election Request as follows: 



          (i)  The
Borrowing to which this Interest Election Request applies, and if different options are being elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the information specified pursuant to (iii) and (iv) below shall be specified for each resulting Borrowing) is
[                  ]; 


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


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


       [(iv)  [If
the resulting Borrowing is a Eurodollar Borrowing] The Interest Period applicable to the resulting Borrowing after giving
effect to such election is [                  ]]. 




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



	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





C-1








   EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE  


        The undersigned hereby certifies that he/she is the [            ] of Ellora Energy Inc., a Delaware corporation, and
Ellora
Oil& Gas, Inc., a Delaware corporation (the "Borrowers"), and that as such he/she is authorized to execute this certificate on behalf of each
Borrower. With reference to the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto being the
"Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become a party thereto, the undersigned represents and warrants to the best of his/her knowledge after reasonable enquiry as
follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified): 



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


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


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


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


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




        EXECUTED
AND DELIVERED this [        ] day of [                  ]. 



	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





D-1








  



 
 

EXHIBIT E
  FORM OF ASSIGNMENT AND ASSUMPTION    
    



        Reference is made to the Credit Agreement, dated as of February 3, 2006 (as amended, restated, supplemented or otherwise modified from time to time and in
effect on the date hereof, the "Credit Agreement"), among Ellora Energy Inc., Ellora Oil & Gas Inc., the Lenders named therein and
JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein with the same meanings. 


        The
Assignor named on the reverse hereof hereby sells and assigns, without recourse, to the Assignee named on the reverse hereof, and the Assignee hereby purchases and assumes, without
recourse, from the Assignor, effective as of the Assignment Date set forth on the reverse hereof, the interests set forth on the reverse hereof (the "Assigned
Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment
of the Assignor on the Assignment Date and Loans owing to the Assignor which are outstanding on the Assignment Date, together with the participations in Letters of Credit and LC Disbursements held by
the Assignor on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and
after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement. 


        This
Assignment and Assumption is being delivered to the Administrative Agent (with a copy to the Borrowers) together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section 5.03(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not
already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The
[Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 12.04(b) of the Credit Agreement. 


        This
Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of Texas. 


Date
of Assignment: 


Legal
Name of Assignor: 


Legal
Name of Assignee: 


Assignee's
Address for Notices: 


Effective
Date of Assignment 


("Assignment Date"): 



	Facility
 
	 	Principal Amount

Assigned
	 	Percentage Assigned of

Facility/Commitment (set

forth, to at least 8 decimals,

as a percentage of the

Facility and the aggregate

Commitments of all

Lenders thereunder)
	 
	Commitment Assigned:	 	$	 	 	 	%
	Loans:	 	 	 	 	 	 




E-1







 

The
terms set forth above and on the reverse side hereof are hereby agreed to: 



	 	 	[Name of Assignor], as Assignor
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	

[Name of Assignee], as Assignee
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	






The
undersigned hereby consent to the within assignment:(1) 



	ELLORA ENERGY INC.	 	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Issuing Bank
	

By:	

 	
 	

By:	

 
	 	
	 	 	

	Name:	 	Name:
	 	
	 	 	

	Title:	 	Title:
	 	
	 	 	

	
ELLORA OIL & GAS INC.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
	 	 	 
	Name:	 	 	 
	 	
	 	 	 
	Title:	 	 	 
	 	
	 	 	 






	(1)
	Consents
to be included to the extent required by Section 12.04(b) of the Credit Agreement 


E-2








  



 
 

EXHIBIT F
  FORM OF BORROWER PLEDGE AGREEMENT    
    


        THIS PLEDGE AGREEMENT (this "Agreement") is made as
of                        , 200    , by
[Ellora Energy Inc.][Ellora Oil &
Gas Inc.], a Delaware corporation (herein called "Pledgor"), in favor of JPMorgan Chase Bank, N.A., as
Administrative Agent for the ratable benefit of Lenders (as defined below), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the
Credit Agreement) (herein called "Pledgee"). 


W I T N E S S E T H:


        WHEREAS,
Pledgor, as a Borrower, the other Borrower party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Lenders are parties to that certain Credit Agreement (as may be
amended from time to time, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have agreed to make loans and other
extensions of credit to Borrowers for the purposes set forth therein; and 


        WHEREAS,
pursuant to the terms of the Credit Agreement, and as a condition precedent to the loans and extensions of credit thereunder, Pledgor is required to execute and deliver to
Pledgee a pledge agreement granting to Pledgee, for the benefit of Lenders, a security interest in the Collateral (as defined herein); and 



        WHEREAS,
the Board of Directors have determined that Pledgor's execution, delivery and performance of this Agreement may reasonably be expected to benefit Pledgor, directly or
indirectly, and are in the best interests of Pledgor. 


        NOW,
THEREFORE, in consideration of the premises and in order to induce Lenders to extend credit under the Credit Agreement, Pledgor hereby agrees with Pledgee as follows: 


ARTICLE I

Definitions and References 


        Section 1.1.    General Definitions.    As used herein, the terms defined above shall have the meanings
indicated above, and the following terms shall have the following meanings: 



        "Code" means the Uniform Commercial Code in effect in the State of Texas on the date hereof. 


        "Collateral" means all property of whatever type, in which Pledgee at any time has a security interest pursuant to Section 2.1
hereof. 


        "Commitment" means the agreement or commitment by Lenders to make loans, acquire participations in Letters of Credit or otherwise extend
credit to Pledgor under the Credit Agreement, and any other agreement, commitment, statement of terms or other document contemplating the making of loans or advances or other extension of credit by
Lenders to or for the account of Pledgor which is now or at any time hereafter intended to be secured by the Collateral under this Agreement. 


        "Equity" means shares of capital stock or a partnership, profits, capital or member interest, or options, warrants or any other right to
substitute for or otherwise acquire the capital stock or a partnership, profits, capital or member interest of each Subsidiary (as defined in Section 2.1(a)) hereof. 


        "Lender" means any financial institution reflected on Annex I to the Credit Agreement and its successors and assigns, and
"Lenders" shall mean all Lenders. 



F-1







 




        "Obligation Documents" means the Credit Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security
Instruments now or hereafter executed, the other Loan Documents, and all other documents and instruments under, by reason of which, or pursuant to which any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other agreements, certificates, and other documents, instruments and writings heretofore or hereafter delivered in connection herewith or therewith. 



        "Obligations" means all present and future indebtedness, obligations and liabilities of whatever type which are or shall be secured
pursuant to Section 2.2 hereof. 


        "Other Liable Party" means any Person, other than Pledgor, but including any other Borrower and the Subsidiaries, who may now or may at
any time hereafter be primarily or secondarily liable for any of the Obligations or who may now or may at any time hereafter have granted to Pledgee or Lenders a Lien upon any property as security for
the Obligations. 


        "Pledged Equity" has the meaning given it in Section 2.1(a) hereof. 




        Section 1.2.    Other Definitions.    Reference is hereby made to the Credit Agreement for a statement of the
terms thereof. All capitalized terms used in this Agreement which are defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in the Code and not otherwise defined herein or in the Credit Agreement shall have the same meanings herein as set forth in the Code, except where the
context otherwise requires. 


        Section 1.3.    Exhibits.    All exhibits attached to this Agreement are a part hereof for all purposes. 


        Section 1.4.    Amendment of Defined Instruments.    Unless the context otherwise requires or unless otherwise
provided herein, references in this Agreement to a particular agreement, instrument or document also refer to and include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document, provided that nothing contained in this Section 1.4 shall be construed to authorize any Person to execute or enter into any such
renewal, extension, amendment, modification, supplement or restatement. 


        Section 1.5.    References and Titles.    All references in this Agreement to Exhibits, Articles, Sections,
subsections, and other subdivisions refer to the Exhibits, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivision are for convenience only and do not constitute any part of any such subdivision and shall be disregarded in construing the language contained in this Agreement. The words
"this Agreement," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to the Sections or subsections hereof in which the phrase occurs. The word "or" is not exclusive, and the word "including"
(in all of its forms) means "including without limitation". Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise requires. 


ARTICLE II

Security Interest 


        Section 2.1.    Grant of Security Interest.    As collateral security for all of the Obligations, Pledgor
hereby pledges and assigns to Pledgee and grants to Pledgee a continuing security interest with at least 


F-2







 



the
priority required by Section 3.1(d)(iv) hereof for the benefit of Lenders (and any Secured Swap Provider) in and to all of the following rights, interests and property: 



         (a)  all
of the issued and outstanding Equity
of                                         
       ,
                                         
       , and each other Subsidiary hereafter created, acquired or designated by Pledgor
(collectively, the "Subsidiaries," and each individually, a "Subsidiary") now owned or hereafter
acquired by Pledgor including, without limitation, the Equity of each Subsidiary owned by Pledgor on the date hereof (all of the foregoing being herein sometimes called the
"Pledged Equity"); 


         (b)  any
and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to,
all or any of the Pledged Equity; and 


         (c)  all
cash, securities, dividends and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of
the Pledged Equity and any other property substituted or exchanged therefor. 




        Section 2.2.    Obligations Secured.    The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, indebtedness and liabilities, whether now existing or hereafter incurred: 



        (a)    Credit Agreement Indebtedness.    The payment by Pledgor and each other Borrower and Guarantor, as and when due
and payable, of all amounts from time to time owing by Pledgor and each other Borrower and Guarantor under or in respect of the Credit Agreement, the Notes or any of the other Obligation Documents. 


        (b)    Renewals.    All renewals, extensions, amendments, modifications, supplements, or restatements of, or
substitutions for, any of the foregoing. 


        (c)    Performance.    The due performance and observance by Pledgor, any other Borrower and their Subsidiaries of all
of their other obligations from time to time existing under or in respect of any of the Obligation Documents. 


        (d)    Swap Agreements.    The payment and performance of any and all present or future obligations of Pledgor, any
other Borrower or any of their Subsidiaries according to the terms of any Swap Agreement now existing or hereafter entered into between and/or among Pledgor, any other Borrower, any of their
Subsidiaries, any Pledgee, any Lender or any affiliate of any of the foregoing (including, without limitation, any Secured Swap Provider). 



ARTICLE III

Representations, Warranties and Covenants 


        Section 3.1.    Representations and Warranties.    Pledgor represents and warrants as follows: 



        (a)    Ownership and Liens.    Pledgor has good and marketable title to the Collateral free and clear of all Liens,
encumbrances or adverse claims, except for the security interest created by this Agreement and except as provided in Section 3.1(d)(iv). No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any recording office except such as have been filed in favor of Pledgee relating to this Agreement or the other Loan
Documents. 


        (b)    No Conflicts or Consents.    Neither the ownership or the intended use of the Collateral by Pledgor, nor the
grant of the security interest by Pledgor to Pledgee herein, nor the exercise by Pledgee of its rights or remedies hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles of organization, certificate of formation, 



F-3







 




certificate
of incorporation, articles of incorporation, charter, bylaws, limited liability company agreement or other organizational document of any Subsidiary, or (c) any agreement, judgment,
license, order or permit applicable to or binding upon Pledgor or any Subsidiary; or (ii) result in or require the creation of any Lien, charge or encumbrance upon any assets or properties of
Pledgor except as expressly contemplated in the Obligation Documents. Except as expressly contemplated in the Obligation Documents, no consent, approval, authorization or order of, and no notice to or
filing with, any court, Governmental Authority, Subsidiary, or third party is required in connection with the grant by Pledgor of the security interest herein, or, except as may be required under the
Code, the exercise by Pledgee of its rights and remedies hereunder. 


        (c)    Security Interest.    Pledgor has and will have at all times full right, power and authority to grant a
security interest in the Collateral to Pledgee in the manner provided herein, free and clear of any Lien, adverse claim, or encumbrance (except as provided in Section 3.1(d)(iv)). This
Agreement creates a valid and binding security interest in favor of Pledgee in the Collateral securing the Obligations. The taking possession by Pledgee (for the ratable benefit of Lenders) of all
certificates, instruments and cash constituting Collateral from time to time, together with appropriate stock powers, and the filing of the financing statements delivered concurrently herewith by
Pledgor to Pledgee will perfect, and establish the priority required by Section 3.1(d)(iv) of, Pledgee's security interest hereunder in the Collateral securing the Obligations. No
further or subsequent filing, recording, registration, other public notice or other action is necessary or desirable to perfect or otherwise continue, preserve or protect such security interest except
for continuation statements or filings as contemplated in Section 3.3(b) or otherwise by the Code. 



        (d)    Pledged Equity.    (i) Pledgor is the legal and beneficial owner of the Pledged Equity; (ii) the
Pledged Equity is duly authorized and issued, fully paid and non-assessable (as applicable), and all documentary, stamp or other Taxes or fees owing in connection with the issuance,
transfer and/or pledge thereof hereunder have been paid; (iii) no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Equity; (iv) the
Pledged Equity is free and clear of all Liens, options, warrants, puts, calls or other rights of third Persons, and restrictions, other than (A) those Liens arising under this Agreement or any
other of the Loan Documents, (B) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by
appropriate action, as required by Section 8.04 of the Credit Agreement, and (C) restrictions on transferability imposed by applicable state and federal securities laws;
(v) Pledgor has full right and authority to pledge the Pledged Equity for the purposes and upon the terms set out herein; (vi) certificates (as applicable) representing the Pledged
Equity have been delivered to Pledgee, together with a duly executed blank stock power for each certificate; and (vii) no Subsidiary has issued, and there are not outstanding, any options,
warrants or other rights to acquire Equity of any Subsidiary. 




        Section 3.2.    Affirmative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at
all times comply with the covenants contained in this Section 3.2 from the date hereof and so long as any part of the Obligations or Commitments is outstanding. 



        (a)    Ownership and Liens.    Pledgor will maintain good and marketable title to all Collateral free and clear of all
Liens, encumbrances or adverse claims, except for (i) the security interest created by this Agreement, (ii) those provided in Section 3.1(d)(iv), and (iii) the security
interests and other encumbrances expressly permitted by the Credit Agreement. Pledgor will cause to be terminated any financing statement or other registration with respect to the Collateral, except
such as may exist or as may have been filed in favor of Pledgee. Pledgor will defend Pledgee's security interest in and to the Collateral against the claims of any Person. 



F-4







 

        (b)    Further Assurances.    Pledgor will at any time and from time to time promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or desirable or that Pledgee may request in order (i) to perfect and protect the security interest created or
purported to be created hereby and the priority required by Section 3.1(d)(iv) of such security interest; (ii) to enable Pledgee to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including: (A) executing and filing such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that Pledgee may request in order to perfect and preserve the security interest created or purported to be created hereby, and
(B) furnishing to Pledgee from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Pledgee may
reasonably request, all in reasonable detail. Upon the creation or acquisition by Pledgor of any Subsidiary, Pledgor and such Subsidiary shall execute an acknowledgement to this Agreement
substantially in the form of Exhibit A hereto promptly following the acquisition or creation by Pledgor of such Subsidiary, which confirms that the Equity of such Subsidiary shall be included
within the definition of Pledged Equity hereunder. 


        (c)    Delivery of Pledged Equity.    All certificates, instruments and writings evidencing the Pledged Equity shall
be delivered to Pledgee on or prior to the execution and delivery of this Agreement. All other certificates, instruments and writings hereafter evidencing or constituting Pledged Equity shall be
delivered to Pledgee promptly upon the receipt thereof by or on behalf of Pledgor. All Pledged Equity shall be held by or on behalf of Pledgee pursuant hereto and shall be delivered in the same manner
and with the same effect as described in Section 2.1 hereof and Section 3.1 hereof. Upon delivery, such Equity shall thereupon constitute "Pledged Equity" and shall be subject to the
Liens herein created, for the purposes and upon the terms and conditions set forth in this Agreement and the other Loan Documents. 


        (d)    Proceeds of Pledged Equity.    If Pledgor shall receive, by virtue of its being or having been an owner of any
Pledged Equity, any (i) Equity (including any certificate representing any Equity or distribution in connection with any increase or reduction of capital, reorganization, reclassification,
merger, consolidation, sale of assets, or spinoff or split-off), promissory note or other instrument or writing; (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Equity or otherwise; (iii) dividends or other distributions payable in cash (except such dividends or other distributions permitted to be retained by Pledgor
pursuant to Section 4.7 hereof) or in securities or other property; or (iv) dividends or other distributions in connection with (A) a partial or total liquidation or dissolution
or (B) a reduction of capital, capital surplus or paid-in surplus, Pledgor shall receive the same in trust for the benefit of Pledgee, shall segregate it from Pledgor's other
property, and shall promptly deliver it to Pledgee in the exact form received, with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 



        (e)    Status of Pledged Equity.    The certificates evidencing the Pledged Equity (as applicable) shall at all times
be valid and genuine and shall not be altered. The Pledged Equity at all times shall be duly authorized, validly issued, fully paid, and non-assessable (as applicable), shall not be issued
in violation of the pre-emptive rights of any Person or of any agreement by which Pledgor or any Subsidiary is bound, and, except for the bylaws or other organizational documents of any
Subsidiary, shall not be subject to any restrictions or conditions with respect to the transfer, voting or capital of any Pledged Equity. 




        Section 3.3.    Negative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at all
times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Obligations or the Commitments is outstanding. 


F-5







 

        (a)    Transfer or Encumbrance.    Pledgor will not sell, assign (by operation of law or otherwise), transfer,
exchange, lease or otherwise dispose of any of the Collateral, nor will Pledgor grant a Lien upon or execute, file or record any financing statement or other registration with respect to the
Collateral (other than the security interests created by this Agreement), nor will Pledgor allow any such Lien, financing statement, or other registration to exist or deliver actual or constructive
possession of the Collateral to any other Person other than Liens in favor of Pledgee and those provided in Section 3.1(d)(iv). Notwithstanding the foregoing, so long as no Default or Event of
Default exists, Pledgor may transfer, exchange or otherwise dispose of Pledged Equity in connection with a merger or consolidation permitted by Section 9.11 of the Credit Agreement. Upon any
such merger or consolidation, Pledgee will, upon Pledgor's request and at Pledgor's expense, promptly (a) release its security interest in the Collateral that is being transferred, exchanged or
disposed of in connection with such merger or consolidation, (b) return to Pledgor such of the Collateral that is being transferred, exchanged or disposed of in connection with such merger or
consolidation, and (c) execute and deliver to Pledgor such documents as Pledgor may reasonably request to evidence Pledgee's release of its security interest in such Collateral. 



        (b)    Financing Statement Filings.    Pledgor recognizes that financing statements pertaining to the Collateral have
been or may be filed in the jurisdiction of Pledgor's organization, where Pledgor maintains any Collateral, has its records concerning any Collateral, has its chief executive office or chief place of
business, or has its principal place of residence. Without limitation of any other covenant herein, Pledgor will not cause or permit any change to be made in its name, identity, corporate structure or
jurisdiction of organization, or any change to be made to a jurisdiction other than as represented in the Credit Agreement in (i) the location of any records concerning any Collateral, or
(ii) the location of its chief executive office, chief place of business or principal place of residence, unless Pledgor shall have notified Pledgee of such change at least fifteen
(15) days prior to the effective date of such change, and shall have first taken all action reasonably required by Pledgee for the purpose of further perfecting or protecting the security
interest in favor of Pledgee in the Collateral. In any notice furnished pursuant to this subsection, Pledgor will expressly state that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other notices for the purposes of continuing perfection of Pledgee's security interest in the Collateral. 



        (c)    Impairment of Security Interest.    Pledgor will not take or fail to take any action which would in any manner
impair the enforceability of Pledgee's security interest in any Collateral. 


        (d)    Restrictions on Pledged Equity.    Except for the bylaws or other charter or organizational documents of
Subsidiaries, Pledgor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Equity. 



ARTICLE IV

Remedies, Powers and Authorizations 


        Section 4.1.    Provisions Concerning the Collateral.    



        (a)    Additional Financing Statement Filings.    Pledgor hereby authorizes Pledgee to file, without the signature of
Pledgor where permitted by law, one (1) or more financing or continuation statements, and amendments thereto, relating to the Collateral. 


        (b)    Power of Attorney.    Pledgor hereby irrevocably appoints Pledgee as Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time if an Event of Default shall have
occurred and be continuing, in Pledgee's discretion, to take any action (except for the exercise of any voting rights pertaining to the Pledged Equity or any part thereof) and to execute any
instrument, certificate or 



F-6







 




notice
which Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement including: (i) to request or instruct Pledgor or any Subsidiary (and each registrar, transfer
agent, or similar Person acting on behalf of Pledgor or any Subsidiary) to register the Pledged Equity or transfer the Collateral to Pledgee; (ii) to otherwise give notification to Pledgor, any
Subsidiary, registrar, transfer agent, financial intermediary, or other Person of Pledgee's security interests hereunder; (iii) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iv) to receive, indorse and collect any drafts or other instruments, documents and
chattel paper; and (v) to file any claims or take any action or institute any proceedings which Pledgee may deem necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Pledgee with respect to any of the Collateral. 


        (c)    Performance by Pledgee.    If Pledgor fails to perform any agreement or obligation contained herein, Pledgee
may itself perform, or cause performance of, such agreement or obligation, and the expenses of Pledgee incurred in connection therewith shall be payable by Pledgor under Section 4.4 hereof. 



        (d)    Collection Rights.    Pledgee shall have the right at any time, if an Event of Default shall have occurred and
be continuing, to notify any or all obligors (including any and all Subsidiaries) under any accounts or general intangibles included among the Collateral of the assignment thereof to Pledgee and to
direct such obligors to make payment of all amounts due or to become due to Pledgor thereunder directly to Pledgee and, upon such notification and at the expense of Pledgor and to the extent permitted
by law, to enforce collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Pledgor could have done. After Pledgor receives
notice that Pledgee has given any notice referred to above in this subsection, (i) all amounts and proceeds (including instruments and writings) received by Pledgor in respect of such accounts
or general intangibles shall be received in trust for the benefit of Pledgee hereunder, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Pledgee in the same form as
so received (with any necessary endorsement) to be held as cash collateral and (A) released to Pledgor upon the remedy of all Events of Default, or (B) if any Event of Default shall have
occurred and be continuing, applied as specified in Section 4.3 hereof; and (ii) Pledgor will not adjust, settle or compromise the amount or payment of any such account or general
intangible or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. 




        Section 4.2.    Event of Default Remedies.    If an Event of Default shall have occurred and be continuing,
Pledgee may from time to time in its discretion, without limitation and without notice except as expressly provided below: 



         (a)  exercise
in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Obligation Documents or otherwise available to it,
all the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral); 



         (b)  require
Pledgor to, and Pledgor hereby agrees that it will upon request of Pledgee forthwith, assemble all or part of the Collateral as directed by Pledgee and make it
available to Pledgee at a place to be designated by Pledgee which is reasonably convenient to both parties; 


         (c)  reduce
its claim to judgment against Pledgor or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial
procedure; 


         (d)  dispose
of, at its office, on the premises of Pledgor or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by
way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Pledgee's 



F-7







 




power
of sale, but sales may be made from time to time, and at any time, until all of the Collateral has been sold or until the Obligations have been paid and performed in full), and at any such sale
it shall not be necessary to exhibit any of the Collateral; 


         (e)  buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any public sale; 


          (f)  buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is
of a type which is the subject of widely distributed standard price quotations; and 


         (g)  apply
by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment. 




Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Pledgee may adjourn
any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so
adjourned. 


        Section 4.3.    Application of Proceeds.    If any Event of Default shall have occurred and be continuing,
Pledgee may in its discretion apply any cash held by Pledgee as Collateral, and any cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization upon all or any
part of the Collateral, in the order and manner contemplated by Article IV of the Credit Agreement. 


        Section 4.4.    Release and Expenses.    In addition to, and not in qualification of, any similar obligations
under other Obligation Documents: 



         (a)  Pledgor
agrees to release and forever discharge Pledgee and each Lender from and against any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including enforcement of this Agreement), except to the extent such claim, loss or liability is found in a final, non-appealable judgment of a court of competent jurisdiction to
have resulted from such person's gross negligence or willful misconduct. The foregoing release and discharge shall apply whether or not such claims, losses and liabilities are in any way or to any
extent owed, in whole or in part, under any claim or theory of strict liability or are, to any extent caused, in whole or in part, by any negligent (but not grossly negligent or willful as found in a
final, non-appealable judgment of a court of competent jurisdiction) act or omission of any kind by Pledgee or any Lender. 


         (b)  Pledgor
will upon demand pay to Pledgee the amount of any and all costs and expenses, including the reasonable fees and disbursements of Pledgee's counsel and of any
experts and agents, which Pledgee may incur in connection with (i) the transactions which give rise to this Agreement; (ii) the preparation of this Agreement and the perfection and
preservation of the security interest created under this Agreement; (iii) the administration of this Agreement; (iv) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any Collateral; (v) the exercise or enforcement of any of the rights of Pledgee hereunder; or (vi) the failure
by Pledgor to perform or observe any of the provisions hereof, except expenses resulting from Pledgee's gross negligence or willful misconduct. 




        Section 4.5.    Non-Judicial Remedies.    In granting to Pledgee the power to enforce its rights
hereunder without prior judicial process or judicial hearing, Pledgor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Pledgee to enforce its rights
by judicial process. In so providing for non-judicial remedies, Pledgor recognizes and concedes that such remedies are consistent with the usage of trade, are responsive to commercial
necessity, and are the 


F-8







 

result
of a bargain at arm's length. Nothing herein is intended to prevent Pledgee or Pledgor from resorting to judicial process at either party's option. 



        Section 4.6.    Other Recourse.    Pledgor waives any right to require Pledgee or Lenders to proceed against
any other Person, exhaust any Collateral or other security for the Obligations, or to have any Other Liable Party joined with Pledgor in any suit arising out of the Obligations or this Agreement, or
pursue any other remedy in Pledgee's power. Pledgor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Obligations from time to time. Pledgor further waives any defense arising by reason of any disability or other defense of any Other Liable Party or by reason of the cessation from
any cause whatsoever of the liability of any Other Liable Party. Until all of the Obligations shall have been paid in full, Pledgor shall have no right to subrogation and Pledgor waives the right to
enforce any remedy which Pledgee or any Lender has or may hereafter have against any Other Liable Party, and waives any benefit of and any right to participate in any other security whatsoever now or
hereafter held by Pledgee. Pledgor authorizes Pledgee and each Lender, without notice or demand and without any reservation of rights against Pledgor and without affecting Pledgor's liability
hereunder or on the Obligations, from time to time to (a) take or hold any other property of any type from any other Person as security for the Obligations, and exchange, enforce, waive and
release any or all of such other property; (b) renew, extend for any period, accelerate, modify, compromise, settle or release any of the obligations of any Other Liable Party in respect to any
or all of the Obligations or other security for the Obligations; (c) waive, enforce, modify, amend or supplement any of the provisions of any Obligation Document with any Person other than
Pledgor; and (d) release or substitute any Other Liable Party. 


        Section 4.7.    Voting Rights, Dividends Etc. in Respect of Pledged Equity.    


         (a)  So
long as no Event of Default shall have occurred and be continuing Pledgor may receive and retain any and all dividends, distributions or interest paid in respect of
the Pledged Equity; provided, however, that any and all dividends, distributions and interest paid or
payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Equity, shall be, and shall
forthwith be delivered to Pledgee to hold as, Pledged Equity and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Pledgee in the exact form received with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 


         (b)  If
an Event of Default shall have occurred and be continuing: 



          (i)  all
rights of Pledgor to receive and retain the dividends, distributions and interest payments which Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a) of this Section 4.7 shall automatically cease, and all such rights shall thereupon become vested in Pledgee which shall thereupon have the right to receive and
hold as Pledged Equity such dividends, distributions and interest payments; 


         (ii)  without
limiting the generality of the foregoing, Pledgee may at its option exercise any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Equity (except voting rights) as if it were the absolute owner thereof, including the right to exchange, in its discretion, any and all of the
Pledged Equity upon the merger, consolidation, reorganization, recapitalization or other adjustment of Pledgor or any Subsidiary, or upon the exercise by Pledgor or any Subsidiary of any right,
privilege or option pertaining to any Pledged Equity, and, in connection therewith, to deposit and deliver any and all of the Pledged Equity with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as it may determine; and 



F-9







 




        (iii)  all
dividends and interest payments which are received by Pledgor contrary to the provisions of subsection (b) (i) of this Section 4.7 shall be received
in trust for the benefit of Pledgee, shall be segregated from other funds of Pledgor, and shall be forthwith paid over to Pledgee as Pledged Equity in the exact form received, to be held by Pledgee as
Collateral. 




Anything
herein to the contrary notwithstanding, Pledgee may not exercise any voting rights pertaining to the Pledged Equity, and Pledgor may at all times exercise any and all voting rights pertaining
to the Pledged Equity or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Obligation Document; provided,
however, if an Event of Default shall have occurred and be continuing, Pledgor will not exercise or refrain from exercising any such right, as the case may be, if Pledgee gives
notice that, in Pledgee's judgment, such action would cause a Material Adverse Effect
with respect to the value of the Pledged Equity or the benefits to Pledgee of its security interest hereunder. 


        Section 4.8.    Private Sale of Pledged Equity.    Pledgor recognizes that Pledgee may deem it impracticable to
effect a public sale of all or any part of the Pledged Equity and that Pledgee may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that Pledgee shall have no obligation to delay the sale of any such securities for
the period of time necessary to permit Pledgor or any Subsidiary to register such securities (with no obligation of either Pledgor or any Subsidiary to accomplish such registration) for public sale
under the Securities Act of 1933, as amended (the "Securities Act"). Pledgor further acknowledges and agrees that any offer to sell such securities
which has been (a) publicly advertised on a bona fide basis in The Wall Street Journal, national
edition (to the extent that such an offer may be so advertised without prior registration under the Securities Act), or (b) made privately in the manner described above to not less than fifteen
(15) bona fide offerees shall be deemed to involve a "public disposition" for the purposes of Section 9.610 of the Code (or any successor
or similar, applicable statutory provision) as then in effect in the State of Texas, notwithstanding that such sale may not constitute a "public offering" under the Securities Act, and that Pledgee
may, in such event, bid for the purchase of such securities. 



        Section 4.9.    Limitation on Rights and Waivers.    All rights, powers and remedies herein conferred shall be
exercisable by Pledgee only to the extent not prohibited by applicable law; and all waivers and relinquishments of rights and similar matters shall only be effective to the extent such waivers or
relinquishments are not prohibited by applicable law. 


ARTICLE V

Miscellaneous 


        Section 5.1.    Notices.    Any notice or communication required or permitted hereunder shall be given in
writing, sent by personal delivery, by telecopy, by delivery service with proof of delivery, or by 


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registered
or certified United States mail, postage prepaid, addressed to the appropriate party as follows: 



	

 	
 	
To Pledgor:	
 	

[Ellora Energy Inc.] [Ellora Oil & Gas Inc.]

5480 Valmont

Suite 350

Boulder, Colorado 80301

Attn: James R. Casperson

Fax No.: (303) 417-1000
	

 	
 	
To Pledgee:	
 	

JPMorgan Chase Bank, N.A., as Administrative Agent for Lenders

1717 Main Street, 4th Floor

Mail Code TX1-2448

Dallas, Texas 75201

Attn: J. Scott Fowler

Fax No.: (214) 290-2332





or to such other address or to the attention of such other individual as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such
notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address or in the manner
provided herein, (b) in the case of telecopy, upon receipt with confirmation (if sent before 4:00 p.m. local time of the receiving party on a Business Day) or the next Business Day (if
sent after 4:00 p.m. of such local time or sent on a day that is not a Business Day), or (c) in the case of registered or certified United States mail, three (3) Business Days
after deposit in the mail. 


        Section 5.2.    Amendments.    No amendment of any provision of this Agreement shall be effective unless it is
in writing and signed by Pledgor, Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement), and no waiver of any provision of this Agreement, and no
consent to any departure by Pledgor therefrom, shall be effective unless it is in writing and signed by Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit
Agreement), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing. 



        Section 5.3.    Preservation of Rights.    No failure on the part of Pledgee or any Lender to exercise, and no
delay in exercising, any right hereunder or under any other Obligation Document 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. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Obligations. The
rights and remedies of Pledgee and Lenders provided herein and in the other Obligation Documents are cumulative of and are in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of Pledgee and Lenders under any Obligation Document against any party thereto are not conditional or contingent on any attempt by Pledgee or Lenders to exercise any of its or their rights
under any other Obligation Document against such party or against any other Person. 


        Section 5.4.    Unenforceability.    Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction. 



        Section 5.5.    Survival of Agreements.    All representations and warranties of Pledgor herein, and all
covenants and agreements herein shall survive the execution and delivery of this Agreement, the execution and delivery of any other Obligation Documents and the creation of the Obligations. 


F-11







 



        Section 5.6.    Other Liable Party.    Neither this Agreement nor the exercise by Pledgee or any Lender or the
failure of Pledgee or any Lender to exercise any right, power or remedy conferred herein or by law shall be construed as relieving any Other Liable Party from liability on the Obligations or any
deficiency thereon. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased or irrespective of the validity or enforceability of any other
Obligation Document to which Pledgor or any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any Other Liable Party. 


        Section 5.7.    Binding Effect and Assignment.    This Agreement creates a continuing security interest in the
Collateral and (a) shall be binding on Pledgor and its successors and permitted assigns, and (b) shall inure, together with all rights and remedies of Pledgee hereunder, to the benefit
of Pledgee, Lenders, Secured Swap Providers and their respective successors, transferees and assigns. Without limiting the generality of the foregoing, Pledgee, Lenders and Secured Swap Providers may
pledge, assign or otherwise transfer any or all of their respective rights under any or all of the Obligation Documents to any other Person on the terms set forth in the Credit Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect thereof granted herein or otherwise. None of the rights or duties of Pledgor hereunder may be assigned or otherwise
transferred without the prior written consent of Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement). 



        Section 5.8.    Termination.    It is contemplated by the parties hereto that there may be times when no
Obligations are outstanding, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Obligations. Upon the
satisfaction in full of the Obligations, upon the termination or expiration of the Credit Agreement and any other Commitment of Lenders to extend credit to Pledgor, and upon written request for the
termination hereof delivered by Pledgor to Pledgee and Lenders, this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to Pledgor.
Pledgee will, upon Pledgor's request and at Pledgor's expense, (a) return to Pledgor such of the Collateral as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof, and (b) execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such
termination. 


        Section 5.9.    GOVERNING LAW.    THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA. 


        Section 5.10.    Counterparts.    This Agreement may be separately executed in any number of counterparts, all
of which when so executed shall be deemed to constitute one and the same Agreement. 


        Section 5.11.    Loan Document.    This Agreement is a "Loan Document", as defined in the Credit Agreement,
and, except as expressly provided herein to the contrary, this Agreement is subject to all provisions of the Credit Agreement governing the Loan Documents. 


[Signature
Pages to Follow] 


F-12







 

        IN
WITNESS WHEREOF, Pledgor has executed and delivered this Agreement, as of the date first above written. 



	 	 	[ELLORA ENERGY INC.] [ELLORA OIL & GAS INC.]
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	






        Each
Subsidiary hereby acknowledges and consents to the pledge of the Collateral and hereby agrees to observe and perform each and every provision of this Agreement applicable to
Subsidiary. 



	 	 	                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	





F-13







 
EXHIBIT A

PLEDGE ACKNOWLEDGEMENT 


        This
Pledge Acknowledgement, dated                        ,        is delivered pursuant to
Section 3.2(b) of the Pledge Agreement referred to below. All defined terms herein
shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. [ELLORA ENERGY INC.]
[ELLORA OIL & GAS INC.], a Delaware corporation ("Pledgor"), hereby certifies that the representations and
warranties in Article III of the Pledge Agreement are and continue to be true and correct as to the Pledged Equity pledged prior to the date of this Pledge Acknowledgment and as to the Pledged
Equity pledged pursuant to this Pledge Acknowledgment. Pledgor and [INSERT NAME OF NEW SUBSIDIARY],
a                        
("Subsidiary"), agree that this Pledge Acknowledgment may be attached to that certain Pledge Agreement, dated as
of                        , 200    ,
among Pledgor and JPMorgan Chase Bank, N.A., as administrative agent (as amended, modified or supplemented from time to time, the "Pledge Agreement")
and that the Equity of Subsidiary owned by Pledgor shall be and become a part of the Pledged Equity referred to in said Pledge Agreement and shall secure all Obligations referred to in said Pledge
Agreement. 



	 	 	[ELLORA ENERGY INC.]

[ELLORA OIL & GAS INC.],

a Delaware corporation
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	






Acknowledged
and agreed to this    day of 200    by: 



	                                        
                                          
              ,

a                                         
                               	 	 
	

 	

By:	
 	

 
	 	
	 	 
	 	Name:	 	 
	 	
	 	 
	 	Title:	 	 
	 	
	 	 




F-14








   EXHIBIT G

FORM OF SUBSIDIARY PLEDGE AGREEMENT  


        THIS PLEDGE AGREEMENT (this "Agreement") is made as
of                        ,
        by                        , a
                        (herein called "Pledgor"), in favor of JPMorgan Chase Bank,
N.A., as Administrative Agent for the ratable benefit of Lenders (as defined
below), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the Credit Agreement) (herein called
"Pledgee"). 


W I T N E S S E T H:  


        WHEREAS, Ellora Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation
("Borrowers"), JPMorgan Chase Bank, N.A., as Administrative Agent, and Lenders are parties to that certain Credit Agreement (as may be amended from time
to time, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have agreed to make loans and other extensions of credit
to Borrowers for the purposes set forth therein; and 


        WHEREAS,
pursuant to the terms of the Credit Agreement, and as a condition precedent to the loans and extensions of credit thereunder, Pledgor is required to execute and deliver to
Pledgee a pledge agreement granting to Pledgee, for the benefit of Lenders, a security interest in the Collateral (as defined herein); and 


        WHEREAS,
the [Members] [board of directors] [board of managers] of
Pledgor has determined that Pledgor's execution, delivery and performance of this Agreement may reasonably be expected to benefit Pledgor, directly or indirectly, and are in the best interests of
Pledgor. 


        NOW,
THEREFORE, in consideration of the premises and in order to induce Lenders to extend credit under the Credit Agreement, Pledgor hereby agrees with Pledgee as follows: 


ARTICLE I

Definitions and References 


        Section 1.1.    General Definitions.    As used herein, the terms defined above shall have the meanings
indicated above, and the following terms shall have the following meanings: 



        "Code" means the Uniform Commercial Code in effect in the State of Texas on the date hereof. 


        "Collateral" means all property of whatever type, in which Pledgee at any time has a security interest pursuant to Section 2.1
hereof. 


        "Commitment" means the agreement or commitment by Lenders to make loans, acquire participations in Letters of Credit or otherwise extend
credit to Borrowers under the Credit Agreement, and any other agreement, commitment, statement of terms or other document contemplating the making of loans or advances or other extension of credit by
Lenders to or for the account of Borrowers which is now or at any time hereafter intended to be secured by the Collateral under this Agreement. 


        "Equity" means shares of capital stock or a partnership, profits, capital or member interest, or options, warrants or any other right to
substitute for or otherwise acquire the capital stock or a partnership, profits, capital or member interest of each Subsidiary (as defined in Section 2.1(a) hereof). 


        "Lender" means any financial institution reflected on Annex I to the Credit Agreement and its successors and assigns, and
"Lenders" shall mean all Lenders. 



G-1







 




        "Obligation Documents" means the Credit Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security
Instruments now or hereafter executed, the other Loan Papers, and all other documents and instruments under, by reason of which, or pursuant to which, any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other agreements, certificates, and other documents, instruments and writings heretofore or hereafter delivered in connection herewith or therewith. 



        "Obligations" means all present and future indebtedness, obligations and liabilities of whatever type which are or shall be secured
pursuant to Section 2.2 hereof. 


        "Other Liable Party" means any Person, other than Pledgor, but including Borrowers and each Subsidiary, who may now or may at any time
hereafter be primarily or secondarily liable for any of the Obligations or who may now or may at any time hereafter have granted to Pledgee or Lenders a Lien upon any property as security for the
Obligations. 


        "Pledged Equity" has the meaning given it in Section 2.1(a) hereof. 




        Section 1.2.    Other Definitions.    Reference is hereby made to the Credit Agreement for a statement of the
terms thereof. All capitalized terms used in this Agreement which are defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in the Code and not otherwise defined herein or in the Credit Agreement shall have the same meanings herein as set forth in the Code, except where the
context otherwise requires. 


        Section 1.3.    Exhibits.    All exhibits attached to this Agreement are a part hereof for all purposes. 


        Section 1.4.    Amendment of Defined Instruments.    Unless the context otherwise requires or unless otherwise
provided herein, references in this Agreement to a particular agreement, instrument or document also refer to and include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document, provided that nothing contained in this Section 1.4 shall be construed to authorize any Person to execute or enter into any such
renewal, extension, amendment, modification, supplement or restatement. 


        Section 1.5.    References and Titles.    All references in this Agreement to Exhibits, Articles, Sections,
subsections, and other subdivisions refer to the Exhibits, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivision are for convenience only and do not constitute any part of any such subdivision and shall be disregarded in construing the language contained in this Agreement. The words
"this Agreement," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to the Sections or subsections hereof in which the phrase occurs. The word "or" is not exclusive, and the word "including"
(in all of its forms) means "including without limitation". Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise requires. 


ARTICLE II

Security Interest 


        Section 2.1.    Grant of Security Interest.    As collateral security for all of the Obligations, Pledgor
hereby pledges and assigns to Pledgee and grants to Pledgee a continuing security interest with at least 


G-2







 

the
priority required by Section 3.1(d)(iv) hereof for the benefit of Lenders (and any Secured Swap Provider) in and to all of the following rights, interests and property: 



        (a)   all
of the issued and outstanding Equity of                        ,
a                        and each other Subsidiary hereafter created, acquired or designated by Pledgor
(collectively, the "Subsidiaries," and each individually, a "Subsidiary") now owned or hereafter
acquired by Pledgor including, without limitation, the Equity of each Subsidiary owned by Pledgor on the date hereof (all of the foregoing being herein sometimes called the
"Pledged Equity"); 


        (b)   any
and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to,
all or any of the Pledged Equity; and 


        (c)   all
cash, securities, dividends and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of
the Pledged Equity and any other property substituted or exchanged therefor. 




        Section 2.2.    Obligations Secured.    The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, indebtedness and liabilities, whether now existing or hereafter incurred: 



        (a)    Credit Agreement Indebtedness.    The payment by Borrowers and each Guarantor as and when due and payable, of
all amounts from time to time owing by Borrowers and each such Guarantor under or in respect of the Credit Agreement, the Notes or any of the other Obligation Documents. 


        (b)    Renewals.    All renewals, extensions, amendments, modifications, supplements, or restatements of, or
substitutions for, any of the foregoing. 


        (c)    Performance.    The due performance and observance by Borrowers, Pledgor and their Subsidiaries of their
obligations from time to time existing under or in respect of any of the Obligation Documents. 


        (d)    Swap Agreements.    The payment and performance of any and all present or future obligations of Pledgor or any
of its Subsidiaries according to the terms of any Swap Agreement now existing or hereafter entered into between and/or among Pledgor, any Borrower, any of their Subsidiaries, any Pledgee, any Lender
or any affiliate of any of the foregoing (including, without limitation, any Secured Swap Provider). 



ARTICLE III

Representations, Warranties and Covenants 


        Section 3.1.    Representations and Warranties.    Pledgor represents and warrants as follows: 



        (a)    Ownership and Liens.    Pledgor has good and marketable title to the Collateral free and clear of all Liens,
encumbrances or adverse claims, except for the security interest created by this Agreement and except as provided in Section 3.1(d)(iv). No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any recording office except such as have been filed in favor of Pledgee relating to this Agreement or the other Loan Papers. 


        (b)    No Conflicts or Consents.    Neither the ownership or the intended use of the Collateral by Pledgor, nor the
grant of the security interest by Pledgor to Pledgee herein, nor the exercise by Pledgee of its rights or remedies hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles of organization, certificate of formation, certificate of incorporation, articles of incorporation, charter, bylaws, limited liability
company 



G-3







 




agreement
or other organizational document of any Subsidiary, or (c) any agreement, judgment, license, order or permit applicable to or binding upon Pledgor or any Subsidiary; or
(ii) result in or require the creation of any Lien, charge or encumbrance upon any assets or properties of Pledgor except as expressly contemplated in the Obligation Documents. Except as
expressly contemplated in the Obligation Documents, no consent, approval, authorization or order of, and no notice to or filing with, any court, Governmental Authority, any Subsidiary, or third party
is required in connection with the grant by Pledgor of the security interest herein, or, except as may be required under the Code, the exercise by Pledgee of its rights and remedies hereunder. 


        (c)    Security Interest.    Pledgor has and will have at all times full right, power and authority to grant a
security interest in the Collateral to Pledgee in the manner provided herein, free and clear of any Lien, adverse claim, or encumbrance (except as provided in Section 3.1(d)(iv)). This
Agreement creates a valid and binding security interest in favor of Pledgee in the Collateral securing the Obligations. The taking possession by Pledgee (for the ratable benefit of Lenders) of all
certificates, instruments and cash constituting Collateral from time to time, together with appropriate stock powers, and the filing of the financing statements delivered concurrently herewith by
Pledgor to Pledgee will perfect, and establish the priority required by Section 3.1(d)(iv) of, Pledgee's security interest hereunder in the Collateral securing the Obligations. No further or
subsequent filing, recording, registration, other public notice or other action is necessary or desirable to perfect or otherwise continue, preserve or protect such security interest except for
continuation statements or filings as contemplated in Section 3.3(b) or otherwise by the Code. 


        (d)    Pledged Equity.    (i) Pledgor is the legal and beneficial owner of the Pledged Equity; (ii) the
Pledged Equity is duly authorized and issued, fully paid and non-assessable (as applicable), and all documentary, stamp or other Taxes or fees owing in connection with the issuance,
transfer and/or pledge thereof hereunder have been paid; (iii) no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Equity; (iv) the
Pledged Equity is free and clear of all Liens, options, warrants, puts, calls or other rights of third Persons, and restrictions, other than (A) those Liens arising under this Agreement or any
other of the Loan Papers, (B) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by
appropriate action, as required by Section 8.04 of the Credit Agreement, and (C) restrictions on transferability imposed by applicable state and federal securities laws;
(v) Pledgor has full right and authority to pledge the Pledged Equity for the purposes and upon the terms set out herein; (vi) certificates (as applicable) representing the Pledged
Equity have been delivered to Pledgee, together with a duly executed blank stock power for each certificate; and (vii) no Subsidiary has issued, and there are not outstanding, any options,
warrants or other rights to acquire Equity of any Subsidiary. 




        Section 3.2.    Affirmative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at
all times comply with the covenants contained in this Section 3.2 from the date hereof and so long as any part of the Obligations or Commitments is outstanding. 



        (a)    Ownership and Liens.    Pledgor will maintain good and marketable title to all Collateral free and clear of all
Liens, encumbrances or adverse claims, except for (i) the security interest created by this Agreement, (ii) those provided in Section 3.1(d)(iv), and (iii) the security
interests and other encumbrances expressly permitted by the Credit Agreement. Pledgor will cause to be terminated any financing statement or other registration with respect to the Collateral, except
such as may exist or as may have been filed in favor of Pledgee. Pledgor will defend Pledgee's security interest in and to the Collateral against the claims of any Person. 



        (b)    Further Assurances.    Pledgor will at any time and from time to time promptly execute and deliver all further
instruments and documents and take all further action that may be 



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necessary
or desirable or that Pledgee may request in order (i) to perfect and protect the security interest created or purported to be created hereby and the priority required by
Section 3.1(d)(iv) of such security interest; (ii) to enable Pledgee to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to
otherwise effect the purposes of this Agreement, including: (A) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that
Pledgee may request in order to perfect and preserve the security interest created or purported to be created hereby, and (B) furnishing to Pledgee from time to time statements and schedules
further identifying and describing the Collateral and such other reports in connection with the Collateral as Pledgee may reasonably request, all in reasonable detail. Upon the creation or acquisition
by Pledgor of any Subsidiary, Pledgor and such Subsidiary shall execute an acknowledgement to this Agreement substantially in the form of  Exhibit A hereto promptly following the acquisition or
creation by Pledgor of such Subsidiary, which confirms that the Equity of such Subsidiary
shall be included within the definition of Pledged Equity hereunder. 


        (c)    Delivery of Pledged Equity.    All certificates, instruments and writings evidencing the Pledged Equity shall
be delivered to Pledgee on or prior to the execution and delivery of this Agreement. All certificates, instruments and writings hereafter evidencing or constituting Pledged Equity shall be delivered
to Pledgee promptly upon the receipt thereof by or on behalf of Pledgor. All Pledged Equity shall be held by or on behalf of Pledgee pursuant hereto and shall be delivered in the same manner and with
the same effect as described in Section 2.1 hereof and Section 3.1 hereof. Upon delivery, such Equity shall thereupon constitute "Pledged Equity" and shall be subject to the Liens herein
created, for the purposes and upon the terms and conditions set forth in this Agreement and the other Loan Papers. 


        (d)    Proceeds of Pledged Equity.    If Pledgor shall receive, by virtue of its being or having been an owner of any
Pledged Equity, any (i) Equity (including any certificate representing any Equity or distribution in connection with any increase or reduction of capital, reorganization, reclassification,
merger, consolidation, sale of assets, or spinoff or split-off), promissory note or other instrument or writing; (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Equity or otherwise; (iii) dividends or other distributions payable in cash (except such dividends or other distributions permitted to be retained by Pledgor
pursuant to Section 4.7 hereof) or in securities or other property; or (iv) dividends or other distributions in connection with (A) a partial or total liquidation or dissolution
or (B) a reduction of capital, capital surplus or paid-in surplus, Pledgor shall receive the same in trust for the benefit of Pledgee, shall segregate it from Pledgor's other
property, and shall promptly deliver it to Pledgee in the exact form received, with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 



        (e)    Status of Pledged Equity.    The certificates evidencing the Pledged Equity (as applicable) shall at all times
be valid and genuine and shall not be altered. The Pledged Equity at all times shall be duly authorized, validly issued, fully paid, and non-assessable (as applicable), shall not be
issued in violation of the pre-emptive rights of any Person or of any agreement by which Pledgor or any Subsidiary is bound, and, except for the bylaws or other organizational documents of
any Subsidiary, shall not be subject to any restrictions or conditions with respect to the transfer, voting or capital of any Pledged Equity. 




        Section 3.3.    Negative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at all
times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Obligations or the Commitments is outstanding. 


        (a)    Transfer or Encumbrance.    Pledgor will not sell, assign (by operation of law or otherwise), transfer,
exchange, lease or otherwise dispose of any of the Collateral, nor will Pledgor grant a Lien 


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upon
or execute, file or record any financing statement or other registration with respect to the Collateral (other than the security interests created by this Agreement), nor will Pledgor allow any
such Lien, financing statement, or other registration to exist or deliver actual or constructive possession of the Collateral to any other Person other than Liens in favor of Pledgee and those
provided in Section 3.1(d)(iv). Notwithstanding the foregoing, so long as no Default or Event of Default exists, Pledgor may transfer, exchange or otherwise dispose of Pledged Equity in
connection with a merger or consolidation permitted by Section 9.11 of the Credit Agreement. Upon any such merger or consolidation, Pledgee will, upon Pledgor's request and at Pledgor's
expense, promptly (a) release its security interest in the Collateral that is being transferred, exchanged or disposed of in connection with such merger or consolidation, (b) return to
Pledgor such of the Collateral that is being transferred, exchanged or disposed of in connection with such merger or consolidation, and (c) execute and deliver to Pledgor such documents as
Pledgor may reasonably request to evidence Pledgee's release of its security interest in such Collateral. 


        (b)    Financing Statement Filings.    Pledgor recognizes that financing statements pertaining to the Collateral have
been or may be filed in the jurisdiction of Pledgor's organization, where Pledgor maintains any Collateral, has its records concerning any Collateral, has its chief executive office or chief place of
business, or has its principal place of residence. Without limitation of any other covenant herein, Pledgor will not cause or permit any change to be made in its name, identity, corporate structure or
jurisdiction of organization, or any change to be made to a jurisdiction other than as represented in the Credit Agreement in (i) the location of any records concerning any Collateral, or
(ii) the location of its chief executive office, chief place of business or principal place of residence, unless Pledgor shall have notified Pledgee of such change at least fifteen
(15) days prior to the effective date of such change, and shall have first taken all action reasonably required by Pledgee for the purpose of further perfecting or protecting the security
interest in favor of Pledgee in the Collateral. In any notice furnished pursuant to this subsection, Pledgor will expressly state that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other notices for the purposes of continuing perfection of Pledgee's security interest in the Collateral. 


        (c)    Impairment of Security Interest.    Pledgor will not take or fail to take any action which would in any manner
impair the enforceability of Pledgee's security interest in any Collateral. 



        (d)    Restrictions on Pledged Equity.    Except for the bylaws or other charter or organizational documents of any
Subsidiary, Pledgor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Equity. 


ARTICLE IV

Remedies, Powers and Authorizations 


        Section 4.1.    Provisions Concerning the Collateral.    



        (a)    Additional Financing Statement Filings.    Pledgor hereby authorizes Pledgee to file, without the signature of
Pledgor where permitted by law, one (1) or more financing or continuation statements, and amendments thereto, relating to the Collateral. 


        (b)    Power of Attorney.    Pledgor hereby irrevocably appoints Pledgee as Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time if an Event of Default shall have
occurred and be continuing, in Pledgee's discretion, to take any action (except for the exercise of any voting rights pertaining to the Pledged Equity or any part thereof) and to execute any
instrument, certificate or notice which Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement including: (i) to request or instruct Pledgor or any Subsidiary (and
each registrar, transfer agent, or similar Person acting on behalf of Pledgor or any Subsidiary) to register the Pledged Equity or transfer the Collateral to Pledgee; 


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(ii) to
otherwise give notification to Pledgor, any Subsidiary, registrar, transfer agent, financial intermediary, or other Person of Pledgee's security interests hereunder; (iii) to
ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iv) to receive,
indorse and collect any drafts or other instruments, documents and chattel paper; and (v) to file any claims or take any action or institute any proceedings which Pledgee may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce the rights of Pledgee with respect to any of the Collateral. 


        (c)    Performance by Pledgee.    If Pledgor fails to perform any agreement or obligation contained herein, Pledgee
may itself perform, or cause performance of, such agreement or obligation, and the expenses of Pledgee incurred in connection therewith shall be payable by Pledgor under Section 4.4 hereof. 


        (d)    Collection Rights.    Pledgee shall have the right at any time, if an Event of Default shall have occurred and
be continuing, to notify any or all obligors (including any and all Subsidiaries) under any accounts or general intangibles included among the Collateral of the assignment thereof to Pledgee and to
direct such obligors to make payment of all amounts due or to become due to Pledgor thereunder directly to Pledgee and, upon such notification and at the expense of Pledgor or Borrowers and to the
extent permitted by law, to enforce collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Pledgor could have done. After
Pledgor receives notice that Pledgee has given any notice referred to above in this subsection, (i) all amounts and proceeds (including instruments and writings) received by Pledgor in respect
of such accounts or general intangibles shall be received in trust for the benefit of Pledgee hereunder, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Pledgee in
the same form as so received (with any necessary endorsement) to be held as cash collateral and (A) released to Pledgor upon the remedy of all Events of Default, or (B) if any Event of
Default shall have occurred and be continuing, applied as specified in Section 4.3 hereof; and (ii) Pledgor will not adjust, settle or compromise the amount or payment of any such
account or general intangible or release wholly or partly any account debtor or obligor thereof (including Borrowers) or allow any credit or discount thereon. 


        Section 4.2.    Event of Default Remedies.    If an Event of Default shall have occurred and be continuing,
Pledgee may from time to time in its discretion, without limitation and without notice except as expressly provided below: 



        (a)   exercise
in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Obligation Documents or otherwise available to it,
all the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral); 


        (b)   require
Pledgor to, and Pledgor hereby agrees that it will upon request of Pledgee forthwith, assemble all or part of the Collateral as directed by Pledgee and make it
available to Pledgee at a place to be designated by Pledgee which is reasonably convenient to both parties; 


        (c)   reduce
its claim to judgment against Pledgor or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial
procedure; 


        (d)   dispose
of, at its office, on the premises of Pledgor or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by
way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Pledgee's power of sale, but sales may be made from time to time, and at any time, until all
of the Collateral has been sold or until the
Obligations have been paid and performed in full), and at any such sale it shall not be necessary to exhibit any of the Collateral; 


        (e)   buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any public sale; 



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        (f)    buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is of
a type which is the subject of widely distributed standard price quotations; and 



        (g)   apply
by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment. 




        Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Pledgee may
adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so
adjourned. 


        Section 4.3.    Application of Proceeds.    If any Event of Default shall have occurred and be continuing,
Pledgee may in its discretion apply any cash held by Pledgee as Collateral, and any cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization upon all or any
part of the Collateral, in the order and manner contemplated by Article IV of the Credit Agreement. 


        Section 4.4.    Release and Expenses.    In addition to, and not in qualification of, any similar obligations
under other Obligation Documents: 



        (a)   Pledgor
agrees to release and forever discharge Pledgee and each Lender from and against any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including enforcement of this Agreement), except to the extent such claim, loss or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to
have resulted from such person's gross negligence or willful misconduct. The foregoing release and discharge shall apply whether or not such claims, losses and liabilities are in any way or to any
extent owed, in whole or in part, under any claim or theory of strict liability or are, to any extent caused, in whole or in part, by
any negligent (but not grossly negligent or willful as found in a final, non-appealable judgment by a court of competent jurisdiction) act or omission of any kind by Pledgee or any Lender. 


        (b)   Borrowers
or Pledgor will upon demand pay to Pledgee the amount of any and all costs and expenses, including the reasonable fees and disbursements of Pledgee's counsel
and of any experts and agents, which Pledgee may incur in connection with (i) the transactions which give rise to this Agreement; (ii) the preparation of this Agreement and the
perfection and preservation of the security interest created under this Agreement; (iii) the administration of this Agreement; (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Collateral; (v) the exercise or enforcement of any of the rights of Pledgee hereunder; or (vi) the failure by Pledgor to perform
or observe any of the provisions hereof, except expenses resulting from Pledgee's gross negligence or willful misconduct. 




        Section 4.5.    Non-Judicial Remedies.    In granting to Pledgee the power to enforce its rights
hereunder without prior judicial process or judicial hearing, Pledgor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Pledgee to enforce its rights
by judicial process. In so providing for non-judicial remedies, Pledgor recognizes and concedes that such remedies are consistent with the usage of trade, are responsive to commercial
necessity, and are the result of a bargain at arm's length. Nothing herein is intended to prevent Pledgee or Pledgor from resorting to judicial process at either party's option. 


        Section 4.6.    Other Recourse.    Pledgor waives any right to require Pledgee or Lenders to proceed against
any other Person, exhaust any Collateral or other security for the Obligations, or to have any Other Liable Party joined with Pledgor in any suit arising out of the Obligations or this Agreement, or 


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pursue
any other remedy in Pledgee's power. Pledgor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Obligations from time to time. Pledgor further waives any defense arising by reason of any disability or other defense of any Other Liable Party or by reason of the cessation from
any cause whatsoever of the liability of any Other Liable Party. Until all of the Obligations shall have been paid in full, Pledgor shall have no right to subrogation and Pledgor waives the right to
enforce any remedy which Pledgee or any Lender has or may hereafter have against any Other Liable Party, and waives any benefit of and any right to participate in any other security whatsoever now or
hereafter held by Pledgee. Pledgor authorizes Pledgee and each Lender, without notice or demand and without any reservation of rights against Pledgor and without affecting Pledgor's liability
hereunder or on the Obligations, from time to time to (a) take or hold any other property of any type from any other Person as security for the Obligations, and exchange, enforce, waive and
release any or all of such other property; (b) renew, extend for any period, accelerate, modify, compromise, settle or release any of the obligations of any Other Liable Party in respect to any
or all of the Obligations or other security for the Obligations; (c) waive, enforce, modify, amend or supplement any of the provisions of any Obligation Document with any Person other than
Pledgor; and (d) release or substitute any Other Liable Party. 


        Section 4.7.    Voting Rights, Dividends Etc. in Respect of Pledged Equity.    


        (a)   So
long as no Event of Default shall have occurred and be continuing Pledgor may receive and retain any and all dividends, distributions or interest paid in respect of
the Pledged Equity; provided, however, that any and all dividends, distributions and interest paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Equity, shall be, and shall forthwith be delivered to Pledgee to hold as,
Pledged Equity and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Pledgee in
the exact form received with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 


        (b)   If
an Event of Default shall have occurred and be continuing: 



          (i)  all
rights of Pledgor to receive and retain the dividends, distributions and interest payments which Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a) of this Section 4.7 shall automatically cease, and all such rights shall thereupon become vested in Pledgee which shall thereupon have the right to receive and
hold as Pledged Equity such dividends, distributions and interest payments; 


         (ii)  without
limiting the generality of the foregoing, Pledgee may at its option exercise any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Equity (except voting rights) as if it were the absolute owner thereof, including the right to exchange, in its discretion, any and all of the
Pledged Equity upon the merger, consolidation, reorganization, recapitalization or other adjustment of Pledgor or any Subsidiary, or upon the exercise by Pledgor or any Subsidiary of any right,
privilege or option pertaining to any Pledged Equity, and, in connection therewith, to deposit and deliver any and all of the Pledged Equity with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as it may determine; and 


        (iii)  all
dividends and interest payments which are received by Pledgor contrary to the provisions of subsection (b) (i) of this Section 4.7 shall be received
in trust for the benefit of Pledgee, shall be segregated from other funds of Pledgor, and shall be forthwith paid over to Pledgee as Pledged Equity in the exact form received, to be held by Pledgee as
Collateral. 



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Anything
herein to the contrary notwithstanding, Pledgee may not exercise any voting rights pertaining to the Pledged Equity, and Pledgor may at all times exercise any and all voting rights pertaining
to the Pledged Equity or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Obligation Document; provided,
however, if an Event of Default shall have occurred and be continuing, Pledgor will not exercise or refrain from exercising any such right, as the case may be, if Pledgee gives
notice that, in Pledgee's judgment, such action would cause a Material Adverse Effect with respect to the value of the Pledged Equity or the benefits to Pledgee of its security interest hereunder. 


        Section 4.8.    Private Sale of Pledged Equity.    Pledgor recognizes that Pledgee may deem it impracticable to
effect a public sale of all or any part of the Pledged Equity and that Pledgee may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that Pledgee shall have no obligation to delay the sale of any such securities for
the period of time necessary to permit Pledgor or any Subsidiary to register such securities (with no obligation of either Pledgor or any Subsidiary to accomplish such registration) for public sale
under the Securities Act of 1933, as amended (the "Securities Act"). Pledgor further acknowledges and agrees that any offer to sell such securities
which has been (a) publicly advertised on a bona fide basis in The Wall Street Journal,
national edition (to the extent that such an offer may be so advertised without prior registration under the Securities Act), or (b) made privately in the manner described above to not less
than fifteen (15) bona fide offerees shall be deemed to involve a "public disposition" for the purposes of Section 9.610 of the
Code (or any successor or similar, applicable statutory provision) as then in effect in the State of Texas, notwithstanding that such sale may not constitute a "public offering" under the Securities
Act, and that Pledgee may, in such event, bid for the purchase of such securities. 


        Section 4.9.    Limitation on Rights and Waivers.    All rights, powers and remedies herein conferred shall be
exercisable by Pledgee only to the extent not prohibited by applicable law; and all waivers and relinquishments of rights and similar matters shall only be effective to the extent such waivers or
relinquishments are not prohibited by applicable law. 


ARTICLE V

Miscellaneous 


        Section 5.1.    Notices.    Any notice or communication required or permitted hereunder shall be given in
writing, sent by personal delivery, by telecopy, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, addressed to the appropriate party as
follows: 



	To Pledgor:	 	c/o Ellora Energy Inc.

5480 Valmont

Suite 350

Boulder, Colorado 80301

Attn: James R. Casperson

Fax No.: (303) 417-1000
	 	 	 




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To Pledgee:	
 	

JPMorgan Chase Bank, N.A., as Administrative Agent for Lenders

1717 Main Street, 4th Floor

Mail Code TX1-2448

Dallas, Texas 75201

Attn: J. Scott Fowler

Fax No.: (214) 290-2332








or
to such other address or to the attention of such other individual as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication
shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address or in the manner provided herein,
(b) in the case of telecopy, upon receipt with confirmation (if sent before 4:00 p.m. local time of the receiving party on a Business Day) or the next Business Day (if sent after
4:00 p.m. of such local time or sent on a day that is not a Business Day), or (c) in the case of registered or certified United States mail, three (3) Business Days after deposit
in the mail. 


        Section 5.2.    Amendments.    No amendment of any provision of this Agreement shall be effective unless it is
in writing and signed by Pledgor, Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement), and no waiver of any provision of this Agreement, and no
consent to any departure by Pledgor therefrom, shall be effective unless it is in writing and signed by Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit
Agreement), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing. 



        Section 5.3.    Preservation of Rights.    No failure on the part of Pledgee or any Lender to exercise, and no
delay in exercising, any right hereunder or under any other Obligation Document 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. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Obligations. The
rights and remedies of Pledgee and Lenders provided herein and in the other Obligation Documents are cumulative of and are in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of Pledgee and Lenders under any Obligation Document against any party thereto are not conditional or contingent on any attempt by Pledgee or Lenders to exercise any of its or their rights
under any other Obligation Document against such party or against any other Person. 


        Section 5.4.    Unenforceability.    Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction. 



        Section 5.5.    Survival of Agreements.    All representations and warranties of Pledgor herein, and all
covenants and agreements herein shall survive the execution and delivery of this Agreement, the execution and delivery of any other Obligation Documents and the creation of the Obligations. 


        Section 5.6.    Other Liable Party.    Neither this Agreement nor the exercise by Pledgee or any Lender or the
failure of Pledgee or any Lender to exercise any right, power or remedy conferred herein or by law shall be construed as relieving any Other Liable Party from liability on the Obligations or any
deficiency thereon. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased or irrespective of the validity or enforceability of any other
Obligation Document to which Pledgor or any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any Other Liable Party. 


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        Section 5.7.    Binding Effect and Assignment.    This Agreement creates a continuing security interest in the
Collateral and (a) shall be binding on Pledgor and its successors and permitted assigns, and (b) shall inure, together with all rights and remedies of Pledgee hereunder, to the benefit
of Pledgee, Lenders, Secured Swap Providers and their respective successors, transferees and assigns. Without limiting the generality of the foregoing, Pledgee, Lenders and Secured Swap Providers may
pledge, assign or otherwise transfer any or all of their respective rights under any or all of the Obligation Documents to any other Person on the terms set forth in the Credit Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect thereof granted herein or otherwise. None of the rights or duties of Pledgor hereunder may be assigned or otherwise
transferred without the prior
written consent of Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement). 


        Section 5.8.    Termination.    It is contemplated by the parties hereto that there may be times when no
Obligations are outstanding, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Obligations. Upon the
satisfaction in full of the Obligations, upon the termination or expiration of the Credit Agreement and any other Commitment of Lenders to extend credit to Borrowers, and upon written request for the
termination hereof delivered by Pledgor to Pledgee and Lenders, this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to Pledgor.
Pledgee will, upon Pledgor's request and at Pledgor's expense, (a) return to Pledgor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms
hereof, and (b) execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination. 


        Section 5.9.    GOVERNING LAW.    THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA. 


        Section 5.10.    Counterparts.    This Agreement may be separately executed in any number of counterparts, all
of which when so executed shall be deemed to constitute one and the same Agreement. 


        Section 5.11.    Loan Paper.    This Agreement is a "Loan Paper", as defined in the Credit Agreement, and,
except as expressly provided herein to the contrary, this Agreement is subject to all provisions of the Credit Agreement governing the Loan Papers. 


[Signature
Pages to Follow] 


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        IN
WITNESS WHEREOF, Pledgor has executed and delivered this Agreement, as of the date first above written. 



	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	

	 	 	Name:	 	 
	 	 	 	

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        Each
Subsidiary hereby acknowledges and consents to the pledge of the Collateral and hereby agrees to observe and perform each and every provision of this Agreement applicable to
Subsidiary. 



	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

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EXHIBIT A

PLEDGE ACKNOWLEDGEMENT 


        This
Pledge Acknowledgement, dated                        ,        is delivered pursuant to
Section 3.2(b) of the Pledge Agreement referred to below. All defined terms herein
shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement.                        ,
a                        ("Pledgor"), hereby
certifies that the representations and warranties in Article III of the Pledge Agreement are and continue to be true and correct as to the Pledged Equity pledged prior to the date of this
Pledge Acknowledgment and as to the Pledged Equity pledged pursuant to this Pledge Acknowledgment. Pledgor and [INSERT NAME OF NEW
SUBSIDIARY], a                        ("Subsidiary"), agree
that this Pledge Acknowledgment may be attached to that certain
Pledge Agreement, dated as of                        , 200  , among Pledgor and JPMorgan Chase Bank, N.A., as
administrative agent (as amended, modified or supplemented from time to time, the
"Pledge Agreement") and that the Equity of Subsidiary owned by Pledgor shall be and become a part of the Pledged Equity referred to in said Pledge
Agreement and shall secure all Obligations referred to in said Pledge Agreement. 



	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	






Acknowledged
and agreed to this    day of 200  by: 



	 	 	 	 
	
	,	 
	a	 	 	 
	 	
	 
	

By:	

 	

 	

 
	 	
	 
	Name:	 	 	 
	 	
	 
	Title:	 	 	 
	 	
	 




G-14








   EXHIBIT H

FORM OF GUARANTY AGREEMENT  


        THIS GUARANTY AGREEMENT (this "Guaranty") is dated as of the            day
of                        ,
        , by [Subsidiary],
a                        ("Guarantor"), in favor of
JPMORGAN CHASE BANK, N.A., each of the other financial institutions from time to time listed on Annex I to the Credit Agreement (as hereinafter defined) as Lenders (as defined in the Credit
Agreement), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the Credit Agreement), and each of their successors and assigns as
permitted pursuant to the Credit Agreement (Lenders, any Secured Swap Provider, and each of their successors and assigns are collectively referred to herein as
"Beneficiaries"). 


W I T N E S S E T H:  


        WHEREAS, Ellora Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation
("Borrowers"), Lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent ("Administrative Agent")
are parties to that certain Credit Agreement (as amended, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have
made a revolving credit loan to Borrowers (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit
Agreement); and 


        WHEREAS,
Lenders have required, as a condition to extending credit under the Credit Agreement, that Guarantor execute and deliver this Guaranty; and 



        WHEREAS,
Guarantor has determined that valuable benefits will be derived by it as a result of the Credit Agreement and the extension of credit made (and to be made) by Lenders
thereunder; and 


        WHEREAS,
Guarantor has further determined that the benefits accruing to it from the Credit Agreement exceed Guarantor's anticipated liability under this Guaranty. 


        NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Guarantor hereby covenants and agrees as follows: 



        1.     Guarantor
hereby absolutely and unconditionally guarantees the prompt, complete and full payment when due, no matter how such shall become due, of the Indebtedness, and
further guarantees that Borrowers will properly and timely perform the Indebtedness and other obligations and liabilities of Borrowers under the Credit Agreement, Notes and other Loan Documents.
Notwithstanding any contrary provision in this Guaranty, however, Guarantor's maximum liability under this Guaranty is limited, to the extent, if any, required so that its liability is not subject to
avoidance under applicable Debtor Relief Laws (as such term is defined in Paragraph 8 hereof). 



        2.     If
Guarantor is or becomes liable for any indebtedness owing by Borrowers to any Beneficiary by endorsement or otherwise than under this Guaranty, such liability shall
not be in any manner impaired or affected hereby, and the rights of Beneficiaries hereunder shall be cumulative of any and all other rights that Beneficiaries may ever have against Guarantor. The
exercise by any Beneficiary of any right or remedy hereunder or under any other instrument, at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 


        3.     In
the event of default by Borrowers in payment of the Indebtedness, or any part thereof, when such Indebtedness become due, either by its terms or as the result of the
exercise of any power to accelerate, Guarantor shall, on demand, and without further notice of dishonor and without any notice having been given to Guarantor previous to such demand of the acceptance
by Beneficiaries of this Guaranty, and without any notice having been given to such Guarantor previous to such demand of the creating or incurring of such Indebtedness, pay the amount due 



H-1







 




thereon
to Beneficiaries at Administrative Agent's office as set forth in the Credit Agreement, and it shall not be necessary for any Beneficiary, in order to enforce such payment by Guarantor, first,
to institute suit or exhaust its remedies against any Borrower or others liable on such Indebtedness, to have any Borrower joined with Guarantor in any suit brought under this Guaranty or to enforce
its rights against any security which shall ever have been given to secure such indebtedness; provided, however, that in the event any Beneficiary
elects to enforce and/or exercise any remedies it may possess with respect to any security for the Indebtedness prior to demanding payment from Guarantor, Guarantor shall nevertheless be obligated
hereunder for any and all sums still owing to Beneficiaries on the Indebtedness and not repaid or recovered incident to the exercise of such remedies. 



        4.     Notice
to Guarantor of the acceptance of this Guaranty and of the making, renewing or assignment of the Indebtedness and each item thereof, are hereby expressly waived by
Guarantor. 


        5.     Each
payment on the Indebtedness shall be deemed to have been made by Borrowers unless express written notice is given to Lenders at the time of such payment that such
payment is made by Guarantor as specified in such notice. 


        6.     If
all or any part of the Indebtedness at any time is secured, Guarantor agrees that Administrative Agent and/or Lenders may at any time and from time to time, at their
discretion and with or without valuable consideration, allow substitution or withdrawal of collateral or other security and release collateral or other security or compromise or settle any amount due
or owing under the Credit Agreement or amend or modify in whole or in part the Credit Agreement or any Loan Document executed in connection with same without impairing or diminishing the Indebtedness
of Guarantor hereunder. Guarantor further agrees that if any Borrower executes in favor of any Beneficiary any collateral agreement, mortgage or other security instrument, the exercise by any
Beneficiary of any right or remedy thereby conferred on such Beneficiary shall be wholly discretionary with such Beneficiary, and that the exercise or failure to exercise any such right or remedy
shall in no way impair or diminish the obligation of Guarantor hereunder. Guarantor further agrees that Beneficiaries and Administrative Agent shall not be liable for their failure to use diligence in
the collection of the Indebtedness or in preserving the liability of any person liable for the Indebtedness, and Guarantor hereby waives presentment for payment, notice of nonpayment, protest and
notice thereof (including, notice of acceleration), and diligence in bringing suits against any Person liable on the Indebtedness, or any part thereof. 


        7.     Guarantor
agrees that Beneficiaries, in their discretion, may (i) bring suit against all guarantors (including, without limitation, Guarantor hereunder) of the
Indebtedness jointly and severally or against any one or more of them, (ii) compound or settle with any one or more of such guarantors for such consideration as Beneficiaries may deem proper,
and (iii) release one or more of such guarantors from liability hereunder, and that no such action shall impair the rights of Beneficiaries to collect the Indebtedness (or the unpaid balance
thereof) from other such guarantors of the Indebtedness, or any of them, not so sued, settled with or released. Guarantor agrees, however, that nothing contained in this paragraph, and no action by
Beneficiaries permitted under this paragraph, shall in any way affect or impair the rights or Indebtedness of such guarantors among themselves. 


        8.     Guarantor
represents and warrants to each Lender that (i) Guarantor is a corporation, limited liability company or partnership duly organized and validly existing
under the laws of the jurisdiction of its incorporation or formation; (ii) Guarantor possesses all requisite authority and power to authorize, execute, deliver and comply with the terms of this
Guaranty; (iii) this Guaranty has been duly authorized and approved by all necessary action on the part of Guarantor and constitutes a valid and binding obligation of Guarantor enforceable in
accordance with its terms, except as (a) the enforcement thereof may be limited by applicable Debtor Relief Laws, and 



H-2







 




(b) the
availability of equitable remedies may be limited by equitable principles of general applicability; and (iv) no approval or consent of any court or governmental entity is
required for the authorization, execution, delivery or compliance with this Guaranty which has not been obtained (and copies thereof delivered to Lenders). As used in this Guaranty, the term
"Debtor Relief Laws" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. 


        9.     Guarantor
covenants and agrees that until the Indebtedness is paid and performed in full, except as otherwise provided in the Credit Agreement or unless Lenders give
their prior written consent to any deviation therefrom, it will (i) at all times maintain its existence and authority to transact business in any state or jurisdiction where Guarantor has
assets and operations, except where the failure to maintain such existence or authority would not have a Material Adverse Effect, (ii) promptly deliver to Lenders and to Administrative Agent
such information respecting its business affairs, assets and liabilities as Lenders may reasonably request, and (iii) duly and punctually observe and perform all covenants applicable to
Guarantor under the Credit Agreement and the other Loan Documents. 


        10.   This
Guaranty is for the benefit of Lenders, Secured Swap Providers, their successors and assigns, and in the event of an assignment by Lenders or Secured Swap Providers
(or their successors or assigns) of the Indebtedness, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Indebtedness so assigned, may be transferred with such
Indebtedness. This Guaranty is binding upon Guarantor and its successors and assigns. 


        11.   No
modification, consent, amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same
shall be in writing and signed by the Required Lenders (or all Lenders if required pursuant to the Credit Agreement), and then shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand in similar or other circumstances. No delay or omission by
Lenders in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any
such power preclude other or further exercise thereof, or the exercise of any other right or power hereunder. All rights and remedies of Lenders hereunder are cumulative of each other and of every
other right or remedy which Lenders may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies. 


        12.   No
provision herein or in any promissory note, instrument or any other Loan Document executed by any Borrower or Guarantor evidencing the Indebtedness shall require the
payment or permit the collection of interest in excess of the Highest Lawful Rate. If any excess of interest in such respect is provided for herein or in any such promissory note, instrument, or any
other Loan Document, the provisions of this paragraph shall govern, and neither any Borrower nor Guarantor shall be obligated to pay the amount of such interest to the extent that it is in excess of
the amount permitted by law. The intention of the parties being to conform strictly to any applicable federal or state usury laws now in force, all promissory notes, instruments and other Loan
Documents executed by any Borrower or Guarantor evidencing the Indebtedness shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts
having jurisdiction. 



H-3







 




        13.   If
Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay Beneficiaries all costs and expenses (including court costs and
reasonable attorneys fees) incurred by Beneficiaries in the enforcement hereof. 


        14.   (a)    The
liability of Guarantor under this Guaranty shall in no manner be impaired, affected or released by the insolvency, bankruptcy, making of an
assignment for the benefit of creditors, arrangement, compensation, composition or readjustment of any Borrower, or any proceedings affecting the status, existence or assets of any Borrower or other
similar proceedings instituted by or against any Borrower and affecting the assets of any Borrower. 



        (b)   Guarantor
acknowledges and agrees that any interest on any portion of the Indebtedness which accrues after the commencement of any proceeding referred to in
clause (a) above (or, if interest on any portion of the Indebtedness ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued
on such portion of the Indebtedness if said proceedings had not been commenced) shall be included in the Indebtedness because it is the intention of Guarantor, Administrative Agent and Lenders that
the Indebtedness which is guaranteed by Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve any Borrower of any portion of such
Indebtedness. Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Beneficiaries or Administrative Agent, or
allow the claim of Beneficiaries or Administrative Agent in respect of, any such interest accruing after the date on which such proceeding is commenced. 


        (c)   In
the event that all or any portion of the Indebtedness is paid by any Borrower, the obligations of Guarantor hereunder shall continue and remain in full force and
effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from Administrative Agent or any Beneficiary as a
preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Indebtedness for all purposes under this Guaranty. 




        15.   Guarantor
understands and agrees that any amounts of Guarantor on account with any Lender may, if an Event of Default shall have occurred and be continuing, be offset to
satisfy the obligations of Guarantor hereunder. 


        16.   Guarantor
hereby subordinates and makes inferior any and all indebtedness now or at any time hereafter owed by any Borrower to Guarantor to the Indebtedness evidenced by
the Credit Agreement and agrees if an Event of Default shall have occurred and be continuing, not to permit any Borrower to repay, or to accept payment from any Borrower of, such indebtedness or any
part thereof without the prior written consent of Lenders. 


        17.   During
the period that Lenders have any commitment to lend under the Loan Documents, or any amount payable under any Note remains unpaid, and throughout any additional
preferential period subsequent thereto, Guarantor hereby waives any and all rights of subrogation to which Guarantor may otherwise be entitled against any Borrower, or any other guarantor of the
Indebtedness, as a result of any payment made by Guarantor pursuant to this Guaranty. 



        18.   As
of the date hereof, the fair saleable value of the property of Guarantor is greater than the total amount of liabilities (including contingent and unliquidated
liabilities) of Guarantor, and Guarantor is able to pay all of its liabilities as such liabilities mature and Guarantor does not have unreasonably small capital within the meaning of
Section 548, Title 11, United States Code, as amended. In computing the amount of contingent or liquidated liabilities, such liabilities have been computed at the amount which, in light of all
the facts and circumstances existing as of the date 



H-4







 




hereof,
represents the amount that can reasonably be expected to become an actual or matured liability. 


        19.   If
any provision of this Guaranty is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, this Guaranty shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part
of this Guaranty a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 


        20.   (a)    Except
to the extent required for the exercise of the remedies provided in the other security instruments, Guarantor hereby irrevocably submits to the
nonexclusive jurisdiction of any Texas state or federal court over any action or proceeding arising out of or relating to this Guaranty or any other
Loan Document, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas state or federal court. Guarantor hereby
irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any Litigation arising out of or in connection with this Guaranty
or any of the Loan Documents brought in district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Guarantor hereby
irrevocably waives any claim that any Litigation brought in any such court has been brought in an inconvenient forum. Guarantor hereby irrevocably consents to the service of process out of any of the
aforementioned courts in any such Litigation by the delivery of copies thereof by Federal Express or other nationally recognized overnight delivery service, to Guarantor's office c/o Ellora
Energy Inc., at 5480 Valmont, Suite 350, Boulder, Colorado 80301, Attn: James R. Casperson, Fax No. (303) 417-1000. Guarantor irrevocably agrees that any legal proceeding
against Lenders shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Nothing herein shall affect
the right of Lenders to commence legal proceedings or otherwise proceed against Guarantor in any jurisdiction or to serve process in any manner permitted by applicable law. As used herein, the term
"Litigation" means any proceeding, claim, lawsuit or investigation (i) conducted or threatened by or before any court or governmental department,
commission, board, bureau, agency or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter
constituted or existing, or (ii) pending before any public or private arbitration board or panel. 



        (b)   Nothing
in this Paragraph 20 shall affect any right of any Lender to serve legal process in any other manner permitted by law or affect the right of any Lender to
bring any action or proceeding against Guarantor in the courts of any other jurisdictions. 


        (c)   To
the extent that Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Guarantor hereby irrevocably waives such immunity in respect of its
obligations under this Guaranty and the other Loan Documents. 




        21.   THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG LENDERS, ADMINISTRATIVE AGENT AND GUARANTOR AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF LENDERS, ADMINISTRATIVE AGENT AND GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG LENDERS, ADMINISTRATIVE
AGENT AND GUARANTOR. 



H-5







 

        22.   GUARANTOR,
FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A JURY TRIAL,
IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS. 


        24.   THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 




        EXECUTED
and effective as of the date first above written. 



	 	 	GUARANTOR:
	

 	
 	
[SUBSIDIARY]
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	





H-6








   SCHEDULE 7.05

LITIGATION  


NONE



Schedule 7.05-1








   SCHEDULE 7.15

SUBSIDIARIES AND PARTNERSHIPS  


ENGLISH BAY PIPELINE, L.P., a Texas limited partnership

Filing Number: 800091246 


ELLORA LAND HOLDINGS, L.P., a Texas limited partnership

Filing Number: 800090895 


ELLORA OPERATING, L.P., a Texas limited partnership

Filing Number: 800090891 


ELLORA ENERGY GP, LLC, a Delaware limited liability company

Organizational Identification Number: 3533651 


ELLORA OPERATING GP, LLC, a Delaware limited liability company

Organizational Identification Number: 3533641 


ELLORA, LLC, a Colorado limited liability company

Organizational Identification Number: 19951063065 


PRESCO WESTERN, LLC, a Colorado limited liability company

Organizational Identification Number: 19971179962 


Each
of these entities has its principal place of business at

5480 Valmont, Suite 350, Boulder, Colorado 80301 


Schedule 7.15-1








   SCHEDULE 7.17

PROPERTIES; TITLE DEFECTS  


NONE



Schedule 7.17-1








   SCHEDULE 7.19

GAS IMBALANCES  


NONE



Schedule 7.19-1








   SCHEDULE 7.20

MARKETING CONTRACTS  


Call
and Right of First Refusal in favor of Amoco Production Company pursuant to Farmout Contract dated November 17, 1997, between Amoco Production Company and Presco, Inc. 


Schedule 7.20-1








   SCHEDULE 7.21

SWAP AGREEMENTS  


NONE



Schedule 7.21-1








   SCHEDULE 9.05

INVESTMENTS  


NONE



Schedule 9.05-1











QuickLinks



Exhibit 10.4


CREDIT AGREEMENT DATED AS OF FEBRUARY 3, 2006 AMONG ELLORA ENERGY INC. AND ELLORA OIL & GAS INC., AS BORROWERS, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY HERETO $400,000,000 J.P.
MORGAN SECURITIES INC., AS LEAD ARRANGER AND BOOK MANAGER

TABLE OF CONTENTS


ELLORA ENERGY INC. CREDIT AGREEMENT

R E C I T A L S

ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS



ARTICLE II THE CREDITS

ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES


ARTICLE IV PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

ARTICLE V INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

ARTICLE VI CONDITIONS PRECEDENT

ARTICLE VII REPRESENTATIONS AND WARRANTIES



ARTICLE X EVENTS OF DEFAULT; REMEDIES

ARTICLE XI THE AGENTS


ARTICLE XII MISCELLANEOUS


ANNEX I LIST OF MAXIMUM CREDIT AMOUNTS

EXHIBIT A FORM OF NOTE



EXHIBIT E FORM OF ASSIGNMENT AND ASSUMPTION


EXHIBIT F FORM OF BORROWER PLEDGE AGREEMENT