exv4w2



 






EXHIBIT 4.2




ENCORE ACQUISITION COMPANY




Issuer




and




WELLS FARGO BANK, NATIONAL ASSOCIATION




Trustee




FIRST SUPPLEMENTAL INDENTURE




Dated as of November 23, 2005




To




INDENTURE




Dated as of November 16, 2005




7.25% SENIOR SUBORDINATED NOTES DUE 2017





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE 1 Relation to Indenture; Definitions
	 	 	1	 
	SECTION 1.01. Relation to Indenture
	 	 	1	 
	SECTION 1.02. Definitions
	 	 	1	 
	SECTION 1.03. Other Definitions
	 	 	33	 
	SECTION 1.04. General References
	 	 	33	 
	SECTION 1.05. Rules of Construction
	 	 	33	 
	 
	 	 	 	 
	ARTICLE 2 The Series of Securities
	 	 	34	 
	SECTION 2.01. The Form and Title of the Securities
	 	 	34	 
	SECTION 2.02. Amount
	 	 	34	 
	SECTION 2.03. Stated Maturity
	 	 	34	 
	SECTION 2.04. Interest and Interest Rates
	 	 	34	 
	SECTION 2.05. Place of Payment
	 	 	35	 
	SECTION 2.06. Optional Redemption
	 	 	35	 
	SECTION 2.07. Defeasance and Discharge; Covenant Defeasance
	 	 	35	 
	SECTION 2.08. Global Securities
	 	 	35	 
	 
	 	 	 	 
	ARTICLE 3 Amendment of Certain Provisions of Article IV of the Original Indenture
	 	 	35	 
	SECTION 3.01. Amendment of Section 4.03 of the Original Indenture
	 	 	35	 
	SECTION 3.02. Additional Covenants
	 	 	36	 
	 
	 	 	 	 
	ARTICLE 4 Amendment of Article V of the Original Indenture
	 	 	52	 
	 
	 	 	 	 
	ARTICLE 5 Amendment of Certain Provisions of Article VI of the Original Indenture
	 	 	54	 
	SECTION 5.01. Amendment of Section 6.01 of the Original Indenture
	 	 	54	 
	SECTION 5.02. Amendment of Section 6.02 of the Original Indenture
	 	 	56	 
	SECTION 5.03. Amendment of Section 6.04 of the Original Indenture
	 	 	56	 
	SECTION 5.04. Amendment of Section 6.05 of the Original Indenture
	 	 	56	 
	SECTION 5.05. Amendment of Section 6.10 of the Original Indenture
	 	 	56	 
	 
	 	 	 	 
	ARTICLE 6 Amendment of Certain Provisions of Article VII of the Original Indenture
	 	 	57	 
	SECTION 6.01. Amendment of Section 7.05 of the Original Indenture
	 	 	57	 
	SECTION 6.02. Amendment of Section 7.06 of the Original Indenture
	 	 	57	 
	SECTION 6.03. Amendment of Section 7.07 of the Original Indenture
	 	 	57	 
	 
	 	 	 	 
	ARTICLE 7 Amendment of Article VIII of the Original Indenture
	 	 	58	 
	 
	 	 	 	 
	ARTICLE 8 Amendment of Certain Provisions of Article IX of the Original Indenture
	 	 	60	 
	SECTION 8.01. Amendment of Section 9.01 of the Original Indenture
	 	 	60	 
	SECTION 8.02. Amendment of Section 9.02 of the Original Indenture
	 	 	62	 
	SECTION 8.03. Addition of Section 9.07
	 	 	63	 
	 
	 	 	 	 
	ARTICLE 9 Amendment of Article X of the Original Indenture
	 	 	63	 
	 
	 	 	 	 
	ARTICLE 10 Subsidiary Guaranties
	 	 	67	 
	SECTION 10.01. Guaranties
	 	 	67	 
	SECTION 10.02. Limitation on Liability
	 	 	69	 
	SECTION 10.03. Successors and Assigns
	 	 	69	 
	SECTION 10.04. No Waiver
	 	 	69	 
	SECTION 10.05. Modification
	 	 	69	 
	SECTION 10.06. Release of Subsidiary Guarantor
	 	 	69	 






 









 






	 	 	 	 	 
	 	 	Page	 
	ARTICLE 11 Subordination of Subsidiary Guaranties
	 	 	69	 
	SECTION 11.01. Agreement To Subordinate
	 	 	69	 
	SECTION 11.02. Liquidation, Dissolution, Bankruptcy
	 	 	70	 
	SECTION 11.03. Default on Senior Indebtedness of Subsidiary Guarantor
	 	 	70	 
	SECTION 11.04. Demand for Payment
	 	 	71	 
	SECTION 11.05. When Distribution Must Be Paid Over
	 	 	71	 
	SECTION 11.06. Subrogation
	 	 	71	 
	SECTION 11.07. Relative Rights
	 	 	71	 
	SECTION 11.08. Subordination May Not Be Impaired by Company
	 	 	72	 
	SECTION 11.09. Rights of Trustee and Paying Agent
	 	 	72	 
	SECTION 11.10. Distribution or Notice to Representative
	 	 	72	 
	SECTION 11.11. Article 11 Not To Prevent Events of Default or Limit Right To Demand Payment
	 	 	72	 
	SECTION 11.12. Trustee Entitled To Rely
	 	 	72	 
	SECTION 11.13. Trustee To Effectuate Subordination
	 	 	73	 
	SECTION 11.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of Subsidiary Guarantor
	 	 	73	 
	SECTION 11.15. Reliance by Holders of Senior Indebtedness of Subsidiary Guarantors on
Subordination Provisions
	 	 	73	 
	 
	 	 	 	 
	ARTICLE 12 Miscellaneous
	 	 	73	 
	SECTION 12.01. Certain Trustee Matters
	 	 	73	 
	SECTION 12.02. Continued Effect
	 	 	74	 
	SECTION 12.03. Governing Law
	 	 	74	 
	SECTION 12.04. Counterparts
	 	 	74	 






EXHIBITS




Exhibit A:Form of Note




 









 





     FIRST SUPPLEMENTAL INDENTURE, dated as of November 23, 2005 (this “First Supplemental
Indenture”), between ENCORE ACQUISITION COMPANY, a Delaware corporation (the “Company”), and
WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee (the “Trustee”).



RECITALS




     WHEREAS, the Company and the Trustee have heretofore entered into an Indenture, dated as of
November 16, 2005 (the “Original Indenture”); and



     WHEREAS, under the Original Indenture, a new series of Securities may at any time be
established by the Board of Directors of the Company in accordance with the provisions of the
Original Indenture, and the terms of such series may be established by a supplemental indenture
executed by the Company and by the Trustee; and



     WHEREAS, the Company proposes to create under the Original Indenture a new series of
Securities; and



     WHEREAS, all acts and things necessary to make the Notes (as herein defined), when executed by
the Company and authenticated and delivered by the Trustee as provided in the Original Indenture
and this First Supplemental Indenture, the valid and binding obligations of the Company and to make
this First Supplemental Indenture a valid and binding agreement in accordance with the Original
Indenture have been done or performed;



     NOW, THEREFORE, in consideration of the premises, agreements and obligations set forth herein
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree, for the equal and proportionate benefit of all
Holders of the Notes, as follows:



ARTICLE 1



Relation to Indenture; Definitions




SECTION 1.01. Relation to Indenture.




     With respect to the Notes, this First Supplemental Indenture constitutes an integral part of
the Original Indenture.



SECTION 1.02. Definitions.




     For all purposes of this First Supplemental Indenture, capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the Original Indenture.
The following terms shall have the definitions set forth below as used in this First Supplemental
Indenture and in the provisions of the Original Indenture amended hereby, and for purposes of this
First Supplemental Indenture and the provisions of the Original Indenture amended hereby only shall
replace any such definitions of such capitalized terms set forth in the Original Indenture.



     “Additional Assets” means (1) any property, plant or equipment used in a Related Business; (2)
the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary; or



 









 




(3) Capital Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clause (2) or (3) above is primarily engaged in a Related Business.




     “Additional Notes” means, subject to the Company’s compliance with Section 4.08, 7.25% Senior
Subordinated Notes due 2017 issued from time to time after the Issue Date (other than pursuant to
Section 2.08, 2.09, 2.12 or 3.07 of the Indenture).



     “Adjusted Consolidated Net Tangible Assets” or “ACNTA” means (without duplication), as of the
date of determination:




     (a) the sum of:




     (1) discounted future net revenue from proved crude oil and natural gas reserves of the
Company and its Restricted Subsidiaries (including oil and natural gas reserves attributable
to the net profits interests owned by an Oil and Gas Royalty Trust to the extent such net
profits interests are attributable to the Company or a Restricted Subsidiary by virtue of
its ownership of Capital Stock of such Oil and Gas Royalty Trust) calculated in accordance
with SEC guidelines before any state or federal income taxes, as estimated in a reserve
report prepared as of the end of the most recently completed fiscal year for which audited
financial statements are available, as increased by, as of the date of determination, the
discounted future net revenue calculated in accordance with SEC guidelines (utilizing the
prices utilized in such year end reserve report) of:




	 	(A)	 	estimated proved crude oil and natural gas
reserves of the Company and its Restricted Subsidiaries attributable to
acquisitions consummated since the date of such reserve report, and
	 
	 	(B)	 	estimated crude oil and natural gas reserves of
the Company and its Restricted Subsidiaries attributable to extensions,
discoveries and other additions and upward determinations of estimates
of proved crude oil and natural gas reserves (including previously
estimated development costs incurred during the period and the
accretion of discount since the prior period end) due to exploration,
development or exploitation, production or other activities which
reserves were not reflected in such reserve report which would, in the
case of determinations made under clauses (A) or (B), in accordance
with standard industry practice, result in such determinations,





and decreased by, as of the date of determination, the discounted future net revenue
calculated in accordance with SEC guidelines (utilizing the prices utilized in such
year end reserve report) attributable to:




	 	(C)	 	estimated proved crude oil and natural gas
reserves of the Company and its Restricted Subsidiaries reflected in
such reserve report produced or disposed of since the date of such
reserve report, and




2









 












	 	(D)	 	reductions in the estimated oil and natural gas
reserves of the Company and its Restricted Subsidiaries reflected in
such reserve report since the date of such reserve report attributable
to downward determinations of estimates of proved crude oil and natural
gas reserves due to exploration, development or exploitation,
production or other activities conducted or otherwise occurring since
the date of such reserve report which would, in the case of
determinations made under clauses (C) or (D), in accordance with
standard industry practice, result in such determinations;





provided, however, that, in the case of each of the determinations
made pursuant to clauses (A) through (D), such increases and decreases shall be
estimated by the Company’s engineers, except that if as a result of such
acquisitions, dispositions, discoveries, extensions or revisions, there is a
Material Change, then such increases and decreases in the discounted future net
revenue shall be confirmed in writing by an independent petroleum engineer;




     (2) the capitalized costs that are attributable to crude oil and natural gas properties
of the Company and its Restricted Subsidiaries to which no proved crude oil and natural gas
reserves are attributed, based on the Company’s books and records as of a date no earlier
than the end of the most recent fiscal quarter for which financial statements of the Company
have been made publicly available prior to the date of determination;




     (3) the Net Working Capital as of the end of the most recent fiscal quarter for which
financial statements of the Company have been made publicly available prior to the date of
determination; and




     (4) the greater of (i) the net book value as of a date no earlier than the end of the
most recent fiscal quarter for which financial statements of the Company have been made
publicly available prior to the date of determination and (ii) the appraised value, as
estimated by independent appraisers, of other tangible assets of the Company and its
Restricted Subsidiaries as of a date no earlier than the most recent fiscal year for which
financial statements of the Company have been made publicly available prior to the date of
determination (provided that the Company shall not be required to obtain such an appraisal
of such assets if no such appraisal has been performed); minus



          (b) to the extent not otherwise taken into account in the immediately preceding clause (a),
the sum of:





     (1) minority interests;




     (2) any natural gas balancing liabilities of the Company and its Restricted
Subsidiaries reflected in the Company’s latest audited consolidated financial statements;




     (3) the discounted future net revenue, calculated in accordance with SEC guidelines
(utilizing the same prices utilized in the Company’s year-end reserve report), attributable
to reserves subject to participation interests, overriding royalty interests or other
interests of third parties, pursuant to participation, partnership, vendor financing or



3









 





other agreements then in effect, or which otherwise are required to be delivered to
third parties;




     (4) the discounted future net revenue calculated in accordance with SEC guidelines
(utilizing the same prices utilized in the Company’s year-end reserve report), attributable
to reserves that are required to be delivered to third parties to fully satisfy the
obligations of the Company and its Restricted Subsidiaries with respect to Volumetric
Production Payments on the schedules specified with respect thereto; and




     (5) the discounted future net revenue, calculated in accordance with SEC guidelines,
attributable to reserves subject to Dollar-Denominated Production Payments that, based on
the estimates of production included in determining the discounted future net revenue
specified in the immediately preceding clause (a)(1) (utilizing the same prices utilized in
the Company’s year-end reserve report), would be necessary to satisfy fully the obligations
of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments on the schedules specified with respect thereto.



          If the Company changes its method of accounting from the successful efforts method to the full
cost method or a similar method of accounting, “ACNTA” will continue to be calculated as if the
Company were still using the successful efforts method of accounting.




          “Affiliate” of any specified Person means any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with such specified Person.
For the purposes of this definition, “control” when used with respect to any Person means the
power to direct the management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing. For purposes of Sections 4.09, 4.11 and
4.12 of the Indenture only, “Affiliate” shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof. No Person shall be deemed an Affiliate of an Oil and Gas Royalty Trust
solely by virtue of ownership of Capital Stock of such trust.




          “Applicable Premium” means, with respect to a Note at any time, the greater of (1) 1.0% of the
principal amount of such Note at such time and (2) the excess, if any, of (A) the present value at
such time of (i) the principal amount of such Note plus (ii) any required interest payments due on
such Note through December 1, 2010, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over (B) the principal amount of such Note.




          “Asset Disposition” means any sale, lease, transfer or other disposition (or series of related
sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary or any Oil
and Gas Royalty Trust, the Capital Stock of which is owned by the Company or a Restricted
Subsidiary, including any disposition by means of a merger, consolidation or similar transaction
(each referred to for the purposes of this definition as a “disposition”), of:




4









 






     (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors’
qualifying shares or shares required by applicable law to be held by a Person other than the
Company or a Restricted Subsidiary) or of an Oil and Gas Royalty Trust;




     (2) all or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary;




     (3) any other assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary; or




     (4) any net profits interests held by any such Oil and Gas Royalty Trust



other than, in the case of clauses (1), (2) and (3) above,




	 	(A)	 	a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Restricted
Subsidiary;
	 
	 	(B)	 	for purposes of Section 4.11 of the Indenture
only, (x) a disposition that constitutes a Restricted Payment permitted
by Section 4.09 of the Indenture or a Permitted Investment and (y) a
disposition of all or substantially all the assets of the Company in
accordance with Section 5.01 of the Indenture; and
	 
	 	(C)	 	the trade or exchange by the Company or any
Restricted Subsidiary of any oil or natural gas property or interest
therein of the Company or such Restricted Subsidiary for any oil or
natural gas property or interest therein of another Person, including
any cash or cash equivalents necessary in order to achieve an exchange
of equivalent value; provided, however, that the value
of the oil or natural gas property or interest therein received by the
Company or any Restricted Subsidiary in such trade or exchange
(including any cash or cash equivalents) is at least equal to the fair
market value (as determined in good faith by the Board of Directors, an
Officer or an officer of such Restricted Subsidiary with responsibility
for such transaction, which determination shall be conclusive evidence
of compliance with this provision) of the oil or natural gas property
or interest therein (including any cash or cash equivalents) so traded
or exchanged;
	 
	 	(D)	 	the creation of a Lien;
	 
	 	(E)	 	a disposition of oil and natural gas properties
in connection with tax credit transactions complying with Section 29 or
any successor or analogous provisions of the Code;
	 
	 	(F)	 	a disposition of the Capital Stock of or any
Investment in any Unrestricted Subsidiary other than an Oil and Gas
Royalty Trust;
	 
	 	(G)	 	surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of
any kind;










5









 












	 	(H)	 	any disposition of defaulted receivables that
arose in the ordinary course of business for collection;
	 
	 	(I)	 	the contribution of net profits interests in
oil and natural gas properties to an Oil and Gas Royalty Trust that is
wholly owned by the Company or a Restricted Subsidiary at the time or
as the result of such contribution;
	 
	 	(J)	 	Production Payments and Reserve Sales in
connection with the acquisition of any crude oil and natural gas
property after the Issue Date; provided that any such
Production Payment and Reserve Sale is created, incurred, issued or
assumed in connection with the financing of, and within 30 days after
the acquisition of, such oil and natural gas property;
	 
	 	(K)	 	the sale or transfer (whether or not in the
ordinary course of business) of any oil and gas property or interest
therein to which no proved reserves are attributable at the time of
such sale or transfer; and
	 
	 	(L)	 	a single transaction or series of related
transactions that involve the disposition of assets with a fair market
value of less than $2.0 million.





          “Attributable Debt” in respect of a Sale/Leaseback Transaction means, as at the time of
determination, the present value (discounted at the interest rate borne by the Notes, compounded
semiannually) of the total obligations of the lessee for rental payments during the remaining term
of the lease included in such Sale/Leaseback Transaction (including any period for which such lease
has been extended); provided, however, that if such Sale/Leaseback Transaction
results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be
determined in accordance with the definition of “Capital Lease Obligation” herein.




          “Average Life” means, as of the date of determination, with respect to any Indebtedness, the
quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of or redemption or
similar payment with respect to such Indebtedness multiplied by the amount of such payment by (2)
the sum of all such payments.




          “Bank Indebtedness” means all Obligations pursuant to Credit Facilities.




          “Capital Lease Obligation” means an obligation that is required to be classified and accounted
for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty.




          “Capital Stock” of any Person means any and all shares, units of beneficial interests
(including of an Oil and Gas Royalty Trust), rights to purchase, warrants, options, participations
or other equivalents of or interests in (however designated) equity of such Person, including any




6









 




Preferred Stock, but excluding any debt securities convertible into or exchangeable for such
equity.




          “Change of Control” means the occurrence of any of the following events:





     (1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), except that for purposes of this
clause (1) such person shall be deemed to have “beneficial ownership” of all shares that any
such person has the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the total voting
power of the Voting Stock of the Company; provided, however, that the
Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for election a majority
of the Board of Directors (for the purposes of this clause (1), such other person shall be
deemed to beneficially own any Voting Stock of a Person (the “specified person”) held by any
other Person (the “parent entity”), if such other person is the beneficial owner (as defined
above in this clause (1)), directly or indirectly, of more than 50% of the voting power of
the Voting Stock of such parent entity and the Permitted Holders beneficially own (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent entity);




     (2) during any period of two consecutive years, individuals who, at the beginning of
such period, constituted the Board of Directors (together with (A) any new directors whose
election by such Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of the majority of the directors of the Company then
still in office who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved and (B) any representative of a
Permitted Holder) cease for any reason to constitute a majority of the Board of Directors
then in office;




     (3) the adoption of a plan relating to the liquidation or dissolution of the Company;
or




     (4) the merger or consolidation of the Company with or into another Person or the
merger of another Person with or into the Company, or the sale of all or substantially all
the assets of the Company (determined on a consolidated basis) to another Person (other
than, in all such cases, a Person that is controlled by one or more Permitted Holders),
other than a transaction following which (A) in the case of a merger or consolidation
transaction, holders of securities that represented 100% of the Voting Stock of the Company
immediately prior to such transaction (or other securities into which such securities are
converted as part of such merger or consolidation transaction) own directly or indirectly at
least a majority of the voting power of the Voting Stock of the surviving Person in such
merger or consolidation transaction immediately after such transaction



7









 





and (B) in the case of a sale of assets transaction, each transferee becomes an obligor
in respect of the Notes and a Subsidiary of the transferor of such assets.



          “Code” means the Internal Revenue Code of 1986, as amended.




          “Consolidated Coverage Ratio” as of any date of determination means the ratio of (x) the
aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for
which financial information of the Company has been made publicly available prior to the date of
such determination to (y) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:





     (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the
beginning of such period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness and the use of proceeds
thereof as if such Indebtedness had been Incurred on the first day of such period and such
proceeds had been applied as of such date;




     (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of such period or if any
Indebtedness is to be repaid, repurchased, defeased or otherwise discharged on the date of
the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA
and Consolidated Interest Expense for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary had not earned the interest income actually
earned (if any) during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;




     (3) if since the beginning of such period the Company or any Restricted Subsidiary
shall have made any Asset Disposition, EBITDA for such period shall be reduced by an amount
equal to EBITDA (if positive) directly attributable to the assets which were the subject of
such Asset Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition for such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale);




     (4) if since the beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of material assets,
including any acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or




8









 






substantially all of an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period; and




     (5) if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period.


For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith,
the pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement applicable to such
Indebtedness, but if the remaining term of such Interest Rate Agreement is less than twelve months,
then such Interest Rate Agreement shall only be taken into account for that portion of the period
equal to the remaining term thereof).




     The Consolidated Interest Expense attributable to interest on any Indebtedness under a
revolving credit facility, the outstanding principal balance of which is required to be computed on
a pro forma basis in accordance with the foregoing, shall be computed based upon
the average daily balance of such Indebtedness during the applicable period, provided, that such
average daily balance shall take into account the amount of any repayment of Indebtedness under
such revolving credit facility during the applicable period, to the extent such repayment
permanently reduced the commitments or amounts available to be borrowed under such facility.



     “Consolidated Interest Expense” means, for any period, the total interest expense of the
Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such
total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries,
without duplication:




     (1) interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction;




     (2) amortization of debt discount and debt issuance cost;




     (3) capitalized interest;




     (4) non-cash interest expense;




     (5) commissions, discounts and other fees and charges owed with respect to letters of
credit and bankers’ acceptance financing;





9









 









     (6) net payments pursuant to Interest Rate Agreements;




     (7) Preferred Stock dividends in respect of all Preferred Stock held by Persons other
than the Company or a Wholly Owned Subsidiary (other than dividends payable solely in
Capital Stock (other than Disqualified Stock) of the Company);




     (8) interest incurred in connection with Investments in discontinued operations;




     (9) interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted
Subsidiary; and




     (10) the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such plan or
trust,


minus, to the extent included above, write-off of deferred financing costs and interest
attributable to Dollar-Denominated Production Payments.




     “Consolidated Net Income” means, for any period, the net income of the Company and its
consolidated Subsidiaries; provided, however, that there shall not be included in
such Consolidated Net Income:




     (1) any net income of any Person (other than the Company) if such Person is not a
Restricted Subsidiary, except that:




	 	(A)	 	subject to the exclusion contained in clause
(4) below, the Company’s equity in the net income of any such Person
for such period shall be included in such Consolidated Net Income in an
amount equal to the aggregate amount of cash actually distributed by
such Person during such period to the Company or a Restricted
Subsidiary as a dividend, interest payment or other distribution
(subject, in the case of a dividend, interest payment or other
distribution paid to a Restricted Subsidiary, to the limitations
contained in clause (3) below); and
	 
	 	(B)	 	the Company’s equity in a net loss of any such
Person for such period shall not be included in determining such
Consolidated Net Income, except to the extent of the aggregate cash
actually contributed to such Person by the Company or a Restricted
Subsidiary during such period;






     (2) solely for the purposes of determining the aggregate amount available for
Restricted Payments under Section 4.09(a)(3) of the Indenture, any net income (or loss) of
any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition;




10









 






     (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the Company,
except that:




	 	(A)	 	subject to the exclusion contained in clause
(4) below, the Company’s equity in the net income of any such
Restricted Subsidiary for such period shall be included in such
Consolidated Net Income in an amount equal to the aggregate amount of
cash that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a
dividend, interest payment or other distribution (subject, in the case
of a dividend, interest payment or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause); and
	 
	 	(B)	 	the Company’s equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income;






     (4) any gain or loss, together with any related provision for taxes on such gain or
loss and all related fees and expenses, realized in connection with (A) the sale or other
disposition of any assets of the Company, its consolidated Subsidiaries or any other Person
(including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business and (B) the disposition of any securities of
any Person or the extinguishment of any Indebtedness of the Company or any of its
Subsidiaries;




     (5) extraordinary or non-recurring gains or losses, together with any related provision
for taxes on such gains or losses and all related fees and expenses; and




     (6) the cumulative effect of a change in accounting principles;




     (7) any impairment losses on oil and natural gas properties;




     (8) any unrealized non-cash gains or losses or charges in respect of Hedging
Obligations (including those resulting from the application of FAS 133); and




     (9) any non-cash compensation charge arising from any grant of stock, stock options or
other equity-based awards.


Notwithstanding the foregoing, for the purposes of Section 4.09 of the Indenture only, there shall
be excluded from Consolidated Net Income any repurchases, repayments or redemptions of Investments,
proceeds realized on the sale of Investments or return of capital to the Company or a Restricted
Subsidiary to the extent such repurchases, repayments, redemptions, proceeds or returns increase
the amount of Restricted Payments permitted under such section pursuant to clause (a)(3)(E)
thereof.




     “Consolidated Net Worth” means the total of the amounts shown on the balance sheet of the
Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance







11









 




with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45
days prior to the taking of any action for the purpose of which the determination is being made, as
the sum of:





     (1) the par or stated value of all outstanding Capital Stock of the Company plus




     (2) paid-in capital or capital surplus relating to such Capital Stock plus




     (3) any retained earnings or earned surplus


less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock.




     “Credit Facilities” means, with respect to the Company or any Restricted Subsidiary, one or
more debt facilities (including under the Revolving Credit Facility) or commercial paper facilities
with banks or other lenders providing revolving credit loans, term loans, production payment
facilities, receivables financing facilities (including through the sale of receivables) or letters
of credit facilities, in each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.



     “Currency Agreement” means in respect of a Person any foreign exchange contract, currency swap
agreement or other similar agreement designed to protect such Person against fluctuations in
currency values.



     “Designated Senior Indebtedness”, with respect to a Person means:




     (1) the Bank Indebtedness; and




     (2) any other Senior Indebtedness of such Person which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25.0 million and
is specifically designated by such Person in the instrument evidencing or governing such
Senior Indebtedness as “Designated Senior Indebtedness” for purposes of this Indenture.



     “Disqualified Stock” means, with respect to any Person, any Capital Stock which by its terms
(or by the terms of any security into which it is convertible or for which it is exchangeable at
the option of the holder) or upon the happening of any event:




     (1) matures or is mandatorily redeemable (other than redeemable only for Capital Stock
of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation
or otherwise;




     (2) is convertible or exchangeable at the option of the holder for Indebtedness or
Disqualified Stock; or




     (3) is mandatorily redeemable or must be purchased upon the occurrence of certain
events or otherwise, in whole or in part (other than redeemable or required to be purchased
only for Capital Stock of such Person which is not itself Disqualified Stock);







12









 




in each case on or prior to the 91st day after the Stated Maturity of the Notes; provided,
however, that (A) any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to purchase or redeem
such Capital Stock upon the occurrence of an “asset sale” or “change of control” shall not
constitute Disqualified Stock if:





     (1) the “asset sale” or “change of control” provisions applicable to such Capital Stock
are not more favorable, as measured by the purchase or redemption price or the breadth of
the definition of the event or events triggering such purchase or redemption obligation, to
the holders of such Capital Stock than the terms applicable to the Notes and described in
Sections 4.11 and 4.13 of the Indenture; and




     (2) any such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant thereto.


and (B) any Capital Stock that would constitute Disqualified Stock solely because such Capital
Stock is issued pursuant to any plan for the benefit of employees of the Company or Subsidiaries of
the Company or by any such plan to such employees and may be required to be repurchased by the
Company in order to satisfy applicable statutory or regulatory obligations shall not constitute
Disqualified Stock.




     The amount of any Disqualified Stock that does not have a fixed redemption, repayment or
repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if
such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of
such Disqualified Stock is to be determined pursuant to this Indenture; provided,
however, that if such Disqualified Stock could not be required to be redeemed, repaid or
repurchased at the time of such determination, the redemption, repayment or repurchase price will
be the book value of such Disqualified Stock as reflected in the most recent financial statements
of such Person.



     “Dollar-Denominated Production Payments” means production payment obligations recorded as
liabilities in accordance with GAAP, together with all undertakings and obligations in connection
therewith.



     “EBITDA” for any period means the sum of Consolidated Net Income, plus the following to the
extent deducted in calculating such Consolidated Net Income:




     (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries;




     (2) Consolidated Interest Expense;




     (3) depreciation, depletion, exploration and amortization expense of the Company and
its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a
prepaid operating activity item that was paid in cash in a prior period); and







13









 






     (4) all other non-cash charges of the Company and its consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash expenditures in any future period),


in each case for such period, and less, to the extent included in calculating such Consolidated Net
Income and in excess of any costs or expenses attributable thereto and deducted in calculating such
Consolidated Net Income, the sum of:





	 	(A)	 	the amount of deferred revenues that are
amortized during such period and are attributable to reserves that are
subject to Volumetric Production Payments; and
	 
	 	(B)	 	amounts recorded in accordance with GAAP as
repayments of principal and interest pursuant to Dollar-Denominated
Production Payments.




Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the
depreciation, depletion, exploration and amortization and non-cash charges of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA (1) only to the extent (and
in the same proportion, including by reason of minority interests) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income and (2) only if a
corresponding amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders.




     “Existing Investments” means assets (including securities) held by the Company or any of the
Restricted Subsidiaries as consideration for an Investment made on or before the Issue Date or
acquired thereafter pursuant to any agreement or obligation as in effect on the Issue Date.



     “GAAP” means generally accepted accounting principles in the United States of America as in
effect as of the Issue Date, including those set forth in:




     (1) the opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants;




     (2) statements and pronouncements of the Financial Accounting Standards Board;




     (3) such other statements by such other entity as approved by a significant segment of
the accounting profession; and




     (4) the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements from the
accounting staff of the SEC.







14









 





     “Guarantee” means any obligation, contingent or otherwise, of any Person directly or
indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect,
contingent or otherwise, of such Person:




     (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise); or




     (2) entered into for the purpose of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part);


provided, however, that the term “Guarantee” shall not include endorsements for
collection or deposit in the ordinary course of business, or any obligation to the extent it is
payable only in Capital Stock of the Guarantor that is not Disqualified Stock. The term
“Guarantee” used as a verb has a corresponding meaning. The term “Guarantor” shall mean any Person
Guaranteeing any Indebtedness.




     “Guaranty Agreement” means a supplemental indenture, in a form satisfactory to the Trustee,
pursuant to which a Subsidiary Guarantor guarantees the Company’s obligations with respect to the
Notes on the terms provided for in the Indenture.



     “Hedging Obligations” of any Person means the obligations of such Person pursuant to any Oil
and Natural Gas Hedging Contract, Interest Rate Agreement or Currency Agreement.



     “Incur” means issue, assume, Guarantee, incur or otherwise become liable for;
provided, however, that any Indebtedness or Capital Stock of a Person existing at
the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition
or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Restricted
Subsidiary. The term “Incurrence” when used as a noun shall have a correlative meaning. Solely
for purposes of determining compliance with Section 4.08 of the Indenture:




     (1) amortization of debt discount or the accretion of principal with respect to a
non-interest bearing or other discount security;




     (2) the payment of regularly scheduled interest in the form of additional Indebtedness
of the same instrument or the payment of regularly scheduled dividends on Capital Stock in
the form of additional Capital Stock of the same class and with the same terms;




     (3) the obligation to pay a premium in respect of Indebtedness arising in connection
with the issuance of a notice of redemption or making of a mandatory offer to purchase such
Indebtedness; and




     (4) unrealized losses or charges in respect of Hedging Obligations (including those
resulting from the application of FAS 133)


will not be deemed to be the Incurrence of Indebtedness.







15









 








     “Indebtedness” means, with respect to any Person on any date of determination (without
duplication):




     (1) the principal in respect of (A) indebtedness of such Person for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable, including, in each case, any premium
on such indebtedness to the extent such premium has become due and payable;




     (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect
of Sale/Leaseback Transactions entered into by such Person;




     (3) all obligations of such Person (other than obligations payable solely in Capital
Stock of such Person that is not Disqualified Stock) issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding trade accounts
payable and accrued expenses);




     (4) all obligations of such Person for the reimbursement of any obligor on any letter
of credit, bankers’ acceptance or similar credit transactions (other than obligations with
respect to letters of credit securing obligations (other than obligations described in
clauses (1) through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day following
payment on the letter of credit);




     (5) the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock of such Person or, with respect to
any Preferred Stock of any Restricted Subsidiary of such Person the principal amount of such
Preferred Stock to be determined in accordance with this Indenture (but excluding, in each
case, any accrued dividends) (and the term “Incur Indebtedness” and similar terms include
issuances of such Disqualified Stock and Preferred Stock);




     (6) all obligations of the types referred to in clauses (1) through (5) of other
Persons and all dividends of other Persons for the payment of which, in either case, such
Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise,
including by means of any Guarantee;




     (7) all obligations of the types referred to in clauses (1) through (6) of other
Persons secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being deemed to be the
lesser of the liquidation value of such property or asset and the amount of the obligation
so secured;




     (8) to the extent not otherwise included in this definition, Hedging Obligations of
such Person; and




     (9) any Guarantee by such Person of production or payment with respect to a Production
Payment and Reserve Sale;







16









 




if and to the extent, in the case of obligations of the types referred to in clauses (1), (2) and
(3) above, such obligations would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP.




     Notwithstanding the foregoing, the following shall not constitute “Indebtedness”:




     (1) accrued expenses and trade accounts payable arising in the ordinary course of
business;




     (2) except as expressly provided in clause (9) above, Production Payments and Reserve
Sales;




     (3) obligations in respect of farm-in agreements;




     (4) obligations arising from guarantees to suppliers, lessors, licensees, contractors,
franchisees or customers incurred in the ordinary course of business;




     (5) any obligations under workers’ compensation laws and similar legislation;




     (6) any obligation in respect of any royalty, overriding royalty, net profits interest,
master limited partnership interest or other interest in oil and natural gas properties,
reserves or the right to receive all or a portion of the production or the proceeds from the
sale of production attributable to such properties; or




     (7) any indebtedness which has been defeased in accordance with GAAP or defeased
pursuant to the deposit of cash or Government Securities (in an amount sufficient to satisfy
all such indebtedness obligations at maturity or redemption, as applicable, and all payments
of interest and premium, if any) in a trust or account created or pledged for the sole
benefit of the holders of such indebtedness, and subject to no other Liens, and the other
applicable terms of the instrument governing such indebtedness.



     Notwithstanding the foregoing, in connection with the purchase by the Company or any
Restricted Subsidiary of any business, the term “Indebtedness” will exclude post-closing payment
adjustments to which the seller may become entitled to the extent such payment is determined by a
final closing balance sheet or such payment depends on the performance of such business after the
closing; provided, however, that, at the time of closing, the amount of any such
payment is not determinable and, to the extent such payment thereafter becomes fixed and
determined, the amount is paid within 30 days thereafter.



     The amount of Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent obligations at such
date; provided, however, that in the case of Indebtedness sold at a discount, the
amount of such Indebtedness at any time will be the accreted value thereof at such time.



     “Independent Qualified Party” means an investment banking firm, accounting firm or appraisal
firm of national standing; provided, however, that such firm is not an Affiliate of
the Company.






17









 





     “Interest Rate Agreement” means in respect of a Person any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed to protect such
Person against fluctuations in interest rates.



     “Investment” in any Person means any direct or indirect advance, loan or other extension of
credit (including by way of Guarantee but excluding any such extension of credit made in the
ordinary course of business to any customer or supplier) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition for value of Capital Stock, Indebtedness
or other similar instruments issued by such Person. Except as otherwise provided for herein, the
amount of an Investment shall be its fair value at the time the Investment is made and without
giving effect to subsequent changes in value.



     For purposes of the definition of “Unrestricted Subsidiary”, the definition of “Restricted
Payment” and Section 4.09 of the Indenture:




     (1) “Investment” shall include the portion (proportionate to the Company’s equity
interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of
the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a permanent
“Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the
Company’s “Investment” in such Subsidiary at the time of such redesignation less (B) the
portion (proportionate to the Company’s equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such redesignation; and




     (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined in good faith
by the Board of Directors.



     “Investment Grade Rating” means having both a rating equal to or higher than BBB- by S&P and a
rating equal to or higher than Baa3 by Moody’s.



     “Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions are not
required to be open in the State of New York.



     “Issue Date” means November 23, 2005.



     “Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind
(including any conditional sale or other title retention agreement or lease in the nature thereof).



     “Material Change” means an increase or decrease (excluding changes that result solely from
changes in prices and changes resulting from the incurrence of previously estimated development
costs) of more than 50% during a fiscal quarter in the discounted future net revenues from proved
oil and natural gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(1) of the definition of ACNTA; provided, however, that
the following will be excluded from the calculation of Material Change:






18









 






     (1) any acquisitions during the fiscal quarter of oil and natural gas reserves that
have been estimated by independent petroleum engineers and with respect to which a report or
reports of such engineers exist; and




     (2) any disposition of properties existing at the beginning of such fiscal quarter that
have been disposed of in compliance with Section 4.11 of the Indenture.



     “Moody’s” means Moody’s Investors Service, Inc.



     “Net Available Cash” from an Asset Disposition means cash payments received therefrom
(including any cash payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other disposition of any
securities received as consideration, but only as and when received (and, in the case of an Asset
Disposition by an Oil and Gas Royalty Trust, only as and when received by the Company or any
Restricted Subsidiary), but excluding any other consideration received in the form of assumption by
the acquiring Person of Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form), in each case net of:




     (1) all accounting, engineering, investment banking, brokerage, legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local and other taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, and any relocation expenses incurred
or assumed in connection with such Asset Disposition;




     (2) all payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out
of the proceeds from such Asset Disposition;




     (3) all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition; and




     (4) the deduction of appropriate amounts provided by the seller as a reserve for
adjustment in respect of the sale price of the assets that were the subject of such Asset
Disposition or as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.



     “Net Cash Proceeds”, with respect to any issuance or sale of Capital Stock or Indebtedness,
means the cash proceeds of such issuance or sale net of attorneys’ fees, accountants’ fees,
underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.



     “Net Present Value” means, with respect to any proved oil and natural gas reserves, the
discounted future net cash flows associated with such reserves, determined in accordance with the
rules and regulations (including interpretations thereof) of the SEC in effect on the date of the
Prospectus Supplement.






19









 





     “Net Working Capital” means:




     (1) all current assets of the Company and its Restricted Subsidiaries, except current
assets from commodity price risk management activities arising in the ordinary course of
business; minus




     (2) all current liabilities of the Company and its Restricted Subsidiaries, except
current liabilities included in Indebtedness and current liabilities from commodity price
risk management activities arising in the ordinary course of business;


in each case determined in accordance with GAAP.




     “Non-Recourse Purchase Money Indebtedness” means Indebtedness (other than Capital Lease
Obligations) of the Company or any Subsidiary Guarantor incurred in connection with the acquisition
by the Company or such Subsidiary Guarantor in the ordinary course of business of fixed assets used
in the Oil and Gas Business (including office buildings and other real property used by the Company
or such Subsidiary Guarantor in conducting its operations) with respect to which;




     (1) the holders of such Indebtedness agree that they will look solely to the fixed
assets so acquired which secure such Indebtedness, and neither the Company nor any
Restricted Subsidiary (a) is directly or indirectly liable for such Indebtedness or (b)
provides credit support, including any undertaking, Guarantee, agreement or instrument that
would constitute Indebtedness (other than the grant of a Lien on such acquired fixed
assets); and




     (2) no default or event of default with respect to such Indebtedness would cause or
permit (after notice or passage of time or both), any holder of any other Indebtedness of
the Company or a Subsidiary Guarantor to declare a default or event of default on such other
Indebtedness or cause the payment, repurchase, defeasance or other acquisition or retirement
for value thereof to be accelerated or payable prior to any scheduled principal payment,
scheduled sinking fund payment or Stated Maturity.



     “Obligations” means, with respect to any Indebtedness, all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to
the documentation governing such Indebtedness.



     “Oil and Gas Business” means:




     (1) the acquisition, exploration, exploitation, development, operation and disposition
of interests in oil, natural gas, other hydrocarbon and mineral properties;




     (2) the gathering, marketing, distribution, treating, processing, storage, refining,
selling and transporting of any production from such interests or properties and the
marketing of oil, natural gas, other hydrocarbons and minerals obtained from unrelated
Persons;




     (3) any business relating to or arising from exploration for or exploitation,
development, production, treatment, processing, storage, refining, transportation,






20









 





gathering or marketing of oil, natural gas, other hydrocarbons and minerals and
products produced in association therewith;




     (4) any other related energy business, including power generation and electrical
transmission business where fuel required by such business is supplied, directly or
indirectly, from oil, natural gas, other hydrocarbons and minerals produced substantially
from properties in which the Company or its Restricted Subsidiaries, directly or indirectly,
participates;




     (5) any business relating to oil field sales and service; and




     (6) any activity necessary, appropriate or incidental to the activities described in
the preceding clauses (1) through (5) of this definition.



     “Oil and Gas Royalty Trust” means a trust that is an Unrestricted Subsidiary formed by the
Company or a Restricted Subsidiary to hold net profits interests in any of the Company’s and its
Restricted Subsidiaries’ oil and natural gas properties that, at all times:




     (1) holds no assets other than (a) net profits interests in the Company’s and its
Restricted Subsidiaries’ oil and natural gas properties and (b) Temporary Cash Investments;




     (2) conducts no business or activities other than the holding of the assets permitted
by clause (1) above and the distribution of its available funds as required by clause (3)
below;




     (3) distributes all funds (less reasonable reserves, if any, for operating liabilities
as determined by the trustee) held by it to its unit holders on a pro rata basis no less
frequently than monthly;




     (4) does not incur, nor permit to exist, directly or indirectly, any Indebtedness other
than Indebtedness Incurred for its routine administrative expenses;




     (5) is not permitted to sell its net profits interests except in immaterial amounts or
when revenue from such interests fall below $1.0 million annually;




     (6) is not permitted to sell its net profits interests except for cash equal to the
fair market value thereof (as determined in good faith by the trustee of such Oil and Gas
Royalty Trust, whose determination shall be conclusive);




     (7) is not permitted to issue Capital Stock except to the Company or a Restricted
Subsidiary in exchange for the conveyance to such Oil and Gas Royalty Trust of net profits
interests in connection with its formation; and




     (8) is governed by a trust agreement that requires the trustee to operate the Oil and
Gas Royalty Trust in compliance with the terms of clauses (1) through (7) above.



     “Oil and Natural Gas Hedging Contract” means any oil and natural gas hedging agreement, and
other agreement or arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in oil and natural gas prices.






21









 





     “Permitted Business Investments” means Investments and expenditures made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil and Gas Business as
means of actively exploiting, exploring for, acquiring, developing, processing, gathering,
marketing or transporting oil, natural gas, other hydrocarbons and minerals through agreements,
transactions, interests or arrangements that permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives customarily achieved
through the conduct of the Oil and Gas Business jointly with third parties, including:




     (1) ownership interests in oil, natural gas, other hydrocarbon and mineral properties
or gathering, transportation, processing, storage or related systems; and




     (2) entry into, and Investments and expenditures in the form of or pursuant to,
operating agreements, working interests, royalty interests, mineral leases, processing
agreements, farm-in agreements, farm-out agreements, contracts for the sale, transportation
or exchange of oil, natural gas, other hydrocarbons and minerals, production sharing
agreements, development agreements, area of mutual interest agreements, unitization
agreements, pooling arrangements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements (whether general or limited), limited liability company
agreements, subscription agreements, stock purchase agreements, stockholder agreements and
other similar agreements with third parties (including Unrestricted Subsidiaries).



     “Permitted Holders” means:




     (1) I. Jon Brumley;




     (2) Jon S. Brumley;




     (3) trusts, the sole beneficiaries and trustees of which are the individuals listed in
clauses (1) and (2) above or their immediate family members; and




     (4) corporations, partnerships and other entities (a) of which the individuals listed
in clauses (1) and (2) above or their immediate family members are the beneficial owners of
all Capital Stock and other equity or voting interests and (b) that are controlled by such
individuals and their immediate family members.



     “Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:




     (1) (a) the Company, (b) a Restricted Subsidiary or (c) a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business, or (d) another Person if, as a result of such Investment, such other Person is
merged or consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; provided, however, that
the primary business of such Person is a Related Business;




     (2) cash and Temporary Cash Investments;






22









 






     (3) receivables owing to the Company or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;




     (4) payroll, travel and similar advances to cover matters that are expected at the time
of such advances ultimately to be treated as expenses for accounting purposes and that are
made in the ordinary course of business;




     (5) loans or advances to officers, directors and employees made in the ordinary course
of business consistent with past practices of the Company or such Restricted Subsidiary;




     (6) Capital Stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments;




     (7) any Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to Section 4.11 of the
Indenture or consideration received for a disposition not constituting an Asset Disposition;




     (8) any Person where such Investment was acquired by the Company or any of its
Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held
by the Company or any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (b) as a result of a foreclosure by the Company or any
of its Restricted Subsidiaries with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;




     (9) any acquisitions of Capital Stock solely in exchange for Capital Stock (other than
Disqualified Stock) of the Company;




     (10) Hedging Obligations;




     (11) obligations of one or more officers, directors or employees of the Company or any
of its Restricted Subsidiaries in connection with such individual’s acquisition of shares of
Capital Stock of the Company (and refinancings of the principal thereof and accrued interest
thereon) so long as no net cash or other assets of the Company and its Restricted
Subsidiaries are paid by the Company or any of its Restricted Subsidiaries to such
individuals in connection with the acquisition of any such obligations;




     (12) Existing Investments and any Investments made with the proceeds of any
dispositions thereof;




     (13) Permitted Business Investments;





23









 






     (14) Guarantees of performance or other obligations (other than Indebtedness) arising
in the ordinary course in the Oil and Gas Business, including obligations under oil and
natural gas exploration, development, joint operating, and related agreements and licenses
or concessions related to the Oil and Gas Business;




     (15) Investments in prepaid expenses, negotiable instruments held for collection or
deposit and lease, utility and workers compensation, performance and similar deposits
entered into as a result of the operations of the business in the ordinary course of
business;




     (16) Investments in a wholly-owned Unrestricted Subsidiary that constructs and owns an
office building for use as the Company’s headquarters in an aggregate amount not to exceed
$10.0 million at any one time outstanding;




     (17) Investments in Capital Stock of any Oil and Gas Royalty Trust; and




     (18) Investments in any Person, not otherwise permitted to be made pursuant to clause
(1) through (17), in an aggregate amount, which when taken together with all other
Investments made on or after the Issue Date pursuant to this clause, does not exceed $20.0
million at any one time outstanding (after giving effect to any reductions in the aggregate
amount of such Investments as a result of the disposition thereof, including through
liquidation, repayment or other reduction (but excluding dividends) for cash, the aggregate
amount of such reductions not to exceed the aggregate amount of such Investments outstanding
and previously made pursuant to this clause (18).



     “Permitted Liens” means the following types of Liens:




     (1) Liens securing Senior Indebtedness;




     (2) Liens in favor of the Company or a Restricted Subsidiary;




     (3) Liens securing the Notes, any Subsidiary Guarantee or other obligations arising
under this Indenture;




     (4) Liens existing as of the Issue Date;




     (5) Liens for taxes, assessments and governmental charges or claims either (A) not
delinquent or (B) contested in good faith by appropriate proceedings and as to which the
Company or its Restricted Subsidiaries shall have set aside on its books such reserves as
may be required pursuant to GAAP;




     (6) statutory and contractual Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law or contract
incurred in the ordinary course of business for sums not delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;




     (7) Liens incurred or deposits or pledges made in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other types of social
security, or to secure the payment or performance of tenders, statutory or






24









 





regulatory obligations, surety and appeal bonds, bids, leases, government contracts and
leases, performance and return of money bonds and other similar obligations, including
letters of credit and bank guarantees required or requested by the United States, any State
thereof or any foreign government or any subdivision, department, agency, organization or
instrumentality of any of the foregoing in connection with any contract or statute
(exclusive of obligations for the payment of borrowed money but including lessee or operator
obligations under statutes, governmental regulations, contracts or instruments related to
the ownership, exploration and production of oil, natural gas, other hydrocarbons and
minerals on state, Federal or foreign lands or waters);




     (8) Liens arising out of judgments, decrees, orders or awards not constituting an Event
of Default;




     (9) leases, subleases, licenses or sublicenses to third parties entered into in the
ordinary course of business;




     (10) Liens on, or related to, assets to secure all or part of the costs incurred in the
ordinary course of the Oil and Gas Business for the exploration, drilling, development,
production, processing, transportation, marketing, storage or operation thereof;




     (11) Liens on pipeline or pipeline facilities that arise under operation of law;




     (12) Liens arising under operating agreements, joint venture agreements, partnership
agreements, oil, natural gas, other hydrocarbon and mineral leases, farm-out or farm-in
agreements, division orders, contracts for the sale, transportation or exchange of oil or
natural gas, unitization and pooling declarations and agreements, area of mutual interest
agreements and other agreements that are customary in the Oil and Gas Business;




     (13) Liens reserved in oil, natural gas, other hydrocarbon and mineral leases for bonus
or rental payments and for compliance with the terms of such leases;




     (14) Liens constituting survey exceptions, encumbrances, easements, and reservations
of, and rights to others for, rights-of-way, zoning and other restrictions as to the use of
real properties, and minor defects of title which, in the case of any of the foregoing, do
not secure the payment of borrowed money, and in the aggregate do not materially adversely
affect the value of the assets of the Company and its Restricted Subsidiaries, taken as a
whole, or materially impair the use of such properties for the purposes for which such
properties are held by the Company or such Subsidiaries;




     (15) Liens encumbering assets under construction arising from progress or partial
payments by a customer of the Company or its Restricted Subsidiaries relating to such
assets;




     (16) Liens encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements of the Company or any of its Restricted
Subsidiaries, including rights of offset and set-off;




     (17) Liens upon specific items of inventory or other goods and proceeds of any Person
securing such Person’s obligations in respect of bankers’ acceptances issued or






25









 





created for the account of such Person to facilitate the purchase, shipment or storage
of such inventory or other goods;




     (18) Liens arising under this Indenture in favor of the Trustee for its own benefit and
similar Liens in favor of other trustees, agents and representatives arising under
instruments governing Indebtedness permitted to be incurred under this Indenture; provided,
however, that such Liens are solely for the benefit of the trustees, agents or
representatives in their capacities as such and not for the benefit of the holders of such
Indebtedness;




     (19) set-off, chargeback and other rights of depositary and collection banks and other
regulated financial institutions with respect to money or instruments of the Company or any
of its Restricted Subsidiaries on deposit with or in the possession of such institutions;




     (20) Liens arising from the deposit of funds or securities in trust for the purpose of
decreasing or defeasing Indebtedness so long as such deposit of funds or securities and such
decreasing or defeasing of Indebtedness are permitted under Section 4.09 of the Indenture;




     (21) any Lien existing on any Property of a Person at the time such Person is merged or
consolidated with or into the Company or a Restricted Subsidiary or becomes a Restricted
Subsidiary (and not incurred in anticipation of or in connection with such transaction),
provided that such Liens are not extended to other Property of the Company or the Restricted
Subsidiaries;




     (22) any Lien existing on any Property at the time of the acquisition thereof (and not
incurred in anticipation of or in connection with such transaction), provided that such
Liens are not extended to other Property of the Company or the Restricted Subsidiaries;




     (23) Liens to secure Production Payments that are not prohibited by this Indenture to
the extent such Liens are limited to the assets that are the subject of such Production
Payments;




     (24) Liens to secure a Refinancing Indebtedness incurred to refinance Indebtedness that
was secured by a Lien permitted under this Indenture and that was incurred in accordance
with the provisions of this Indenture; provided that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary other than assets
or property securing the Indebtedness so refinanced; and




     (25) Liens incurred in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company with respect to obligations that do not exceed $10.0 million at
any time outstanding.



     In each case set forth above, notwithstanding any stated limitation on the assets that may be
subject to such Lien, a Permitted Lien on a specified asset or group or type of assets may include
Liens on all improvements, additions and accessions thereto and all products and proceeds thereof
(including, without limitation, dividends, distributions and increases in respect thereof).






26









 





     “Preferred Stock”, as applied to the Capital Stock of any Person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of Capital Stock of any other class of such Person.



     “Production Payments” means, collectively, Dollar-Denominated Production Payments and
Volumetric Production Payments.



     “Production Payments and Reserve Sales” means the grant or transfer to any Person of a
Dollar-Denominated Production Payment, Volumetric Production Payment, royalty, overriding royalty,
net profits interest, master limited partnership interest or other interest in oil and natural gas
properties, reserves or the right to receive all or a portion of the production or the proceeds
from the sale of production attributable to such properties.



     “Prospectus Supplement” means the Company’s prospectus supplement dated November 16, 2005, and
the Company’s prospectus dated July 9, 2004 supplemented thereby, which form a part of the
Company’s registration statement on Form S-3 as filed with the SEC, registration statement no.
333-117036.



     “Public Equity Offering” means an underwritten primary public offering of common stock of the
Company pursuant to an effective registration statement under the Securities Act.



     “Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay,
prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for,
such Indebtedness. “Refinanced” and “Refinancing” shall have correlative meanings.



     “Refinancing Indebtedness” means Indebtedness that Refinances any Indebtedness of the Company
or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this
Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided,
however, that:




     (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced;




     (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of the
Indebtedness being Refinanced; and




     (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the aggregate
accreted value) then outstanding or committed (plus accrued interest thereon and fees and
expenses, including any premium and defeasance costs) under the Indebtedness being
Refinanced;


provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor that Refinances
Indebtedness of the Company or (B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.






27









 








     “Related Business” means the Oil and Gas Business and any other business in which the Company
or a Subsidiary was engaged on the Issue Date and any business related, ancillary or complementary
thereto.



     “Representative” means, with respect to a Person, any trustee, agent or representative (if
any) for an issue of Senior Indebtedness of such Person.



     “Restricted Payment” with respect to any Person means:




     (1) the declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or indirect holders of
its Capital Stock (other than dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and dividends or distributions payable solely to the Company
or a Restricted Subsidiary, and other than pro rata dividends or other distributions (or
dividends or other distributions on a basis more favorable to the Company or to a Restricted
Subsidiary) made by a Subsidiary that is not a Wholly Owned Subsidiary to stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity other than a
corporation));




     (2) the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company held by any Person (other than a Restricted Subsidiary) or of
any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other
than the Company or a Restricted Subsidiary), including in connection with any merger or
consolidation and including the exercise of any option to exchange any Capital Stock (other
than into Capital Stock of the Company that is not Disqualified Stock);




     (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations of such Person (other than the purchase, repurchase,
redemption, defeasance or other acquisition of Subordinated Obligations or retirement for
value in anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value); or




     (4) the making of any Investment (other than a Permitted Investment) in any Person.



     “Restricted Subsidiary” means any Subsidiary of the Company that is not an Unrestricted
Subsidiary.



     “Revolving Credit Facility” means the Credit Agreement dated as of August 19, 2004, as
amended, among the Company, Encore Operating, L.P., Bank of America, N.A., as Administrative Agent
and L/C Issuer, Fortis Capital Corp. and Wachovia Bank, N.A., as Co-Syndication Agents, BNP Paribas
and Citibank, N.A., as Co-Documentation Agents, and the financial institutions listed on Schedule
2.01 thereto, as Lenders.



     “S&P” means Standard and Poor’s Ratings Services.






28









 





     “Sale/Leaseback Transaction” means an arrangement relating to property owned by the Company or
a Restricted Subsidiary on the Issue Date or thereafter acquired by the Company or a Restricted
Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or a Restricted Subsidiary leases it from such Person.



     “SEC” means the U.S. Securities and Exchange Commission.



     “Secured Indebtedness” means any Indebtedness of the Company secured by a Lien.



     “Securities Act” means the U.S. Securities Act of 1933, as amended.



     “Senior Indebtedness” means with respect to any Person:




     (1) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter
Incurred; and




     (2) all other Obligations of such Person (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such Person whether
or not post-filing interest is allowed in such proceeding) in respect of Indebtedness
described in clause (1) above;


unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such Indebtedness or other
obligations are subordinate or pari passu in right of payment to the Notes or the Subsidiary
Guaranty of such Person, as the case may be; provided, however, that Senior
Indebtedness shall not include:





     (1) any obligation of such Person to any Subsidiary;




     (2) any liability for Federal, state, local or other taxes owed or owing by such
Person;




     (3) any accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities);




     (4) any Indebtedness or other Obligation (and any accrued and unpaid interest in
respect thereof) of such Person which is subordinate or junior in any respect to any other
Indebtedness or other Obligation of such Person;




     (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in
violation of this Indenture; or




     (6) any Preferred Stock or Disqualified Stock.



     “Senior Subordinated Indebtedness” means, with respect to a Person, the Notes (in the case of
the Company), the Subsidiary Guaranty (in the case of a Subsidiary Guarantor) and any other
Indebtedness of such Person that specifically provides that such Indebtedness is to rank
pari passu with the Notes or such Subsidiary Guaranty, as the case may be, in right
of payment






29









 




and is not subordinated by its terms in right of payment to any Indebtedness or other
obligation of such Person which is not Senior Indebtedness of such Person.




     “Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant
Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the
SEC.



     “Stated Maturity” means, with respect to any security, the date specified in such security as
the fixed date on which the final payment of principal of such security is due and payable,
including pursuant to any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).



     “Subordinated Obligation” means, with respect to a Person, any Indebtedness of such Person
(whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in
right of payment to the Notes or a Subsidiary Guaranty of such Person, as the case may be, pursuant
to a written agreement to that effect.



     “Subsidiary” means, with respect to any Person, any corporation, association, partnership or
other business entity of which more than 50% of the total voting power of shares of Voting Stock is
at the time owned or controlled, directly or indirectly, by (1) such Person; (2) such Person and
one or more Subsidiaries of such Person; or (3) one or more Subsidiaries of such Person. Unless
otherwise specified, “Subsidiary” means a Subsidiary of the Company.



     “Subsidiary Guarantor” means each Subsidiary of the Company that executes the Indenture as a
guarantor on the Issue Date and each other Subsidiary of the Company that thereafter guarantees the
Notes pursuant to the terms of the Indenture, in each case unless and until such subsidiary is
released from its obligations under its Subsidiary Guaranty pursuant to the terms of the Indenture.
As of the Issue Date, the Subsidiary Guarantors are EAP Energy, Inc., EAP Energy Services, L.P.,
EAP Operating, Inc., EAP Properties, Inc., Encore Operating, L.P. and Encore Operating Louisiana,
LLC.



     “Subsidiary Guaranty” means a Guarantee by a Subsidiary Guarantor of the Company’s obligations
with respect to the Notes.



     “Temporary Cash Investments” means any of the following:




     (1) any investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency thereof;




     (2) investments in demand accounts and time deposit accounts, bankers acceptances,
overnight bank deposits, certificates of deposit and money market deposits maturing within
twelve months of the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any State thereof or any foreign
country recognized by the United States of America, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50.0 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated “A” (or such
similar equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities






30









 





Act) or any money-market fund sponsored by a registered broker dealer or mutual fund
distributor;




     (3) investments in deposits available for withdrawal on demand with any commercial bank
that is organized under the laws of any country in which the Company or any Restricted
Subsidiary maintains an office or is engaged in the Oil and Gas Business, provided that (i)
all such deposits have been made in such accounts in the ordinary course of business and
(ii) such deposits do not at any one time exceed $10.0 million in the aggregate;




     (4) repurchase (or reverse repurchase) obligations with a term of not more than 30 days
for underlying securities of the types described in clause (1) above entered into with a
bank meeting the qualifications described in clause (2) above;




     (5) investments in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which any
investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher)
according to S&P; and




     (6) investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof, and rated at
least “A” by S&P or “A” by Moody’s.



     “Treasury Rate” means the yield to maturity at the time of computation of United States
Treasury securities with a constant maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15(519) which has become publicly available at least two Business
Days prior to the date fixed for redemption or, in the case of defeasance, prior to the date of
deposit (or, if such Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining average life to December 1, 2010 or,
in the case of defeasance, to maturity; provided, however, that if the average life
to December 1, 2010 or maturity, as the case may be, of the Notes is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for which such yields are
given, except that if the average life to December 1, 2010 or maturity, as the case may be, of the
Notes is less than one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.



     “Trustee” means the party named as such in this Indenture until a successor replaces it and,
thereafter, means the successor.



     “Uniform Commercial Code” means the New York Uniform Commercial Code as in effect from time to
time.






31









 





     “Unrestricted Subsidiary” means:




     (1) any Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner provided
below; and




     (2) any Subsidiary of an Unrestricted Subsidiary.



     The Board of Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any
of its Subsidiaries own any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be
so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.09 of the Indenture. In the case of
any designation by the Company of a Person as an Unrestricted Subsidiary on the first day that such
Person is a Subsidiary of the Company in accordance with the provisions of this Indenture, such
designation shall be deemed to have occurred for all purposes of this Indenture simultaneously
with, and automatically upon, such Person becoming a Subsidiary.



     The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (A) the Company could Incur $1.00 of additional Indebtedness under Section 4.08(a) of
the Indenture and (B) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy
of the resolution of the Board of Directors giving effect to such designation and an Officers’
Certificate certifying that such designation complied with the foregoing provisions.



     “U.S. Government Obligations” means direct obligations (or certificates representing an
ownership interest in such obligations) of the United States of America (including any agency or
instrumentality thereof) for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable at the issuer’s option.



     “Volumetric Production Payments” means production payment obligations recorded as deferred
revenue in accordance with GAAP, together with all undertakings and obligations in connection
therewith.



     “Voting Stock” of a Person means all classes of Capital Stock or other interests (including
partnership interests) of such Person then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.



     “Wholly Owned Subsidiary” means a Restricted Subsidiary all the Capital Stock of which (other
than directors’ qualifying shares) is owned by the Company or one or more Wholly Owned
Subsidiaries.






32









 





SECTION 1.03. Other Definitions.




	 	 	 	 	 
	 	 	 	Defined
	Term	 	 	in Section
	“Affiliate Transaction”
	 	 	4.12	*
	“Bankruptcy Law”
	 	 	6.01	*
	“Cash Consideration”
	 	 	4.11	(a)(2)*
	“Change of Control Offer”
	 	 	4.13	(b)*
	“covenant defeasance option”
	 	 	8.01	(b)*
	“Custodian”
	 	 	6.01	*
	“Event of Default”
	 	 	6.01	*
	“Guaranteed Obligation”
	 	 	10.01	 
	“Investment Grade Rating”
	 	 	4.17	*
	“legal defeasance option”
	 	 	8.01	(b)*
	“Notes”
	 	 	2.01	 
	“Offer”
	 	 	4.11	(b)*
	“Offer Amount”
	 	 	4.11	(c)(2)*
	“Offer Period”
	 	 	4.11	(c)(2)*
	“Purchase Date”
	 	 	4.11	(c)(1)*
	“Successor Company”
	 	 	5.01	*
	“Suspended Covenants”
	 	 	4.17	*








 




			
	*	 	Reference is to the applicable Section of the Original Indenture, rather than to the applicable
Section of this First Supplemental Indenture.





SECTION 1.04. General References.




     All references in this First Supplemental Indenture to Articles and Sections, unless otherwise
specified, refer to the corresponding Articles and Sections of this First Supplemental Indenture;
and the term “herein”, “hereof”, “hereunder” and any other word of similar import refers to this
First Supplemental Indenture. All references to Articles and Sections of the Indenture refer to
the corresponding Articles and Sections of the Original Indenture as amended by this First
Supplemental Indenture.



     SECTION 1.05. Rules of Construction. Unless the context otherwise requires:




     (1) “including” means including without limitation;




     (2) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured
Indebtedness merely by virtue of its nature as unsecured Indebtedness;




     (3) the principal amount of any noninterest bearing or other discount security at any
date shall be the principal amount thereof that would be shown on a balance sheet of the
issuer dated such date prepared in accordance with GAAP;




     (4) the principal amount of any Preferred Stock shall be (i) the maximum liquidation
value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory
repurchase price with respect to such Preferred Stock, whichever is greater; and






33









 






     (5) all references to the date the Notes were originally issued shall refer to the
Issue Date.



ARTICLE 2



The Series of Securities




SECTION 2.01. The Form and Title of the Securities.




     There is hereby established a new series of Securities to be issued under the Original
Indenture and to be designated as the Company’s 7.25% Senior Subordinated Notes due 2017 (including
any Additional Notes, the “Notes”). The Notes shall be substantially in the form attached as
Exhibit A hereto, in each case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by the Original Indenture, and may have such
letters, numbers or other marks of identification and such legends or endorsements placed thereon
as the Company may deem appropriate or as may be required or appropriate to comply with any laws or
with any rules made pursuant thereto or with the rules of any securities exchange or automated
quotation system on which the Notes may be listed or traded, or to conform to general usage, or as
may, consistently with the Indenture, be determined by the officers executing such Notes, as
evidenced by their execution thereof.



     The Notes shall be executed, authenticated and delivered in accordance with the provisions of,
and shall in all respects be subject to, the terms, conditions and covenants of the Original
Indenture as supplemented by this First Supplemental Indenture (including the form of Note set
forth as Exhibit A hereto (the terms of which are incorporated in and made a part of this
First Supplemental Indenture for all intents and purposes)).



SECTION 2.02. Amount.




     The aggregate principal amount of the Notes which may be authenticated and delivered pursuant
hereto is unlimited. The Trustee shall initially authenticate and deliver Notes for original issue
in an initial aggregate principal amount of up to $150,000,000 upon delivery to the Trustee of a
Company Order for the authentication and delivery of such Notes. The aggregate principal amount of
the Notes to be issued hereunder may be increased at any time hereafter and the series may be
reopened for issuances of Additional Notes, upon Company Order without the consent of any Holder.
The Notes issued on the date hereof and any such Additional Notes that may be issued hereafter
shall be part of the same series of Securities for all purposes under the Indenture.



SECTION 2.03. Stated Maturity.




     The Notes may be issued on any Business Day on or after November 23, 2005, and the Stated
Maturity of the Notes shall be December 1, 2017.



SECTION 2.04. Interest and Interest Rates.




     The rate or rates at which the Notes shall bear interest, the date or dates from which such
interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and
the record date for any interest payable on any Interest Payment Date, in each case, shall be as
set forth in the form of Note set forth as Exhibit A hereto.







34









 





SECTION 2.05. Place of Payment.




     As long as any Notes are outstanding, the Company shall maintain as the Place of Payment for
the Notes an office or agency in the Borough of Manhattan, The City of New York, where Notes may be
presented for payment. The Company has designated by written notice to the Trustee such Place of
Payment pursuant to Section 4.02 of the Indenture, which as of the Issue Date of the Notes will be
45 Broadway, New York, New York 10006-3007.



SECTION 2.06. Optional Redemption.




     At its option, the Company may redeem the Notes, in whole or in part, in principal amounts of
$1,000 or any integral multiple thereof, at such times and from time to time, and at the applicable
redemption price determined, in each case as set forth in the form of Note attached hereto as
Exhibit A, in accordance with the terms set forth in the Notes and in accordance with
Article III of the Indenture.



SECTION 2.07. Defeasance and Discharge; Covenant Defeasance.




     Article VIII of the Indenture shall apply to the Notes.



SECTION 2.08. Global Securities.




     The Notes shall initially be issuable in whole or in part in the form of one or more Global
Securities. Such Global Securities (i) shall be deposited with, or on behalf of, the Depository
Trust Company, New York, New York, which shall act as Depositary with respect to the Notes, (ii)
shall bear the legends applicable to Global Securities set forth in the form of Note attached
hereto as Exhibit A, (iii) may be exchanged in whole or in part for Notes in definitive
form upon the terms and subject to the conditions provided in Section 2.17 of the Indenture and
(iv) shall otherwise be subject to the applicable provisions of the Indenture.



ARTICLE 3

Amendment of Certain Provisions of Article IV of the Original Indenture




SECTION 3.01. Amendment of Section 4.03 of the Original Indenture .




     Paragraph (b) of Section 4.03 of the Original Indenture is hereby amended, solely as it
applies to the Notes, to read as follows:



     (b) Notwithstanding that the Company may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC (to the extent the SEC
will accept such filings) and provide the Trustee and Holders with such annual reports and such
information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange
Act and applicable to a U.S. corporation subject to such Sections (but, without exhibits in the
case of the Holders), such information, documents and other reports to be so filed and provided at
the times specified for the filings of such information, documents and reports under such Sections.







35









 





SECTION 3.02. Additional Covenants.




          Article IV of the Original Indenture is hereby amended, solely as it applies to the
Notes, to add the following covenants at the end thereof:



SECTION 4.08 Limitation on Indebtedness.




          (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly
or indirectly, any Indebtedness; provided, however, that the Company and the
Subsidiary Guarantors will be entitled to Incur Indebtedness if, on the date of such Incurrence and
after giving effect thereto on a pro forma basis, no Default has occurred and is
continuing and the Consolidated Coverage Ratio exceeds 2.5 to 1.




          (b) Notwithstanding the foregoing Section 4.08(a), the Company and the Restricted Subsidiaries
shall be entitled to Incur any or all of the following Indebtedness:





     (1) Indebtedness Incurred by the Company and its Restricted Subsidiaries pursuant to
Credit Facilities; provided, however, that, immediately after giving effect
to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under
this clause (1) and then outstanding does not exceed the greater of (A) $300 million less
the sum of all principal payments since the Issue Date with respect to such Indebtedness
pursuant to Section 4.11(a)(3)(A) and (B) $150 million plus 20% of ACNTA as of the date of
such Incurrence;




     (2) Indebtedness owed to and held by the Company or a Restricted Subsidiary;
provided, however, that (A) any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the obligor thereon and (B) if the Company or a Subsidiary Guarantor is the
obligor on such Indebtedness, unless such Indebtedness is owing to the Company or a
Subsidiary Guarantor, such Indebtedness is expressly subordinated to the prior payment in
full in cash of all obligations with respect to the Notes;




     (3) the Notes (but excluding any Additional Notes) and all Subsidiary Guaranties;




     (4) Indebtedness outstanding on the Issue Date (other than Indebtedness described in
clause (1), (2) or (3) of this Section 4.08(b));




     (5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the
date on which such Subsidiary became a Restricted Subsidiary or was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Restricted Subsidiary or was
acquired by the Company); provided, however, that on the date such
Subsidiary became a Restricted Subsidiary or was acquired by the
Company and after giving pro forma effect thereto, the Company would have been
able to Incur at least $1.00 of additional Indebtedness pursuant to Section 4.08(a);







36









 






     (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to Section
4.08(a) or pursuant to clause (3), (4), or (5) of this Section 4.08(b) or this clause (6);
provided, however, that to the extent such Refinancing Indebtedness directly
or indirectly Refinances Indebtedness of a Restricted Subsidiary Incurred pursuant to clause
(5) of this Section 4.08(b), such Refinancing Indebtedness shall be Incurred only by such
Restricted Subsidiary;




     (7) Hedging Obligations consisting of Interest Rate Agreements directly related to
Indebtedness outstanding on the Issue Date or permitted to be Incurred by the Company and
its Restricted Subsidiaries pursuant to this Indenture;




     (8) Hedging Obligations consisting of Oil and Natural Gas Hedging Contracts and
Currency Agreements entered into in the ordinary course of business for the purpose of
limiting risks that arise in the ordinary course of business of the Company and its
Subsidiaries;




     (9) Indebtedness in respect of performance, bid and surety bonds, including Guarantees
and letters of credit functioning as or supporting such performance, bid and surety bonds,
completion guarantees and other reimbursement obligations provided by the Company or any
Restricted Subsidiary in the ordinary course of business (in each case other than for an
obligation for money borrowed);




     (10) Indebtedness arising from the honoring by a bank or other financial institution of
a check, draft or similar instrument drawn against insufficient funds in the ordinary course
of business; provided, however, that such Indebtedness is extinguished
within two Business Days of its Incurrence;




     (11) Indebtedness consisting of any Guarantee by the Company or a Subsidiary Guarantor
of Indebtedness of the Company or a Subsidiary Guarantor outstanding on the Issue Date or
permitted by this Indenture to be Incurred by the Company or a Subsidiary Guarantor;




     (12) Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, Incurred for the purpose of financing all or any
part of the purchase price, cost of construction or improvement or carrying cost of assets
used in the business of the Company and its Restricted Subsidiaries and related financing
costs, and Refinancing Indebtedness Incurred to Refinance any Indebtedness Incurred pursuant
to this clause, in an aggregate principal amount at any one time outstanding not to exceed
$25.0 million;




     (13) Indebtedness arising from any agreement providing for indemnities, Guarantees,
purchase price adjustments, holdbacks, contingency payment obligations based on the
performance of the acquired or disposed assets or similar obligations (other than Guarantees
of Indebtedness) Incurred by any Person in connection with the acquisition or disposition of
assets;




     (14) Indebtedness in respect of in-kind obligations relating to net oil or natural gas
balancing positions arising in the ordinary course of business;






37









 






     (15) Non-Recourse Purchase Money Indebtedness Incurred by the Company and any
Subsidiary Guarantors; provided, however, that immediately after giving effect to any such
Incurrence, the aggregate principal amount of all Non-Recourse Purchase Money Indebtedness
Incurred under this clause (15) and then outstanding does not exceed $25.0 million; and




     (16) Indebtedness of the Company or of any of its Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other Indebtedness of the
Company and its Restricted Subsidiaries outstanding on the date of such Incurrence (other
than Indebtedness permitted by clauses (1) through (15) of this Section 4.08(b) or Section
4.08(a)) does not exceed $40.0 million of which not more than $20.0 million may be
Indebtedness of Restricted Subsidiaries that are not Subsidiary Guarantors.



          (c) Notwithstanding the foregoing, neither the Company nor any Subsidiary Guarantor will incur
any Indebtedness pursuant to Section 4.08(b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations of the Company or any Subsidiary Guarantor
unless such Indebtedness shall be subordinated to the Notes or the applicable Subsidiary Guaranty
to at least the same extent as such Subordinated Obligations.




          (d) For purposes of determining compliance with this Section 4.08:





     (1) any Indebtedness remaining outstanding under the Revolving Credit Facility after
the application of the net proceeds from the sale of the Notes will be treated as Incurred
on the Issue Date under Section 4.08(b)(1);




     (2) in the event that an item of Indebtedness (or any portion thereof) meets the
criteria of more than one of the types of Indebtedness described above, or is entitled to be
incurred in compliance with the Consolidated Coverage Ratio in Section 4.08(a), the Company,
in its sole discretion, may classify such item of Indebtedness (or any portion thereof) in
any manner that complies with this Section 4.08 and will only be required to include the
amount and type of such Indebtedness in one of the above clauses; and




     (3) the Company will be entitled to divide and classify an item of Indebtedness in more
than one of the types of Indebtedness described above or as having been incurred in
compliance with the Consolidated Coverage Ratio in Section 4.08(a).



          (e) Notwithstanding Sections 4.08(a) and (b), neither the Company nor any Subsidiary Guarantor
will Incur any Indebtedness if such Indebtedness is subordinate or junior ranking in right of
payment to any Senior Indebtedness of such Person, as applicable, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness of such Person.




SECTION 4.09 Limitation on Restricted Payments.




          (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:









38









 






     (2) the Company is not entitled to Incur an additional $1.00 of Indebtedness pursuant
to Section 4.08(a); or




     (3) the aggregate amount of such Restricted Payment and all other Restricted Payments
since April 2, 2004 would exceed the sum of (without duplication):




	 	(A)	 	50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning
of the fiscal quarter immediately following the fiscal quarter during
which April 2, 2004 occurs to the end of the most recent fiscal quarter
for which financial statements of the Company are publicly available
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus
	 
	 	(B)	 	100% of the aggregate Net Cash Proceeds or the
fair market value of property other than cash (including Capital Stock
of Persons engaged in the Oil and Gas Business or assets used in the
Oil and Gas Business) received by the Company from the issuance or sale
of its Capital Stock (other than Disqualified Stock) subsequent to
April 2, 2004 (other than an issuance or sale to a Subsidiary of the
Company and other than an issuance or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) and 100% of any cash
capital contribution, or the fair market value of property other than
cash, received by the Company from its shareholders subsequent to April
2, 2004; plus
	 
	 	(C)	 	the aggregate Net Cash Proceeds received by the
Company subsequent to April 2, 2004 from the issuance or sale of its
Capital Stock (other than Disqualified Stock) to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees; provided,
however, that if such employee stock ownership plan or trust
Incurs any Indebtedness to finance the purchase of such Capital Stock,
such aggregate amount shall be limited to the excess of such Net Cash
Proceeds over the amount of such Indebtedness plus an amount equal to
any increase in the Consolidated Net Worth of the Company resulting
from principal repayments made from time to time by such employee stock
ownership plan or trust with respect to such Indebtedness; plus
	 
	 	(D)	 	the amount by which Indebtedness of the Company
or a Restricted Subsidiary is reduced on the Company’s consolidated
balance sheet upon the conversion or exchange subsequent to April 2,
2004 of any Indebtedness of the Company or any Restricted Subsidiary
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or the fair value
of any other property, distributed by the Company








39









 






	 	 	 	upon such conversion
or exchange); provided, however, that the foregoing
amount shall not exceed the Net Cash Proceeds received by the Company
or any Restricted Subsidiary from the sale of such Indebtedness
(excluding Net Cash Proceeds from sales to a Subsidiary of the Company
or to an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees);
plus
	 
	 	(E)	 	an amount equal to the sum of (x) the net
reduction in the Investments (other than Permitted Investments) made by
the Company or any Restricted Subsidiary in any Person (including any
Unrestricted Subsidiary) resulting from repurchases, repayments or
redemptions of such Investments by such Person, proceeds realized on
the sale of such Investment and proceeds representing the return of
capital (excluding dividends and distributions), in each case received
by the Company or any Restricted Subsidiary, and (y) to the extent such
Person is an Unrestricted Subsidiary, the portion (proportionate to the
Company’s equity interest in such Subsidiary) of the fair market value
of the net assets of such Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that to the extent the foregoing sum
exceeds, in the case of any such Person or Unrestricted Subsidiary, the
amount of Investments (excluding Permitted Investments) previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary, such excess shall
not be included in this clause (E) unless the amount represented by
such excess has not been and will not be taken into account in one of
the foregoing clauses (A), (B), (C) or (D); plus
	 
	 	(F)	 	$25.0 million.





          (b) The preceding provisions will not prohibit:





     (1) any Restricted Payment made out of the Net Cash Proceeds of the substantially
concurrent issuance or sale of, or made by conversion into or exchange for, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees) or a
substantially concurrent cash capital contribution received by the Company from one or more
of its shareholders; provided, however, that (A) such
Restricted Payment shall be excluded in the calculation of the amount of Restricted
Payments under Section 4.09(a)(3) and (B) the Net Cash Proceeds from such sale or such cash
capital contribution (to the extent so used for such Restricted Payment) shall be excluded
from the calculation of amounts under Section 4.09(a)(3)(B);




     (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value of Subordinated Obligations of the Company or any Subsidiary






40









 





Guarantor made by
exchange for, or out of the proceeds of the substantially concurrent Incurrence or sale of,
Indebtedness which is permitted to be Incurred pursuant to Section 4.08; provided,
however, that such purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value shall be excluded in the calculation of the amount of Restricted
Payments under Section 4.09(a)(3);




     (3) any purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value of Disqualified Stock of the Company or a Subsidiary Guarantor made by conversion
into or exchange for, or out of the proceeds of the substantially concurrent issuance or
sale (other than to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of their
employees) of, Disqualified Stock of the Company which is permitted to be issued pursuant to
Section 4.08; provided, however, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded in the calculation
of the amount of Restricted Payments under Section 4.09(a)(3);




     (4) dividends paid within 60 days after the date of declaration thereof if at such date
of declaration such dividend would have complied with this Section 4.09; provided,
however, that at the time of payment of such dividend, no other Default shall have
occurred and be continuing (or result therefrom); provided further, however,
that such dividend shall be included in the calculation of the amount of Restricted Payments
under Section 4.09(a)(3) at the time of payment;




     (5) so long as no Default has occurred and is continuing, the purchase, redemption or
other acquisition or retirement for value of shares of Capital Stock of the Company or any
of its Subsidiaries from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or the respective heirs, estates or permitted
transferees of such employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals purchase or sell or
are granted the option to purchase or sell, shares of such Capital Stock; provided,
however, that the aggregate amount of such purchases, redemptions and other
acquisitions and retirements (excluding amounts representing cancellation of Indebtedness)
shall not exceed $3.0 million in any twelve-month period; provided further,
however, that such purchases, redemptions and other acquisitions and retirements
shall be excluded in the calculation of the amount of Restricted Payments under Section
4.09(a)(3);




     (6) repurchases, acquisitions or retirements of shares of Company common stock deemed
to occur upon the exercise of stock options or similar rights issued under employee benefit
plans when shares are surrendered to pay all or a portion of the exercise
price or to satisfy any federal income tax obligations; provided,
however, that such repurchases, acquisitions or retirements shall be excluded in the
calculation of the amount of Restricted Payments under Section 4.09(a)(3);




     (7) the payment of cash in lieu of fractional shares of Capital Stock in connection
with any transaction otherwise permitted under this Section 4.09; provided,






41









 





however, that such payment will be excluded in the calculation of the amount of
Restricted Payments under Section 4.09(a)(3);




     (8) payments to dissenting stockholders (x) pursuant to applicable law or (y) in
connection with the settlement or other satisfaction of legal claims made pursuant to or in
connection with a consolidation, merger or transfer of assets in connection with a
transaction that is not prohibited by this Indenture; provided, however,
that such payments will be included in the calculation of the amount of Restricted Payments
under Section 4.09(a)(3).




     (9) upon the occurrence of a Change of Control or an Asset Disposition and within 60
days after the completion of the offer to repurchase the Notes pursuant to Sections 4.11 or
4.13, (including the purchase of all Notes tendered), any purchase, repurchase, redemption,
defeasance, acquisition or other retirement for value of Subordinated Obligations required
pursuant to the terms thereof as a result of such Change of Control or Asset Disposition at
a purchase or redemption price not to exceed 101% of the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any; provided,
however, that (A) at the time of such purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value, no Default shall have occurred and be
continuing (or would result therefrom), and (B) such purchase, repurchase, redemption,
defeasance or other acquisition and retirement for value will be excluded in the calculation
of the amount of Restricted Payments under Section 4.09(a)(3).



     The amount of all Restricted Payments (other than cash) shall be the fair market value on the
date of the Restricted Payment of the assets proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, in accordance with the Restricted Payment.



     For purposes of determining compliance with this Section 4.09, in the event that a Restricted
Payment meets the criteria of more than one of the types of Restricted Payments described above,
the Company, in its sole discretion, may order and classify such Restricted Payment in any manner
in compliance with this Section 4.09.



SECTION 4.10 Limitation on Restrictions on Distributions from Restricted Subsidiaries.




     The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise
cause or permit to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its
Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the
Company, (b) make any loans or advances to the Company or (c) transfer any of its property or
assets to the Company, except:




     (1) with respect to clauses (a), (b) and (c),




	 	(A)	 	any encumbrance or restriction pursuant to an
agreement governing Indebtedness or Capital Stock and other agreements
or instruments in effect at or entered into on the Issue Date;
	 
	 	(B)	 	any encumbrance or restriction with respect to
a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness








42









 












	 	 	 	Incurred by such Restricted Subsidiary or Capital Stock or
other agreement or instrument of such Restricted Subsidiary in
existence on or prior to the date on which such Restricted Subsidiary
was acquired by the Company or otherwise became a Restricted Subsidiary
(other than Indebtedness Incurred, Capital Stock issued or agreements
or instruments entered into as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by
the Company) and outstanding on such date;
	 
	 	(C)	 	any encumbrance or restriction pursuant to an
agreement effecting a Refinancing in whole or in part of Indebtedness
Incurred pursuant to an agreement referred to in subclause (A) or (B)
of clause (1) of this Section 4.10 or this subclause (C) or subclause
(B) of clause (2) of this Section 4.10 or contained in any amendment
to, or modification, restatement, renewal, increase, supplement,
replacement or extension of, an agreement referred to in subclause (A)
or (B) of clause (1) of this Section 4.10 or this clause (C) or
subclause (B) of clause (2) of this Section 4.10; provided,
however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement
or amendment, modification, restatement, renewal, increase, supplement,
replacement or extension agreement are not materially more restrictive,
taken as a whole, than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such predecessor agreements;
	 
	 	(D)	 	any customary encumbrance or restriction with
respect to a Restricted Subsidiary imposed pursuant to a merger
agreement or an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
	 
	 	(E)	 	customary encumbrances and restrictions
contained in agreements of the types described in the definition of the
term “Permitted Business Investments;” and
	 
	 	(F)	 	customary supermajority voting provisions and
other customary provisions with respect to the disposition or
distribution of assets, each contained in corporate charters, bylaws,
stockholders’ agreements, limited liability company agreements,
partnership agreements, joint venture agreements and other similar
agreements entered into in the ordinary course of business of the
Company and its Restricted Subsidiaries; and








43









 












     (2) with respect to clause (c) only,




	 	(A)	 	any such encumbrance or restriction consisting
of customary nonassignment provisions (including provisions forbidding
subletting or sublicensing) in leases governing leasehold interests and
licenses to the extent such provisions restrict the transfer of the
lease or license or the property leased, or licensed thereunder;
	 
	 	(B)	 	any encumbrance or restriction contained in
credit agreements, security agreements or mortgages securing
Indebtedness of the Company or a Restricted Subsidiary or in Production
Payments and Reserve Sales, to the extent such encumbrance or
restriction restricts the transfer of the property subject to such
credit agreements, security agreements or mortgages or Production
Payments and Reserve Sales;
	 
	 	(C)	 	encumbrances and restrictions contained in any
agreement, instrument or Capital Stock assumed by the Company or any of
its Restricted Subsidiaries or for which any of them becomes liable as
in effect at the time of such transaction (except to the extent such
agreement, instrument or Capital Stock was entered into in connection
with or in contemplation of such transaction), which encumbrances and
restrictions are not applicable to any assets other than assets
acquired in connection with such transaction and all improvements,
additions and accessions thereto and products and proceeds thereof;
	 
	 	(D)	 	restrictions on cash or other deposits imposed
by customers under contracts entered into in the ordinary course of
business;
	 
	 	(E)	 	encumbrances and restrictions contained in
contracts entered into in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of, or from the ability of the Company and the
Restricted Subsidiaries to realize the value of, property or assets of
the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary;
	 
	 	(F)	 	restrictions on the transfer of property or
assets required by any regulatory authority having jurisdiction over
the Company or such Restricted Subsidiary; and
	 
	 	(G)	 	customary restrictions contained in asset sale
agreements limiting the transfer of such assets pending the closing of
such sale.








44









 











SECTION 4.11 Limitation on Sales of Assets and Subsidiary Stock.




          (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, consummate any Asset Disposition unless:





     (1) the Company or such Restricted Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value (including as to the value of
all non-cash consideration) (as determined in good faith by the Board of Directors, an
Officer or an officer of such Restricted Subsidiary with responsibility for such
transaction, which determination shall be conclusive evidence of compliance with this
provision), of the shares and assets subject to such Asset Disposition;




     (2) at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents, Additional Assets or any
combination thereof (collectively, the “Cash Consideration”); and




     (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be):




	 	(A)	 	first, to the extent the Company elects
(or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness of the Company or any Subsidiary
Guarantor or Indebtedness (other than any Disqualified Stock) of a
Wholly Owned Subsidiary that is not a Subsidiary Guarantor (in each
case other than Indebtedness owed to the Company or an Affiliate of the
Company) within one year from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash;
	 
	 	(B)	 	second, to the extent of the balance of
such Net Available Cash after application in accordance with clause
(A), to the extent the Company elects, to acquire Additional Assets or
to make capital expenditures in the Oil and Gas Business within one
year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; and
	 
	 	(C)	 	third, to the extent of the balance of
such Net Available Cash after application in accordance with clauses
(A) and (B), to make an offer to the holders of the Notes (and to
holders of other Senior Subordinated Indebtedness of the Company
designated by the Company) to purchase Notes (and such other Senior Subordinated
Indebtedness of the Company) pursuant to and subject to the
conditions contained in this Indenture;





provided, however, that in connection with any prepayment,
repayment, purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value of Indebtedness pursuant to clause (A) or (C) above, the
Company or such Restricted Subsidiary shall permanently retire such Indebtedness and
shall cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.





45









 








     Upon any Asset Disposition by an Oil and Gas Royalty Trust in which the Company or any
Restricted Subsidiary owns Capital Stock, the Company or such Restricted Subsidiary will apply the
Net Available Cash therefrom as provided in Section 4.11(a)(3).



     Notwithstanding the foregoing provisions of this Section 4.11, the Company and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance with this Section
4.11 except to the extent that the aggregate Net Available Cash from all Asset Dispositions which
is not applied in accordance with this Section 4.11 exceeds $20.0 million. Pending application of
Net Available Cash pursuant to this Section 4.11, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit indebtedness.



     For the purposes of this Section 4.11, the following are deemed to be cash or cash
equivalents:




     (1) any liabilities, as shown on the Company’s or such Restricted Subsidiary’s most
recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to the Notes or
any Subsidiary Guaranty) that are assumed by the transferee of any such assets pursuant to
(1) a customary novation agreement that releases the Company or such Restricted Subsidiary
from further liability or (2) an assignment agreement that includes, in lieu of such a
release, the agreement of the transferee or its parent company to indemnify and hold
harmless the Company or such Restricted Subsidiary from and against any loss, liability or
cost in respect of such assumed liability (provided, however, that such
indemnifying party (or its long-term debt securities) shall have an Investment Grade Rating
(with no indication of a negative outlook or credit watch with negative implications, in any
case, that contemplates such indemnifying party (or its long-term debt securities) failing
to have an Investment Grade Rating) at the time the indemnity is entered into);




     (2) any non-Cash Consideration received by the Company or any Restricted Subsidiary
from the transferee that is converted, monetized, sold or exchanged by the Company or such
Restricted Subsidiary into cash or cash equivalents within 120 days of receipt.



     Notwithstanding the foregoing, the 75% limitation referred to in Section 4.11(a)(2) shall be
deemed satisfied with respect to any Asset Disposition in which the cash or cash equivalents
portion of the consideration received therefrom, determined in accordance with the foregoing provision on an after-tax basis, is equal to or greater than what the after-tax proceeds would
have been had such Asset Disposition complied with the aforementioned 75% limitation.



     The requirement of Section 4.11(a)(3)(B) shall be deemed to be satisfied if an agreement
(including a lease, whether a capital lease or an operating lease) committing to make the
acquisitions or expenditures referred to therein is entered into by the Company or its Restricted
Subsidiary within the time period specified in such clause and such Net Available Cash is
subsequently applied in accordance with such agreement within six months following such agreement.






46









 





          (b) In the event of an Asset Disposition that requires the purchase of Notes (and other Senior
Subordinated Indebtedness of the Company) pursuant to Section 4.11(a)(3)(C), the Company shall make
such offer to purchase Notes (an “Offer”) on or before the 366th day after the later of the date of
such Asset Disposition or the receipt of such Net Available Cash, and shall purchase Notes tendered
pursuant to an offer by the Company for the Notes (and such other Senior Subordinated Indebtedness
of the Company) at a purchase price of 100% of their principal amount (or, in the event such other
Senior Subordinated Indebtedness of the Company was issued with significant original issue
discount, 100% of the accreted value thereof) without premium, plus accrued but unpaid interest
(or, in respect of such other Senior Subordinated Indebtedness of the Company, such lesser price,
if any, as may be provided for by the terms of such Senior Subordinated Indebtedness of the
Company) in accordance with the procedures (including prorating in the event of oversubscription)
set forth in this Indenture. If the aggregate purchase price of the securities tendered exceeds
the Net Available Cash allotted to their purchase, the Company will select the securities to be
purchased on a pro rata basis but in round denominations, which in the case of the Notes will be
denominations of $1,000 principal amount or multiples thereof. The Company shall not be required
to make such an offer to purchase Notes (and other Senior Subordinated Indebtedness of the Company)
pursuant to this Section 4.11 if the Net Available Cash not applied or invested as provided in
Section 4.11(a)(3)(A) or (B) is less than $20.0 million (which lesser amount shall be carried
forward for purposes of determining whether such an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition). Upon completion of such an offer to
purchase, Net Available Cash will be deemed to be reduced by the aggregate amount of such offer.




          (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make
an Offer, the Company shall deliver to the Trustee and send, by first-class mail to each Holder, a
written notice stating that the Holder may elect to have his Notes purchased by the Company either
in whole or in part (subject to prorating as described in Section 4.11(b) in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase
price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after
the date of such notice (the “Purchase Date”) and shall contain such information concerning the
business of the Company which the Company in good faith believes will enable such Holders to make
an informed decision (which at a minimum will include (A) the most recently filed Annual Report on
Form 10-K (including audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company
filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions
otherwise described in the information furnished with such notice (or corresponding successor
reports), (B) a description of material developments in the Company’s business subsequent to the
date of the latest of such Reports, and (C) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Notes pursuant to the Offer, together with the
information contained in clause (3).





     (2) Not later than the date upon which written notice of an Offer is delivered to the
Trustee as provided below, the Company shall deliver to the Trustee an Officers’ Certificate
as to (A) the amount of the Offer (the “Offer Amount”), including information as to any
other Senior Subordinated Indebtedness included in the Offer, (B) the allocation of the Net
Available Cash from the Asset Dispositions pursuant to which such Offer is being made and
(C) the compliance of such allocation with the provisions of Section 4.11(a) and (b). On
such date, the Company shall also irrevocably deposit with the






47









 





Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) in
Temporary Cash Investments, maturing on the last day prior to the Purchase Date or on the
Purchase Date if funds are immediately available by open of business, an amount equal to the
Offer Amount to be held for payment in accordance with the provisions of this Section. If
the Offer includes other Senior Subordinated Indebtedness, the deposit described in the
preceding sentence may be made with any other paying agent pursuant to arrangements
satisfactory to the Trustee. Upon the expiration of the period for which the Offer remains
open (the “Offer Period”), the Company shall deliver to the Trustee for cancellation the
Notes or portions thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee shall, on the Purchase Date, mail or deliver payment (or cause the
delivery of payment) to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Notes delivered by the Company to the Trustee
is less than the Offer Amount applicable to the Notes, the Trustee shall deliver the excess
to the Company immediately after the expiration of the Offer Period for application in
accordance with this Section 4.11.




     (3) Holders electing to have a Note purchased shall be required to surrender the Note,
with an appropriate form duly completed, to the Company at the address specified in the
notice at least three Business Days prior to the Purchase Date. Holders shall be entitled
to withdraw their election if the Trustee or the Company receives not later than one
Business Day prior to the Purchase Date, a telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his election to have
such Note purchased. Holders whose Notes are purchased only in part shall be issued new
Notes equal in principal amount to the unpurchased portion of the Notes surrendered.




     (4) At the time the Company delivers Notes to the Trustee which are to be accepted for
purchase, the Company shall also deliver an Officers’ Certificate stating that such Notes
are to be accepted by the Company pursuant to and in accordance with the terms of this
Section 4.11. A Note shall be deemed to have been accepted for purchase at the time the
Trustee, directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.



          (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection with the repurchase
of Notes pursuant to this Section 4.11. To the extent that the provisions of any securities laws
or regulations conflict with provisions of this Section 4.11, the
Company shall comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue of its compliance with such
securities laws or regulations.




SECTION 4.12 Limitation on Affiliate Transactions.




          (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any
transaction (including the purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an “Affiliate Transaction”) unless:






48









 









     (1) the terms of the Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary than those that could reasonably be expected to be obtained at the
time of the Affiliate Transaction in arm’s-length dealings with a Person who is not an
Affiliate;




     (2) if such Affiliate Transaction involves an amount in excess of $10.0 million, the
terms of the Affiliate Transaction are set forth in writing and a majority of the
non-employee directors of the Company disinterested with respect to such Affiliate
Transaction have determined in good faith that the criteria set forth in clause (1) are
satisfied and have approved the relevant Affiliate Transaction as evidenced by a resolution
of the Board of Directors; and




     (3) if such Affiliate Transaction involves an amount in excess of $25.0 million, the
Board of Directors shall also have received a written opinion from an Independent Qualified
Party to the effect that such Affiliate Transaction is fair, from a financial standpoint, to
the Company and its Restricted Subsidiaries or is not less favorable to the Company and its
Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an
arm’s-length transaction with a Person who was not an Affiliate.



     (b) Section 4.12(a) will not prohibit:




     (1) any Investment (other than a Permitted Investment) or other Restricted Payment, in
each case not prohibited to be made pursuant to Section 4.09;




     (2) any issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment and severance arrangements, stock
options and stock ownership plans, phantom stock or other incentive plans approved by the
Board of Directors;




     (3) loans or advances to officers, directors and employees in the ordinary course of
business of the Company or its Restricted Subsidiaries, but in any event not to exceed $3.0
million in the aggregate outstanding at any one time;




     (4) any transaction with a Restricted Subsidiary or joint venture or similar entity
which would constitute an Affiliate Transaction solely because the Company or a Restricted
Subsidiary owns an equity interest in or otherwise controls such Restricted Subsidiary,
joint venture or similar entity;




     (5) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the
Company;




     (6) reasonable fees and reasonable compensation paid to, and indemnity and similar
arrangements provided on behalf of, officers, directors and employees of the Company or any
Restricted Subsidiary as determined in good faith by the Board of Directors or the Company’s
senior management; and




     (7) any agreement as in effect on the Issue Date or any renewals, extensions or
replacements of any such agreement (so long as such renewals, extensions or replacements are
not less favorable to the Company or the Restricted Subsidiaries than






49









 





the original agreement
in effect on the Issue Date) and the transactions evidenced thereby.



SECTION 4.13 Change of Control.




          (a) Upon the occurrence of a Change of Control, then unless the Company shall have exercised
its right to redeem all the Notes, each Holder shall have the right to cause the Company to
repurchase all or any part of such Holder’s Notes at a purchase price in cash equal to 101% of the
principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date), in accordance with the terms contemplated in
Section 4.13(b). In the event that at the time of such Change of Control the terms of the Senior
Indebtedness of the Company (including the Revolving Credit Facility) restrict or prohibit the
repurchase of Notes following such Change of Control, then prior to the mailing of the notice to
Holders provided for in Section 4.13(b) below but in any event within 30 days following any Change
of Control, the Company shall (1) repay in full all such Senior Indebtedness or (2) obtain the
requisite consents under the agreements governing such Senior Indebtedness to permit the repurchase
of the Notes as provided for in Section 4.13(b).




          (b) Unless the Company has exercised its right to redeem all the Notes and shall have
delivered an irrevocable notice of redemption to the Trustee, within 30 days following any Change
of Control, the Company shall mail a notice to each Holder with a copy to the Trustee (the “Change
of Control Offer”) stating:





     (1) that a Change of Control has occurred and that such Holder has the right to require
the Company to purchase such Holder’s Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of Holders of record on the relevant record
date to receive interest on the relevant interest payment date);




     (2) the circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization, in each case after giving effect to such Change of Control);




     (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and




     (4) the instructions, as determined by the Company, consistent with this Section 4.13,
that a Holder must follow in order to have its Notes purchased.



          (c) Holders electing to have a Note purchased will be required to surrender the Note, with an
appropriate form duly completed, to the Company at the address specified in the notice at least
three Business Days prior to the purchase date. Holders will be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Note purchased.







50









 






          (d) On the purchase date, all Notes purchased by the Company under this Section 4.13 shall be
delivered by the Company to the Trustee for cancellation, and the Company shall pay the purchase
price plus accrued and unpaid interest, if any, to the Holders entitled thereto.




          (e) Notwithstanding the foregoing provisions of this Section 4.13, the Company shall not be
required to make a Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such Change of Control
Offer.




          (f) The Company shall comply, to the extent applicable, with the requirements of Section 14(e)
of the Exchange Act and any other securities laws or regulations in connection with the repurchase
of Notes as a result of a Change of Control. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 4.13, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.13 by virtue of its compliance with such securities laws or
regulations.




SECTION 4.14 Limitation on Liens.




     The Company shall not, and shall not permit any Subsidiary Guarantor to, directly or
indirectly, create, incur, assume or suffer to exist or become effective any Lien securing
Indebtedness of any kind except for Permitted Liens, on or with respect to any of its assets,
whether owned at the Issue Date or thereafter acquired, unless (A) in the case of any Lien securing
Subordinated Obligations, the Notes are secured by a Lien on such assets that is senior in priority
to such Lien and (B) in the case of any other Lien, the Notes are either secured equally and
ratably with such Indebtedness or are secured by a Lien on such assets that is senior in priority
to such Lien.



SECTION 4.15 Future Guarantors.




     The Company shall cause each Restricted Subsidiary that Incurs any Indebtedness (other than
Indebtedness Incurred pursuant to and in compliance with the last clause of Section 4.08(b)(16))
to, at the same time, execute and deliver to the Trustee a Guaranty Agreement pursuant to which
such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as
those set forth in this Indenture.



SECTION 4.16 Further Instruments and Acts.




     Upon request of the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Indenture.



SECTION 4.17 Suspension of Covenants.




          (a) During any period that the Notes have an Investment Grade Rating and no Default has
occurred and is continuing, the Company and the Restricted
Subsidiaries shall not be







51









 







subject to
Sections 4.08(a), (b), (c) or (d), 4.09, 4.10, 4.11, 4.12 or 4.15, or Section 5.01(a)(3) of the
Indenture (collectively, the “Suspended Covenants”).




          (b) In the event that the Company and the Restricted Subsidiaries are not subject to the
Suspended Covenants for any period of time as a result of Section 4.17(a), and subsequently one or
both of S&P and Moody’s downgrades the rating assigned to the Notes below BBB-, in the case of S&P,
and below Baa3, in the case of Moody’s, then the Company and the Restricted Subsidiaries will
thereafter again be subject to the Suspended Covenants (subject to subsequent suspension if the
Notes again receive an Investment Grade Rating), and, with respect to Restricted Payments proposed
to be made after the time of such downgrade, the permissibility of such proposed Restricted
Payments will be calculated in accordance with Section 4.09 as though Section 4.09 had been in
effect since the Issue Date.




ARTICLE 4

Amendment of Article V of the Original Indenture




          Article V of the Original Indenture is hereby amended, solely as it applies to the Notes, to
read as follows:




ARTICLE V




Successor Company




     SECTION 5.01. When Company May Merge or Transfer Assets.



     (a) The Company shall not consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, directly or indirectly, all or substantially
all the assets of the Company and its Restricted Subsidiaries, taken as a whole, to, any Person,
unless:




     (1) the resulting, surviving or transferee Person (the “Successor Company”) shall be a
Person organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture;




     (2) immediately after giving pro forma effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a
result of such transaction as having been Incurred by such Successor
Company or such Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;




     (3) immediately after giving pro forma effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section
4.08(a);




     (4) the Company shall have delivered to the Trustee an Officers’ Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or
lease and such supplemental indenture (if any) comply with the Indenture; and





52









 






     (5) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders will not recognize income, gain or loss for Federal income tax purposes as
a result of such transaction and will not be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if such
transaction had not occurred;


provided, however, that Section 5.01(a)(3) will not be applicable to (A) the Company or a
Restricted Subsidiary consolidating with, merging into, conveying, transferring or leasing all or
part of its properties and assets to the Company or a Subsidiary Guarantor, or (B) the Company
merging with an Affiliate of the Company solely for the purpose and with the sole effect of
reincorporating the Company in another jurisdiction within the United States of America or (C) at a
time when the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants.




     For purposes of this Section 5.01, the sale, lease, conveyance, assignment, transfer or other
disposition of all or substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such Subsidiaries,
would constitute all or substantially all of the properties and assets of the Company on a
consolidated basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.



     The Successor Company (if not the Company) shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of, the Company under
the Indenture, and the predecessor Company, except in the case of a lease, shall be released from
the obligation to pay the principal of and interest on the Notes.



     (b) The Company shall not permit any Subsidiary Guarantor to consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of transactions, all or
substantially all of its assets to any Person unless: (1) except in the case of a Subsidiary
Guarantor (other than Encore Operating, L.P. and any Subsidiary Guarantor that directly or
indirectly holds an equity interest in Encore Operating, L.P.) that has been disposed of in its
entirety to another Person (other than to the Company or an Affiliate of the Company), whether
through a merger, consolidation or sale of Capital Stock or assets, if in connection therewith the
Company complies with its obligations under Section 4.11 in respect of such disposition, the
resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and
existing under the laws of the jurisdiction under which such Subsidiary was organized or under the
laws of the United States of America, or any State thereof or the District of Columbia, and, if
such Person is not already a Subsidiary Guarantor, such Person shall expressly assume, by a
Guaranty Agreement, in a form satisfactory to the Trustee, all the obligations of such
Subsidiary, if any, under its Subsidiary Guaranty; (2) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default shall have occurred
and be continuing; and (3) in the event a Guaranty Agreement is executed and delivered pursuant to
clause (1) above, the Company delivers to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such
Guaranty Agreement, if any, complies with the Indenture.






53









 





ARTICLE 5

Amendment of Certain Provisions of Article VI of the Original Indenture




SECTION 5.01. Amendment of Section 6.01 of the Original Indenture.




     Section 6.01 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:



     SECTION 6.01. Events of Default. An “Event of Default” occurs if:



     (1) the Company defaults in any payment of interest on any Note when the same becomes due and
payable, whether or not such payment shall be prohibited by Article X of the Indenture, and such
default continues for a period of 30 days;



     (2) the Company defaults in the payment of the principal of any Note when the same becomes due
and payable at its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration of acceleration or otherwise, whether or not such payment shall be prohibited by
Article X of the Indenture;



     (3) the Company fails to comply with Section 5.01 of the Indenture;



     (4) the Company fails to comply with Section 4.03, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, or 4.15
(other than a failure to purchase Notes when required under Section 4.11 or 4.13) and such failure
continues for 30 days after the notice specified below;



     (5) the Company or any Subsidiary Guarantor fails to comply with any of its agreements in the
Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure
continues for 60 days after the notice specified below;



     (6) Indebtedness of the Company, any Subsidiary Guarantor or any Significant Subsidiary (other
than Non-Recourse Purchase Money Indebtedness) is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds $10.0 million; provided, that if such default is
cured or waived or any such acceleration is rescinded, or such Indebtedness is repaid, within a
period of 10 days from the continuance of such default beyond the applicable grace period or the
occurrence of such acceleration, as the case may be, such Event of Default and any consequential
acceleration of the Notes shall be automatically rescinded, so long as such rescission does not
conflict with any judgment or decree;



     (7) the Company, any Subsidiary Guarantor or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:




	 	(A)	 	commences a voluntary case;
	 
	 	(B)	 	consents to the entry of an order for relief against it in an
involuntary case;
	 
	 	(C)	 	consents to the appointment of a Custodian of it or for any
substantial part of its property; or
	 
	 	(D)	 	makes a general assignment for the benefit of its creditors;








54









 






	 	 	 	or takes any comparable action under any foreign laws relating to insolvency;





     (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:




	 	(A)	 	is for relief against the Company, any Subsidiary Guarantor or
any Significant Subsidiary in an involuntary case;
	 
	 	(B)	 	appoints a Custodian of the Company, any Subsidiary Guarantor
or any Significant Subsidiary or for any substantial part of its property; or
	 
	 	(C)	 	orders the winding up or liquidation of the Company, any
Subsidiary Guarantor or any Significant Subsidiary;





or any similar relief is granted under any foreign laws and the order or decree
remains unstayed and in effect for 60 days;



     (9) any judgment or decree for the payment of money in excess of $10.0 million above the
coverage under applicable insurance policies and indemnities as to which the relevant insurer or
indemnitor has not disclaimed responsibility is entered against the Company, a Subsidiary Guarantor
or any Significant Subsidiary, remains outstanding for a period of 60 consecutive days following
such judgment or decree and is not discharged, waived or stayed (the “judgment default provision”);
or



     (10) a Subsidiary Guaranty ceases to be in full force and effect (other than in accordance
with the terms of such Subsidiary Guaranty) for five days after notice or a Subsidiary Guarantor
denies or disaffirms its obligations under its Subsidiary Guaranty (the “Guaranty Failure
Provision”).



     The foregoing will constitute Events of Default whatever the reason for any such Event of
Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body.



     The term “Bankruptcy Law” means Title 11, United States Code, or any similar Federal or state
law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee,
liquidator, custodian or similar official under any Bankruptcy Law.



     A Default under clauses (4), (5) or (10) is not an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes notify the Company of the
Default and the Company does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and state that such
notice is a “Notice of Default”.



     The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written
notice in the form of an Officers’ Certificate of any Event of Default under clause (6) or (10) and
any event which with the giving of notice or the lapse of time would become an Event of Default
under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.





55









 





SECTION 5.02. Amendment of Section 6.02 of the Original Indenture.




     Section 6.02 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:



     SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default
specified in Section 6.01(7) or (8) of the Indenture with respect to the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal
amount of the outstanding Notes by notice to the Company and the Trustee, may declare the principal
of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) of the Indenture with respect to the Company occurs,
the principal of and interest on all the Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any Holders. The
Holders of a majority in principal amount of the Notes by notice to the Trustee may rescind an
acceleration and its consequences if (i) the rescission would not conflict with any judgment or
decree and (ii) if all existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.



SECTION 5.03. Amendment of Section 6.04 of the Original Indenture.




     Section 6.04 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to insert the following clause (2) in the first sentence thereof before the existing clause (2) and
renumber the existing clause (2) as clause (3):



     “, (2) a Default arising from the failure to redeem or purchase any Note when
required pursuant to the Indenture,”



SECTION 5.04. Amendment of Section 6.05 of the Original Indenture.




     Section 6.05 of the Original Indenture is hereby amended, solely as it applies to the Notes,
by deleting the following words from the first sentence thereof:



“relating to or arising under and Event of Default described in clause (1), (2), (3)
or (7) of Section 6.01”



SECTION 5.05. Amendment of Section 6.10 of the Original Indenture.




     Section 6.10 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:



     SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to
this Article VI, it shall pay out the money or property in the following order:



     FIRST: to the Trustee for amounts due under Section 7.07 of the Indenture;




     SECOND: to holders of Senior Indebtedness of the Company and, if such money or property has
been collected from a Subsidiary Guarantor, to holders of Senior Indebtedness of






56









 




such Subsidiary
Guarantor, in each case to the extent required by Article X of the Indenture and Article 11 of the
First Supplemental Indenture;




     THIRD: to Holders for amounts due and unpaid on the Notes for principal and interest,
ratably, without preference or priority of any kind, according to the amounts due and payable on
the Notes for principal and interest, respectively; and



     FOURTH: to the Company.



     The Trustee may fix a record date and payment date for any payment to Holders pursuant to this
Section. At least 15 days before such record date, the Company shall mail to each Holder and the
Trustee a notice that states the record date, the payment date and amount to be paid.



ARTICLE 6

Amendment of Certain Provisions of Article VII of the Original Indenture




SECTION 6.01. Amendment of Section 7.05 of the Original Indenture.




     Section 7.05 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to add the following paragraph at the end thereof:



     The Trustee shall not be required to take notice or be deemed to have notice of any Event of
Default, except failure of the Company to cause to be made any required payment to the Trustee,
unless the Trustee shall be specifically notified of such default by the Company or by the Holders
of at least 25% in aggregate principal amount of all Notes then outstanding by a notice delivered
to the Corporate Trust Office of the Trustee and, in the absence of such notice, the Trustee may
conclusively assume no Default exists.



SECTION 6.02. Amendment of Section 7.06 of the Original Indenture.




     Section 7.06 of the Original Indenture is hereby amended, solely as it applies to the Notes,
by deleting “May 15” in the first sentence and substituting “June 15” in lieu thereof.



SECTION 6.03. Amendment of Section 7.07 of the Original Indenture.




     The fifth paragraph of Section 7.07 of the Original Indenture is hereby amended, solely as it
applies to the Notes, to read as follows:



     When the Trustee incurs expenses or renders services after an Event of Default specified in
Section 6.01(7) or (8) of the Indenture occurs, the expenses and compensation for the services are
intended to constitute expenses of administration under any Bankruptcy Law.





57









 





ARTICLE 7

Amendment of Article VIII of the Original Indenture




     Article VIII of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:



ARTICLE VIII




Discharge of Indenture; Defeasance




SECTION 8.01. Discharge of Liability on Securities; Defeasance.




     (a) When (1) the Company delivers to the Trustee all outstanding Notes (other than Notes
replaced pursuant to Section 2.09 of the Indenture) for cancellation or (2) all outstanding Notes
have become due and payable, whether at maturity or on a redemption date as a result of the mailing
of a notice of redemption pursuant to Article III of the Indenture and the Company irrevocably
deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Notes, including interest thereon to maturity or such redemption date (other than Notes replaced
pursuant to Section 2.09 of the Indenture), and if in either case the Company pays all other sums
payable hereunder by the Company, then the Indenture shall, subject to Section 8.01(c) of the
Indenture, cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge
of the Indenture on demand of the Company accompanied by an Officers’ Certificate and an Opinion of
Counsel and at the cost and expense of the Company.



     (b) Subject to Sections 8.01(c) and 8.02 of the Indenture, the Company at any time may
terminate (1) all its obligations under the Notes and the Indenture (“legal defeasance option”) or
(2) its obligations under Sections 4.03, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 4.14 of the
Indenture and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) of the
Indenture (but, in the case of Sections 6.01(7) and (8) of the Indenture, with respect only to
Significant Subsidiaries and Subsidiary Guarantors) and the limitations contained in Sections
5.01(a)(3) of the Indenture (“covenant defeasance option”). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance option.



     If the Company exercises its legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated because of an Event of
Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) of the Indenture (but,
in the case of Sections 6.01(7) and 6.01(8) of the Indenture, with respect only to Significant
Subsidiaries and Subsidiary Guarantors) or because of the failure of the Company to comply with
Section 5.01(a)(3) of the Indenture. If the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its
obligations with respect to its Subsidiary Guaranty.



     Upon satisfaction of the conditions set forth herein and upon request of the Company, the
Trustee shall acknowledge in writing the discharge of those obligations that the Company
terminates.



     (c) Notwithstanding clauses (a) and (b) above, the Company’s obligations in Sections 2.05,
2.06, 2.07, 2.08, 2.09, 2.10, 7.07 and 7.08 of the Indenture and in this Article VIII shall






58









 




survive
until the Notes have been paid in full. Thereafter, the Company’s obligations in Sections 7.07,
8.04 and 8.05 of the Indenture shall survive.



SECTION 8.02. Conditions to Defeasance. The Company may exercise its legal defeasance
option or its covenant defeasance option only if:




     (1) the Company irrevocably deposits in trust (the “defeasance trust”) with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest on the Notes to
maturity or redemption, as the case may be;



     (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of
independent accountants expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money
without investment will provide cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Notes to maturity or redemption, as the case may be;



     (3) 123 days pass after the deposit is made and during the 123-day period no Default specified
in Sections 6.01(7) or (8) of the Indenture with respect to the Company occurs which is continuing
at the end of the 123-day period;



     (4) the deposit does not constitute a default under any other agreement binding on the Company
and is not prohibited by Article X;



     (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust
resulting from the deposit does not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940;



     (6) in the case of the legal defeasance option, the Company shall have delivered to the
Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (B) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;



     (7) in the case of the covenant defeasance option, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred;



     (8) the Company delivers to the Trustee an Opinion of Counsel in the jurisdiction or
organization of the Company (if other than the United States) to the effect that (A) Holders will
not recognize income, gain or loss for income tax purposes of such jurisdiction as a result of such
deposit and defeasance, and will be subject to income tax of such jurisdiction on the same
amounts, and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred; and






59









 





     (9) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel,
each stating that all conditions precedent to the defeasance and discharge of the Notes as
contemplated by this Article VIII have been complied with.



     Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for
the redemption of Notes at a future date in accordance with Article III of the Indenture.


SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to this Article VIII. It shall apply the
deposited money and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on the Notes. Money and
securities so held in trust are not subject to Article X.



SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall promptly turn
over to the Company upon request any excess money or securities held by them at any time.




     Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay
to the Company upon request any money held by them for the payment of principal or interest that
remains unclaimed for two years, and, thereafter, Holders entitled to the money must look to the
Company for payment as general creditors.


SECTION 8.05. Indemnity for Government Obligations. The Company shall pay and shall
indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited
U.S. Government Obligations or the principal and interest received on such U.S. Government
Obligations.



SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money
or U.S. Government Obligations in accordance with this Article VIII by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company’s obligations under this
Indenture and the Notes and the Subsidiary Guarantors’ obligations under their respective
Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this
Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the
Company has made any payment of interest on or principal of any Notes because of the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.




ARTICLE 8

Amendment of Certain Provisions of Article IX of the Original Indenture




SECTION 8.01. Amendment of Section 9.01 of the Original Indenture.




     Section 9.01 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:






60









 




SECTION 9.01. Without Consent of Holders. Subject to Section 9.02 of the Indenture, the
Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Notes without
notice to or consent of any Holder:




     (1) to cure any ambiguity, omission, defect or inconsistency;



     (2) to comply with Article V of the Indenture;



     (3) to provide for uncertificated Notes in addition to or in place of certificated Notes;
provided, however, that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated Notes are described in
Section 163(f)(2)(B) of the Code;



     (4) to add Guarantees with respect to the Notes, including any Subsidiary Guaranties, to
secure the Notes or to confirm the release, termination or discharge of any Subsidiary Guarantor or
any such Lien when such release, termination or discharge is permitted under the Indenture;



     (5) to comply with any requirement of the SEC in connection with qualifying, or maintaining
the qualification of, the Indenture under the TIA;



     (6) to add to the covenants of the Company or a Subsidiary Guarantor for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company or a Subsidiary
Guarantor;



(7) to add any additional Events of Default with respect to the Notes;




     (8) to change or eliminate any of the provisions of the Indenture; provided that any such
change or elimination shall become effective only where there is no outstanding Note that is
adversely affected in any material respect by that change in or elimination of that provision;



     (9) to supplement any of the provisions of the Indenture to such extent as shall be necessary
to permit or facilitate the defeasance and discharge of the Notes pursuant to Article VIII;
provided, however, that any such action shall not adversely affect the interest of the Holder of
any Notes in any material respect;



     (10) to evidence and provide for the acceptance of appointment under the Indenture by a
successor trustee with respect to the Notes and to add or change any of the provisions of the
Indenture as shall be necessary to provide for or facilitate the administration of the trusts under
the Indenture by more than one trustee; or



     (11) to make any change to conform the text of the Indenture or the Notes to any provision in
the Prospectus Supplement in the section “Description of the Notes” that does not adversely affect
the Holder of any Note.



     However, no amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Indebtedness of the Company or a Subsidiary
Guarantor then outstanding unless such holder of such Senior Indebtedness (or its Representative)
consents to such change or as otherwise permitted by the notes, debentures, bonds or other similar
instruments evidencing such Senior Indebtedness.





61









 





     The consent of the holders of the Notes is not necessary to approve the particular form of any
proposed amendment. It is sufficient if such consent approves the substance of the proposed
amendment.



     After an amendment under this Section 9.01 becomes effective, the Company shall mail to
Holders a notice briefly describing such amendment. The failure to give such notice to all
Holders, or any defect therein, shall not impair or affect the validity of an amendment under this
Section 9.01.



SECTION 8.02. Amendment of Section 9.02 of the Original Indenture.




     Section 9.02 of the Original Indenture is hereby amended, solely as it applies to the Notes,
to read as follows:



     SECTION 9.02. With Consent of Holders. The Company, the Subsidiary Guarantors and the
Trustee may amend or supplement the Indenture or the Notes, or waive compliance in a particular
instance by the Company with any provisions hereof or thereof, without notice to any Holder but
with the written consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer or exchange for the
Notes). However, without the consent of each Holder affected thereby, an amendment, supplement or
waiver may not (with respect to any Notes held by a non-consenting Holder):



     (1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or
waiver;



     (2) reduce the rate of or change the time for payment of interest on any Note;



     (3) reduce the principal amount of or change the Stated Maturity of any Note;



     (4) reduce the amount payable upon the redemption of any Note or change the time at which any
Note may be redeemed in accordance with Article III of the Indenture;



     (5) make any Note payable in money other than that stated in the Note;



     (6) impair the right of any Holder to receive payment of principal of and interest on such
Holder’s securities on or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder’s Notes;



     (7) make any change in Section 6.04 or 6.07 of the Indenture or the second sentence of this
Section 9.02;



     (8) make any change in the ranking or priority of any Note that would adversely affect the
Holders;



     (9) waive a continuing Default or Event of Default in the payment of principal on, premium (if
any) or interest on the Notes; or



     (9) make any change in any Subsidiary Guaranty that would adversely affect the Holders in any
material respect.






62









 





     It shall not be necessary for the consent of the Holders under this Section 9.02 to approve
the particular form of any proposed amendment, but it shall be sufficient if such consent approves
the substance thereof.



     After an amendment under this Section 9.02 becomes effective, the Company shall mail to
Holders a notice briefly describing such amendment, supplement or waiver. The failure to give such
notice to all Holders, or any defect therein, shall not impair or affect the validity of an
amendment, supplement or waiver under this Section 9.02.



SECTION 8.03. Addition of Section 9.07.




     Article IX of the Original Indenture is hereby amended, solely as it applies to the Notes, to
add the following at the end thereof:



     SECTION 9.07. Payment for Consent. Neither the Company nor any Affiliate of the Company
shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Notes unless such
consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the
time frame set forth in solicitation documents relating to such consent, waiver or agreement.



ARTICLE 9

Amendment of Article X of the Original Indenture




     Article X of the Original Indenture is hereby amended, solely as it applies to the Notes, to
read as follows:



ARTICLE X




Subordination



SECTION 10.01. Agreement To Subordinate. The Company agrees, and each Holder by accepting
a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article X, to the prior payment of all Senior
Indebtedness of the Company and that the subordination is for the benefit of and enforceable by the
holders of such Senior Indebtedness. The Notes shall in all respects rank pari passu with all
other Senior Subordinated Indebtedness of the Company and only Indebtedness of the Company which is
Senior Indebtedness of the Company shall rank senior to the Notes in
accordance with the provisions set forth herein. All provisions of this Article X shall be subject
to Section 10.12 of the Indenture.



SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of
the assets of the Company to creditors upon a total or partial liquidation or a total or partial
dissolution of the Company or in a bankruptcy reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:




     (1) holders of Senior Indebtedness of the Company shall be entitled to receive payment in full
in cash of such Senior Indebtedness before Holders shall be entitled to receive any payment of
principal of or interest on the Notes; and






63









 





     (2) until such Senior Indebtedness is paid in full in cash, any payment or distribution to
which Holders would be entitled but for this Article X shall be made to holders of such Senior
Indebtedness as their interests may appear, except that Holders may receive shares of stock and any
debt securities that are subordinated to such Senior Indebtedness to at least the same extent as
the Notes.


SECTION 10.03. Default on Senior Indebtedness of the Company. The Company shall not pay
the principal of or interest on the Notes or make any deposit pursuant to Section 8.01 of the
Indenture and may not purchase, redeem or otherwise retire any Notes (collectively, “pay the
Notes”) if either of the following (a “Payment Default”) occurs (1) any Obligation on any
Designated Senior Indebtedness of the Company is not paid in full in cash when due; or (2) any
other default on Designated Senior Indebtedness of the Company occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case,
the Payment Default has been cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full in cash; provided, however, that the Company
shall be entitled to pay the Notes without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of any Designated Senior
Indebtedness with respect to which the Payment Default has occurred and is continuing. During the
continuance of any default (other than a Payment Default) with respect to any Designated Senior
Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately
without further notice (except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company shall not pay the Notes for a period (a
“Payment Blockage Period”) commencing upon the receipt by the Trustee of (with a copy to the
Company) written notice (a “Blockage Notice”) of such default from the Representative of such
Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter. The Payment Blockage Period shall end earlier if such Payment Blockage
Period is terminated (1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice; (2) because the default giving rise to such Blockage Notice
is cured, waived or otherwise no longer continuing; or (3) because such Designated Senior
Indebtedness has been discharged or repaid in full in cash. Notwithstanding the provisions
described in the immediately preceding two sentences (but subject to the provisions contained in
the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or
the Representative of such Designated Senior Indebtedness shall have accelerated the maturity of
such Designated Senior Indebtedness, the Company shall be entitled to resume payments on the Notes
after termination of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults
with respect to
Designated Senior Indebtedness of the Company during such period, except that if any Blockage
Notice is delivered to the Trustee by or on behalf of holders of Designated Senior Indebtedness of
the Company (other than holders of the Bank Indebtedness), a Representative of holders of Bank
Indebtedness may give another Blockage Notice within such period. However, in no event may the
total number of days during which any Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any consecutive 360-day period, and there must be 181 days during any
consecutive 360-day period during which no Payment Blockage Period is in effect. For purposes of
this Section, no default or event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness of
the Company initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period






64









 







by the Representative of such Designated
Senior Indebtedness unless such default or event of default shall have been cured or waived for a
period of not less than 90 consecutive days.



SECTION 10.04. Acceleration of Payment of Notes. If payment of the Notes is accelerated
because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the
Designated Senior Indebtedness of the Company (or their Representatives) of the acceleration.



SECTION 10.05. When Distribution Must Be Paid Over. If a distribution is made to Holders
that because of this Article X should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of Senior Indebtedness of the Company and pay it
over to them as their interests may appear.



SECTION 10.06. Subrogation. After all Senior Indebtedness of the Company is paid in full
and until the Notes are paid in full, Holders shall be subrogated to the rights of holders of such
Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A
distribution made under this Article X to holders of such Senior Indebtedness which otherwise would
have been made to Holders is not, as between the Company and Holders, a payment by the Company on
such Senior Indebtedness.



SECTION 10.07. Relative Rights. This Article X defines the relative rights of Holders and
holders of Senior Indebtedness of the Company. Nothing in the Indenture shall:




     (1) impair, as between the Company and Holders, the obligation of the Company, which is
absolute and unconditional, to pay principal of and interest on the Notes in accordance with their
terms; or



     (2) prevent the Trustee or any Holder from exercising its available remedies upon a Default,
subject to the rights of holders of Senior Indebtedness of the Company to receive distributions
otherwise payable to Holders.


SECTION 10.08. Subordination May Not Be Impaired by Company. No right of any holder of
Senior Indebtedness of the Company to enforce the subordination of the Indebtedness evidenced by
the Notes shall be impaired by any act or failure to act by the Company or by its failure to comply
with the Indenture.



SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding Section 10.03 of the
Indenture, the Trustee or Paying Agent shall continue to make payments on the Notes and shall not
be charged with knowledge of the existence of facts that under this Article X would
prohibit the making of any such payments unless, not less than two Business Days prior to the date
of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that such
payments are prohibited by this Article X. The Company, the Registrar or co-registrar, the Paying
Agent, a Representative or a holder of Senior Indebtedness of the Company shall be entitled to give
the notice; provided, however, that, if an issue of Senior Indebtedness of the Company has a
Representative, only the Representative shall be entitled to give the notice.




     The Trustee in its individual or any other capacity shall be entitled to hold Senior
Indebtedness of the Company with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent shall be entitled to do the same with like rights.
The Trustee shall be entitled to all the rights set forth in this Article X with respect to any
Senior






65









 




Indebtedness of the Company which may at any time be held by it, to the same extent as any
other holder of such Senior Indebtedness; and nothing in Article VII of the Indenture shall deprive
the Trustee of any of its rights as such holder. Nothing in this Article X shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 7.07 of the Indenture.



SECTION 10.10. Distribution or Notice to Representative. Whenever any Person is to make a
distribution or give a notice to holders of Senior Indebtedness of the Company, such Person shall
be entitled to make such distribution or give such notice to their Representative (if any).



SECTION 10.11. Article X Not To Prevent Events of Default or Limit Right To Accelerate.
The failure to make a payment pursuant to the Notes by reason of any provision in this Article X
shall not be construed as preventing the occurrence of a Default. Nothing in this Article X shall
have any effect on the right of the Holders or the Trustee to accelerate the maturity of the Notes.



SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to
the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust
under Article VIII of the Indenture by the Trustee for the payment of principal of and interest on
the Notes shall not be subordinated to the prior payment of any Senior Indebtedness of the Company
or subject to the restrictions set forth in this Article X, and none of the Holders shall be
obligated to pay over any such amount to the Company or any holder of Senior Indebtedness of the
Company or any other creditor of the Company.



SECTION 10.13. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this
Article X, the Trustee and the Holders shall be entitled to rely (1) upon any order or decree of a
court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02
of the Indenture are pending, (2) upon a certificate of the liquidating trustee or agent or other
Person making such payment or distribution to the Trustee or to the Holders or (3) upon the
Representatives of Senior Indebtedness of the Company for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of such Senior Indebtedness
and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this Article X. In the
event that the Trustee determines, in good faith, that evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment
or distribution pursuant to this Article X, the Trustee shall be entitled to request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, the extent to which such Person is entitled to participate in
such payment or distribution and other facts pertinent to the rights of such Person under this
Article X, and, if such evidence is not furnished, the Trustee shall be
entitled to defer any payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.01 and 7.02 of the Indenture shall be
applicable to all actions or omissions of actions by the Trustee pursuant to this Article X.



SECTION 10.14. Trustee To Effectuate Subordination. Each Holder by accepting a Note
authorizes and directs the Trustee on his behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination between the Holders and the holders of
Senior Indebtedness of the Company as provided in this Article X and appoints the Trustee as
attorney-in-fact for any and all such purposes.







66









 







SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness of the Company.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of
the Company and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Holders or the Company or any other Person, money or assets to which any holders of
Senior Indebtedness of the Company shall be entitled by virtue of this Article X or otherwise.



SECTION 10.16. Reliance by Holders of Senior Indebtedness of the Company on Subordination
Provisions. Each Holder by accepting a Note acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a consideration to each
holder of any Senior Indebtedness of the Company, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Notes, to acquire and continue to hold, or to continue
to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and continuing to hold,
or in continuing to hold, such Senior Indebtedness.




ARTICLE 10



Subsidiary Guaranties



SECTION 10.01. Guaranties. Each Subsidiary Guarantor hereby unconditionally and irrevocably guarantees,
jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the
full and punctual payment of principal of and interest on the Notes when due, whether at maturity,
by acceleration, by redemption or otherwise, and all other monetary obligations of the Company
under the Original Indenture (other than obligations solely with respect to Securities other than
the Notes), this First Supplemental Indenture and the Notes and (b) the full and punctual
performance within applicable grace periods of all other obligations of the Company under the
Original Indenture (other than obligations solely with respect to Securities other than the Notes),
this First Supplemental Indenture and the Notes (all the foregoing being hereinafter collectively
called the “Guaranteed Obligations”). Each Subsidiary Guarantor further agrees that the Guaranteed
Obligations may be extended or renewed, in whole or in part, without notice or further assent from
such Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under this Article
10 notwithstanding any extension or renewal of any Obligation.




     Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the
Company of any of the Guaranteed Obligations and also waives notice of protest for nonpayment.
Each Subsidiary Guarantor waives notice of any default under the Notes or the Guaranteed
Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be
affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under the Original Indenture,
this First Supplemental Indenture, the Notes or any other agreement or otherwise; (b) any extension
or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of the Original Indenture, this First Supplemental Indenture, the Notes or any
other agreement; (d) the release of any security held by any Holder or the Trustee for the
Guaranteed Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any
right or remedy against any other guarantor of the Guaranteed Obligations; or (f) except as set
forth in Section 10.06, any change in the ownership of such Subsidiary Guarantor






67









 





     Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty herein constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee of collection) and
waives any right to require that any resort be had by any Holder or the Trustee to any security
held for payment of the Guaranteed Obligations.



     Except as expressly set forth in Section 8.01(b) of the Indenture and Sections 10.02 and
10.06, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any defense of setoff,
counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of
the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or
demand or to enforce any remedy under the Original Indenture, this First Supplemental Indenture,
the Notes or any other agreement, by any waiver or modification of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of the obligations, or by any other act
or thing or omission or delay to do any other act or thing which may or might in any manner or to
any extent vary the risk of such Subsidiary Guarantor or would otherwise operate as a discharge of
such Subsidiary Guarantor as a matter of law or equity.



     Each Subsidiary Guarantor further agrees that its Guarantee herein shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of
principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by
any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise.



     In furtherance of the foregoing and not in limitation of any other right which any Holder or
the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the
failure of the Company to pay the principal of or interest on any Guaranteed Obligation when and as
the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Guaranteed Obligation, each Subsidiary Guarantor hereby promises
to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in
cash, to the Holders or the Trustee an amount equal to the sum of (1) the unpaid amount of such
Guaranteed Obligations, (2) accrued and unpaid interest on such Guaranteed Obligations (but only to
the extent not prohibited by law) and (3) all other monetary Guaranteed Obligations of the Company
to the Holders and the Trustee.



     Each Subsidiary Guarantor agrees that, as between it, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the Guaranteed Obligations hereby may be
accelerated as provided in Article VI of the Indenture for the purposes of such Subsidiary
Guarantor’s Subsidiary Guaranty herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event
of any declaration of acceleration of such Guaranteed Obligations as provided in Article VI of the
Indenture, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due
and payable by such Subsidiary Guarantor for the purposes of this Section 10.01.






68









 





     Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including
reasonable attorneys’ fees) incurred by the Trustee or any Holder in enforcing any rights under
this Section 10.01.


SECTION 10.02. Limitation on Liability. Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of the Obligations guaranteed hereunder by any
Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without
rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.



SECTION 10.03. Successors and Assigns. This Article 10 shall be binding upon each Subsidiary Guarantor and
its successors and assigns and shall enure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or
the Trustee, the rights and privileges conferred upon that party in the Original Indenture, this
First Supplemental Indenture and in the Notes shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions of this Indenture.



SECTION 10.04. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in
exercising any right, power or privilege under this Article 10 shall operate as a waiver thereof,
nor shall a single or partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein
expressly specified are cumulative and not exclusive of any other rights, remedies or benefits
which either may have under this Article 10 at law, in equity, by statute or otherwise.



SECTION 10.05. Modification. No modification, amendment or waiver of any provision of this Article 10, nor
the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which given. No notice to
or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any
other or further notice or demand in the same, similar or other circumstances.



SECTION 10.06. Release of Subsidiary Guarantor. Upon (a) the sale or other disposition (including by way of
consolidation or merger) of all of the Capital Stock of a Subsidiary Guarantor, (b) the sale or
disposition of all or substantially all the assets of such Subsidiary Guarantor or (c) the
designation of such Subsidiary Guarantor as an Unrestricted Subsidiary (in each case other than a
sale or disposition to the Company or an Affiliate of the Company), such Subsidiary Guarantor shall
be deemed released from all obligations under this Article 10 without any further action required
on the part of the Trustee or any Holder. At the request of the Company, the Trustee shall execute
and deliver an appropriate instrument evidencing such release.




ARTICLE 11



Subordination of Subsidiary Guaranties



SECTION 11.01. Agreement To Subordinate. Each Subsidiary Guarantor agrees, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by such Subsidiary






69









 







Guarantor’s Subsidiary Guaranty is
subordinated in right of payment, to the extent and in the manner provided in this Article 11, to
the prior payment of all Senior Indebtedness of such Subsidiary Guarantor and that the
subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness.
The Obligations of a Subsidiary Guarantor shall in all respects rank pari passu with all other
Senior Subordinated Indebtedness of such Subsidiary Guarantor and only Senior Indebtedness of such
Subsidiary Guarantor (including such Subsidiary Guarantor’s Guaranty of Senior Indebtedness of the
Company) shall rank senior to the Obligations of such Subsidiary Guarantor in accordance with the
provisions set forth herein.



SECTION 11.02. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of any
Subsidiary Guarantor to creditors upon a total or partial liquidation or a total or partial
dissolution of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its property:





     (1) holders of Senior Indebtedness of such Subsidiary Guarantor shall be entitled to
receive payment in full in cash of such Senior Indebtedness before Holders shall be entitled
to receive any payment pursuant to the Subsidiary Guaranty of such Subsidiary Guarantor; and




     (2) until the Senior Indebtedness of any Subsidiary Guarantor is paid in full in cash,
any payment or distribution to which Holders would be entitled but for this Article 11 shall
be made to holders of such Senior Indebtedness as their interests may appear, except that
Holders may receive shares of stock and any debt Notes of such Subsidiary Guarantor that are
subordinated to such Senior Indebtedness to at least the same extent as Subsidiary Guaranty.


SECTION 11.03. Default on Senior Indebtedness of Subsidiary Guarantor. No Subsidiary Guarantor shall make its
Subsidiary Guaranty or purchase, redeem or otherwise retire or defease any Notes or other
Obligations (collectively, “pay its Subsidiary Guaranty”) if either of the following (a “Payment Default”) occurs: (1) any Obligation on any Designated Senior
Indebtedness of such Subsidiary Guarantor is not paid in full in cash when due; or (2) any other
default on Designated Senior Indebtedness of such Subsidiary Guarantor occurs and the maturity of
such Designated Senior Indebtedness is accelerated in accordance with its terms; unless, in either
case, the Payment Default has been cured or waived and any such acceleration has been rescinded or
such Designated Senior Indebtedness has been paid in full in cash; provided, however, that any
Subsidiary Guarantor shall be entitled to pay its Subsidiary Guaranty without regard to the
foregoing if such Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representative of any Designated Senior Indebtedness with respect to which the
Payment Default has occurred and is continuing. During the continuance of any default (other than
a Payment Default) with respect to any Designated Senior Indebtedness of such Subsidiary Guarantor
pursuant to which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, such Subsidiary Guarantor shall not pay its Subsidiary Guaranty for a
period (a “Payment Blockage Period”) commencing upon the receipt by the Trustee of (with a copy to
such Subsidiary Guarantor) written notice (a “Blockage Notice”) of such default from the
Representative of such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. The Payment Blockage Period shall end earlier if
such Payment Blockage Period is terminated (1) by written notice to the Trustee and such Subsidiary
Guarantor from the Person or






70









 







Persons who gave such Blockage Notice; (2) because the default giving
rise to such Blockage Notice is cured, waived or otherwise no longer continuing; or (3) because
such Designated Senior Indebtedness has been discharged or repaid in full in cash. Notwithstanding
the provisions described in the immediately preceding two sentences (but subject to the provisions
contained in the first sentence of this Section), unless the holders of such Designated Senior
Indebtedness giving such Payment Notice or the Representative of such Designated Senior
Indebtedness shall have accelerated the maturity of such Designated Senior Indebtedness, any
Subsidiary Guarantor shall be entitled to resume payments pursuant to its Subsidiary Guaranty after
termination of such Payment Blockage Period. No Subsidiary Guarantor shall be subject to more than
one Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness of such Subsidiary Guarantor during such period, except
that if any Blockage Notice is delivered to the Trustee by or on behalf of holders of Designated
Senior Indebtedness of such Subsidiary Guarantor (other than holders of the Bank Indebtedness), a
Representative of holders of Bank Indebtedness may give another Blockage Notice within such period.
However, in no event may the total number of days during which any Payment Blockage Period or
Periods is in effect exceed 179 days in the aggregate during any consecutive 360-day period, and
there must be 181 days during any consecutive 360-day period during which no Payment Blockage
Period is in effect. For purposes of this Section, no default or event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness of such Subsidiary Guarantor initiating such Payment Blockage Period
shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the
Representative of such Designated Senior Indebtedness unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.



SECTION 11.04. Demand for Payment. If a demand for payment is made on a Subsidiary Guarantor pursuant to Article
10, the Trustee shall promptly notify the holders of the Designated Senior Indebtedness of such
Subsidiary Guarantor (or their Representatives) of such demand.



SECTION 11.05. When Distribution Must Be Paid Over. If a distribution is made to Holders that because of this
Article 11 should not have been made to them, the Holders who receive the distribution shall hold
it in trust for holders of Senior Indebtedness of the applicable Subsidiary Guarantor and pay it
over to them or their Representatives as their interests may appear.



SECTION 11.06. Subrogation. After all Senior Indebtedness of a Subsidiary Guarantor is paid in full and until the
Notes are paid in full, Holders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior Indebtedness of such Subsidiary
Guarantor. A distribution made under this Article 11 to holders of such Senior Indebtedness which
otherwise would have been made to Holders is not, as between the relevant Subsidiary Guarantor and
Holders, a payment by such Subsidiary Guarantor on such Senior Indebtedness.



SECTION 11.07. Relative Rights. This Article 11 defines the relative rights of Holders and holders of Senior
Indebtedness of a Subsidiary Guarantor. Nothing in this Indenture shall:





     (1) impair, as between a Subsidiary Guarantor and Holders, the obligation of such
Subsidiary Guarantor, which is absolute and unconditional, to pay its Subsidiary Guaranty to
the extent set forth in Article 10; or






71









 






     (2) prevent the Trustee or any Holder from exercising its available remedies upon a
default by such Subsidiary Guarantor under its Subsidiary Guaranty, subject to the rights of
holders of Senior Indebtedness of such Subsidiary Guarantor to receive distributions
otherwise payable to Holders.


SECTION 11.08. Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness of any
Subsidiary Guarantor to enforce the subordination of the Subsidiary Guaranty of such Subsidiary
Guarantor shall be impaired by any act or failure to act by such Subsidiary Guarantor or by its
failure to comply with this Indenture.



SECTION 11.09. Rights of Trustee and Paying Agent. Notwithstanding Section 11.03, the Trustee or Paying Agent
shall continue to make payments on any Subsidiary Guaranty and shall not be charged with knowledge
of the existence of facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives
written notice satisfactory to it that such payments are prohibited by this Article 11. The
Company, the relevant Subsidiary Guarantor, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness of such Subsidiary Guarantor shall be entitled to give the
notice; provided, however, that, if an issue of Senior Indebtedness of any Subsidiary Guarantor has
a Representative, only the Representative shall be entitled to give the notice.




     The Trustee in its individual or any other capacity shall be entitled to hold Senior
Indebtedness of any Subsidiary Guarantor with the same rights it would have if it were not the
Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights.
The Trustee shall be entitled to all the rights set forth in this Article 11 with respect to any
Senior Indebtedness of any Subsidiary Guarantor which may at any time be held by it, to the same
extent as any other holder of such Senior Indebtedness; and nothing in Article VII of the Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 11 shall
apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 of the Indenture.


SECTION 11.10. Distribution or Notice to Representative. Whenever any Person is to make a distribution or give a
notice to holders of Senior Indebtedness of any Subsidiary Guarantor, such Person shall be entitled
to make such distribution or give such notice to their Representative (if any).



SECTION 11.11. Article 11 Not To Prevent Events of Default or Limit Right To Demand Payment. The failure to make
a payment pursuant to a Subsidiary Guaranty by reason of any provision in this Article 11 shall not
be construed as preventing the occurrence of a Default. Nothing in this Article 11 shall have any
effect on the right of the Holders or the Trustee to make a demand for payment on any Subsidiary
Guarantor pursuant to its Subsidiary Guaranty.



SECTION 11.12. Trustee Entitled To Rely. Upon any payment or distribution pursuant to this Article 11, the
Trustee and the Holders shall be entitled to rely (1) upon any order or decree of a court of
competent jurisdiction in which any proceedings of the nature referred to in Section 11.02 are
pending, (2) upon a certificate of the liquidating trustee or agent or other Person making such
payment or distribution to the Trustee or to the Holders or (3) upon the Representatives for the
holders of Senior Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the







72









 







holders of such Senior
Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 11. In the event that the Trustee determines, in good faith, that evidence is
required with respect to the right of any Person as a holder of Senior Indebtedness of any
Subsidiary Guarantor to participate in any payment or distribution pursuant to this Article 11, the
Trustee shall be entitled to request such Person to furnish evidence to the reasonable satisfaction
of the Trustee as to the amount of Senior Indebtedness of such Subsidiary Guarantor held by such
Person, the extent to which such Person is entitled to participate in such payment or distribution
and other facts pertinent to the rights of such Person under this Article 11, and, if such evidence
is not furnished, the Trustee shall be entitled to defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment. The provisions of
Sections 7.01 and 7.02 of the
Indenture shall be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 11.



SECTION 11.13. Trustee To Effectuate Subordination. Each Holder by accepting a Note authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Holders and the holders of Senior Indebtedness of any
Subsidiary Guarantor as provided in this Article 11 and appoints the Trustee as attorney-in-fact
for any and all such purposes.



SECTION 11.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of Subsidiary Guarantor. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any
Subsidiary Guarantor and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Holders or the Company or any other Person, money or assets to which any holders of
such Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise.



SECTION 11.15. Reliance by Holders of Senior Indebtedness of Subsidiary Guarantors on Subordination Provisions.
Each Holder by accepting a Note acknowledges and agrees that the foregoing subordination provisions
are, and are intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was created or acquired
before or after the issuance of the Notes, to acquire and continue to hold, or to continue to hold,
such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to
have relied on such subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.




ARTICLE 12



Miscellaneous




SECTION 12.01. Certain Trustee Matters.




     The recitals contained herein shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for their correctness.



     The Trustee makes no representations as to the validity or sufficiency of this First
Supplemental Indenture or the Notes or the proper authorization or the due execution hereof or
thereof by the Company.






73









 





     Except as expressly set forth herein, nothing in this First Supplemental Indenture shall alter
the duties, rights or obligations of the Trustee set forth in the Original Indenture.



     The Trustee makes no representation or warranty as to the validity or sufficiency of the
information contained in the prospectus supplement related to the Notes, except such information
which specifically pertains to the Trustee itself, or any information incorporated therein by
reference.



SECTION 12.02. Continued Effect.




     Except as expressly supplemented and amended by this First Supplemental Indenture, the
Original Indenture shall continue in full force and effect in accordance with the provisions
thereof, and the Original Indenture is in all respects hereby ratified and confirmed. This First
Supplemental Indenture and all its provisions shall be deemed a part of the Original Indenture in
the manner and to the extent herein and therein provided.



SECTION 12.03. Governing Law.




     THIS FIRST SUPPLEMENTAL INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.



SECTION 12.04. Counterparts.




     This instrument may be executed in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute but one and the same
instrument.



[Remainder of Page Intentionally Left Blank]







74









 





     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be
duly executed and delivered, all as of the day and year first above written.



	 	 	 	 	 	 	 
	 	 	ENCORE ACQUISITION COMPANY
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Louie B. Nivens, Jr.
	 	 	 	 	 
	 	 	 	 	Louie B. Nivens, Jr.

Senior Vice President, Chief Financial Officer,

Treasurer and Corporate Secretary
	 
	 	 	EAP ENERGY, INC.,
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Louie B. Nivens, Jr.
	 	 	 	 	 
	 	 	 	 	Louie B. Nivens, Jr.

Senior Vice President, Chief Financial Officer,

Treasurer and Corporate Secretary
	 
	 	 	 	 	 	 
	 	 	EAP ENERGY SERVICES, L.P.,
	 
	 	 	 	 	 	 
	 	 	By:	 	EAP Energy, Inc., its general partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Louie B. Nivens, Jr.
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Louie B. Nivens, Jr.
	 

	 	 	 	 	 	Senior Vice President, Chief Financial

Officer, Treasurer and Corporate Secretary
	 
	 	 	 	 	 	 
	 	 	EAP OPERATING, INC.,
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Louie B. Nivens, Jr.
	 	 	 	 	 
	 	 	 	 	Louie B. Nivens, Jr.

Senior Vice President, Chief Financial Officer,

Treasurer and Corporate Secretary
	 
	 	 	 	 	 	 
	 	 	EAP PROPERTIES, INC.,
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Robert A. Sagedy
	 	 	 	 	 
	 	 	 	 	Robert A. Sagedy

Vice President









 









 






	 	 	 	 	 	 	 
	 	 	ENCORE OPERATING, L.P.,
	 
	 	 	 	 	 	 
	 	 	By	 	EAP Operating, Inc., its general partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Louie B. Nivens, Jr.
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Louie B. Nivens, Jr.
	 

	 	 	 	 	 	Senior Vice President, Chief Financial

Officer, Treasurer and Corporate Secretary
	 
	 	 	 	 	 	 
	 	 	ENCORE OPERATING LOUISIANA, LLC,
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Tom Olle
	 	 	 	 	 
	 	 	 	 	Tom Olle
	 	 	 	 	Manager









2









 






	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL ASSOCIATION

as Trustee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Melissa A. Scott
	 

	 	 	 	 
	 

	 	 	 	Melissa A. Scott

Authorized Officer










3









 








EXHIBIT A




[FORM OF FACE OF NOTE]




[Global Securities Legend]




     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.



     TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.



4









 





ENCORE ACQUISITION COMPANY




	 	 	 
	No.

	 	CUSIP No.: 29255WAH3
	 

	 	ISIN
No.: US29255WAH34

	 

	 	$                                        







7.25% Senior Subordinated Notes Due 2017




     Encore Acquisition Company, a Delaware corporation, promises to pay to
___, or registered assigns, the principal sum of ___Dollars on
December 1, 2017.



     Interest Payment Dates: June 1 and December 1.



     Record Dates: May 15 and November 15.



     Additional provisions of this Note are set forth on the other side of this Note.



     Reference is hereby made to the further provisions of this Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as if set forth at
this place.



     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.



     Dated:                                         



	 	 	 	 	 
	 	 	ENCORE ACQUISITION COMPANY
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Name:
	 	 	Title:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Name:
	 	 	Title:






TRUSTEE’S CERTIFICATE OF AUTHENTICATION




     This is one of the Notes referred to in the within-mentioned Indenture.



	 	 	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee  
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	  Authorized Signatory	 	 







 









 







EXHIBIT
A


[FORM OF] REVERSE SIDE OF NOTE




ENCORE ACQUISITION COMPANY




7.25% Senior Subordinated Note Due 2017




1. Interest




     Encore Acquisition Company, a Delaware corporation (such corporation, and its successors and
assigns under the Indenture hereinafter referred to, being herein called the “Company”), promises
to pay interest on the principal amount of this Note at the rate per annum shown above. The
Company will pay interest semiannually on June 1 and December 1 of each year, commencing June 1,
2006. Interest on the Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from November 23, 2005. The Company will pay interest on overdue
principal at 1% per annum in excess of the above rate and will pay interest on overdue installments
of interest at such higher rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.



2. Method of Payment




     The Company will pay interest on the Notes (except defaulted interest) to the Persons who are
registered holders of Notes at the close of business on the May 15 or November 15 next preceding
the interest payment date even if Notes are canceled after the record date and on or before the
interest payment date. Holders must surrender Notes to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts. Payments in respect of
the Notes represented by a Global Note (including principal, premium, if any, and interest) will be
made by wire transfer of immediately available funds to the accounts specified by The Depository
Trust Company. The Company will make all payments in respect of a certificated Note (including
principal, premium, if any, and interest) by mailing a check to the registered address of each
Holder thereof; provided, however, that payments on a certificated Note will be
made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United
States if such Holder elects payment by wire transfer by giving written notice to the Trustee or
the Paying Agent to such effect designating such account no later than 30 days immediately
preceding the relevant due date for payment (or such other date as the Trustee may accept in its
discretion).



3. Paying Agent and Registrar




     Initially, Wells Fargo Bank, National Association, a United States banking association (the
“Trustee”), will act as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.



 









 





4. Indenture




     The Company issued the Notes under an Indenture dated November 16, 2005, between the Company
and the Trustee (the “Original Indenture”), as supplemented by the First Supplemental Indenture
dated November 23, 2005, among the Company, the Subsidiary Guarantors and the Trustee (the “First
Supplemental Indenture”, and such Original Indenture as so supplemented by the First Supplemental
Indenture, the “Indenture”). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
§§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”). Terms defined in the
Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes
are subject to all such terms, and Holders are referred to the Indenture and the Act for a
statement of those terms.



     The Notes are general unsecured obligations of the Company. The Company shall be entitled,
subject to its compliance with Section 4.08 of the Indenture, to issue Additional Notes pursuant to
the Indenture. The Initial Notes issued on the Issue Date and any Additional Notes will be treated
as a single class for all purposes under the Indenture. The Indenture contains covenants that
limit the ability of the Company and its subsidiaries to incur additional indebtedness; pay
dividends or distributions on, or redeem or repurchase capital stock; make investments; issue or
sell capital stock of subsidiaries; engage in transactions with affiliates; create liens on assets;
transfer or sell assets; guarantee indebtedness; restrict dividends or other payments of
subsidiaries; and consolidate, merge or transfer all or substantially all of its assets and the
assets of its subsidiaries. During any period that the Notes have an Investment Grade Rating from
both S&P and Moody’s and no Default has occurred and is continuing, certain covenants will be
suspended. These covenants are subject to important exceptions and qualifications.



5. Optional Redemption




     Except as set forth below, the Company shall not be entitled to redeem the Notes at its option
prior to December 1, 2010.



     On and after December 1, 2010, the Company shall be entitled at its option to redeem all or a
portion of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices
(expressed in percentages of principal amount, on the redemption date) plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the 12-month period
commencing on December 1 of the years set forth below:



	 	 	 	 	 
	Period	 	Redemption Price	 
	2010
	 	 	103.625	%
	2011
	 	 	102.417	%
	2012
	 	 	101.208	%
	2013 and thereafter
	 	 	100.000	%






     In addition, prior to December 1, 2008, the Company shall be entitled at its option on one or
more occasions to redeem Notes (which includes Additional Notes, if any) in an aggregate



2









 




principal amount not to exceed 35% of the aggregate principal amount of the Notes (which
includes Additional Notes, if any) issued prior to the redemption date at a redemption price
(expressed as a percentage of principal amount) of 107.25%, plus accrued and unpaid interest to the
redemption date, with the net cash proceeds from one or more Public Equity Offerings;
provided that (1) at least 65% of such aggregate principal amount of Notes (which includes
Additional Notes, if any) remains outstanding immediately after the occurrence of each such
redemption (other than Notes held, directly or indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 180 days after the date of the related Public Equity
Offering.




     Prior to December 1, 2010, the Company may at its option redeem all (but not less than all)
the Notes (which includes the Additional Notes, if any) at a redemption price equal to the sum of:




	 	(1)	 	the principal amount thereof, plus
	 
	 	(2)	 	accrued and unpaid interest, if any, to the redemption date,
plus
	 
	 	(3)	 	the Applicable Premium at the redemption date.





6. Notice of Redemption




     Notice of redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered address. Notes in
denominations larger than $1,000 principal amount may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on
all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption.



7. Put Provisions




     Upon a Change of Control, then unless the Company shall have exercised its right to redeem all
the Notes, any Holder of Notes will have the right to cause the Company to repurchase all or any
part of the Notes of such Holder at a repurchase price equal to 101% of the principal amount of the
Notes to be repurchased plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of holders of record on the relevant record date to receive interest due on
the related interest payment date) as provided in, and subject to the terms of, the Indenture.



8. Subordination




     The Notes are subordinated to Senior Indebtedness of the Company, as defined in the Indenture.
To the extent provided in the Indenture, Senior Indebtedness of the Company must be paid before
the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee to give it effect
and appoints the Trustee as attorney-in-fact for such purpose.



3









 





9. Guaranty




     The payment by the Company of the principal of, and premium and interest on, the Notes is
fully and unconditionally guaranteed on a joint and several senior subordinated basis by each of
the Subsidiary Guarantors.



10. Denominations; Transfer; Exchange




     The Notes are in registered form without coupons in denominations of $1,000 principal amount
and whole multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for
redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be
redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed or 15
days before an interest payment date.



11. Persons Deemed Owners




     The registered Holder of this Note may be treated as the owner of it for all purposes.



12. Unclaimed Money




     If money for the payment of principal or interest remains unclaimed for two years, the Trustee
or Paying Agent shall pay the money back to the Company at its request unless an abandoned property
law designates another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.



13. Discharge and Defeasance




     Subject to certain conditions, the Company at any time shall be entitled to terminate some or
all of its obligations under the Notes and the Indenture if the Company deposits with the Trustee
money or U.S. Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be.



14. Amendment, Waiver




     Subject to certain exceptions set forth in the Indenture, (i) the Indenture and the Notes may
be amended or supplemented, and compliance with any provision of the Indenture may be waived, with
the written consent of the Holders of at least a majority in principal amount outstanding of the
Notes and (ii) any default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount outstanding of the Notes. Subject to
certain exceptions set forth in the Indenture, without the consent of any Holder, the Company, the
Subsidiary Guarantors and the Trustee shall be entitled to amend or supplement the Indenture or the
Notes to (1) cure any ambiguity, omission, defect or inconsistency, (2) comply with Article V of
the Indenture, (3) provide for uncertificated Notes in addition to or in place of certificated
Notes, (4) add guarantees with respect to the Notes, including Subsidiary Guaranties, or to secure
the Notes, or to confirm the release, termination or



4









 




discharge of any Subsidiary Guarantor or any such Lien when such release, termination or
discharge is permitted under the Indenture, (5) comply with any requirement of the SEC in
connection with qualifying, or maintaining the qualification of, the Indenture under the TIA, (6)
add additional covenants or surrender rights and powers conferred on the Company or the Subsidiary
Guarantors, (7) to add any additional Events of Default with respect to the Notes, (8) to change or
eliminate any of the provisions of the Indenture; provided that any such change or elimination
shall become effective only where there is no outstanding Note that is adversely affected in any
material respect by that change in or elimination of that provision, (9) to supplement any of the
provisions of the Indenture to such extent as shall be necessary to permit or facilitate the
defeasance and discharge of the Notes pursuant to the Indenture; provided, however, that any such
action shall not adversely affect the interest of the Holder of any Notes in any material respect,
(10) to evidence and provide for the acceptance of appointment under the Indenture by a successor
trustee with respect to the Notes and to add or change any of the provisions of the Indenture as
shall be necessary to provide for or facilitate the administration of the trusts under the
Indenture by more than one trustee, or (11) to make any change to conform the text of the Indenture
or the Notes to any provision in the Prospectus Supplement in the section “Description of the
Notes” that does not adversely affect the Holder of any Note.




15. Defaults and Remedies




     Under the Indenture, Events of Default include (i) default for 30 days in payment of interest
on the Notes; (ii) default in payment of principal on the Notes at maturity, upon redemption
pursuant to paragraph 5 of the Notes, upon acceleration or otherwise, or failure by the Company to
redeem or purchase Notes when required; (iii) failure by the Company or any Subsidiary Guarantor to
comply with other agreements in the Indenture or the Notes, in certain cases subject to notice and
lapse of time; (iv) certain accelerations (including failure to pay within any grace period after
final maturity) of other Indebtedness of the Company or any Significant Subsidiary (other than
Non-Recourse Purchase Money Indebtedness) if the amount accelerated (or so unpaid) exceeds $10.0
million, provided that such acceleration is not rescinded within a period of 10 days from the
occurrence of such acceleration; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of
money in excess of $10.0 million; and (vii) certain defaults with respect to Subsidiary Guaranties.
If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Notes may declare all the Notes to be due and payable immediately. Certain
events of bankruptcy or insolvency are Events of Default which will result in the Notes being due
and payable immediately upon the occurrence of such Events of Default.



     Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity or security
satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders notice of any continuing Default (except a Default in payment of principal or
interest) if it determines that withholding notice is not opposed to the interest of the Holders.



5









 





16. Trustee Dealings with the Company




     Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its
individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal
with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were not Trustee.



17. No Recourse Against Others




     A director, officer, employee or stockholder, as such, of the Company or the Trustee shall not
have any liability for any obligations of the Company under the Notes or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their creation. By accepting a
Note, each Holder waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.



18. Authentication




     This Note shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent) manually signs the certificate of authentication on the other side of this
Note.



19. Abbreviations




     Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM
(=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).



20. CUSIP Numbers




     Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification
Procedures the Company has caused CUSIP numbers to be printed on the Notes and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the other identification
numbers placed thereon.



21. Governing Law




     THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.



     The Company will furnish to any Holder upon written request and without charge to the Holder a
copy of the Indenture which has in it the text of this Note in larger type. Requests may be made
to:



6









 





Encore Acquisition Company

777 Main Street

Suite 1400

Fort Worth, TX 76102

Attention: Chief Financial Officer





7









 








ASSIGNMENT FORM




	 	 	 
	     To assign this Note, fill in the form below:

	 
	 	 
	     I or we assign and transfer this Note to

	 	 


	 
	 	 
	 

	 
	 	 
	 

	 
	 	 
	     (Print or type assignee’s name, address and zip code)

	 



	 
	 	 
	(Insert assignee’s soc. sec. or tax I.D. No.)







       and irrevocably appoint
                                                            agent to transfer this Note on the books of the Company. The
agent may substitute another to act for him.




 





     Date:                                          Your Signature:                                                                                 


 




Sign exactly as your name appears on the other side of this Note.




 









 





OPTION OF HOLDER TO ELECT PURCHASE




     If you want to elect to have this Note purchased by the Company pursuant to Section 4.11 or
4.13 of the Indenture, check the box:



o




     If you want to elect to have only part of this Note purchased by the Company pursuant to
Section 4.11 or 4.13 of the Indenture, state the amount in principal amount: $___



	 	 	 	 	 	 	 	 	 
	     Date:

	 	 	 	 	 	Your Signature:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(Sign exactly as your name appears
	 

	 	 	 	 	 	 	 	on the other side of this Note.)






	 	 	 
	Signature Guarantee:
	 	 
	 

	 	 
	 

	 	(Signature must be guaranteed)






     Signatures must be guaranteed by an “eligible guarantor institution” meeting the
requirements of the Registrar, which requirements include membership or participation in the
Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program”
as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.



 









 





[TO BE ATTACHED TO GLOBAL SECURITIES]




SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE




     The following increases or decreases in this Global Note have been made:



	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Principal amount of	 	 	Signature of 
	 	 	 	 	 	 	 	 	 	 	this Global Note	 	 	authorized officer 
	 	 	 	 	Amount of decrease	 	 	Amount of increase	 	 	following such	 	 	of Trustee or
	 	 	 	 	in Principal amount	 	 	in Principal amount	 	 	decrease or	 	 	Securities
	Date of Exchange	 	 	of this Global Note	 	 	of this Global Note	 	 	increase)	 	 	Custodian