Document:

Exhibit 10.1

 

$200,000,000
SENIOR SECURED REVOLVING

 

CREDIT
AGREEMENT

 

 

Dated as
of September 23, 2005

 

 

among

 

 

STROUD
ENERGY, LTD. ,

as Borrower,

 

THE
GUARANTORS AS PARTY HERETO,

 

WELLS
FARGO BANK, NATIONAL ASSOCIATION,

as Lead Arranger, Issuing Bank, Administrative Agent and a Bank,

 

 

JPMORGAN
CHASE BANK, N.A.,

as Syndication Agent

 

and

 

 

THE OTHER
FINANCIAL INSTITUTIONS AS PARTY HERETO

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE I DEFINITIONS

  	
   

  
	
  1.01

  	
   

  	
  Certain Defined Terms

  	
   

  
	
  1.02

  	
   

  	
  Other Interpretive
  Provisions

  	
   

  
	
  1.03

  	
   

  	
  Accounting Principles

  	
   

  
	
   

  	
   

  
	
  ARTICLE II THE CREDIT

  	
   

  
	
  2.01

  	
   

  	
  Amounts and Terms of the
  Commitment

  	
   

  
	
  2.02

  	
   

  	
  Conversion and Continuation
  Elections

  	
   

  
	
  2.03

  	
   

  	
  Optional Prepayments

  	
   

  
	
  2.04

  	
   

  	
  Borrowing Base
  Determinations, Mandatory Prepayments of Loans

  	
   

  
	
   

  	
  (a)

  	
  Scheduled Borrowing Base
  Determinations

  	
   

  
	
   

  	
  (b)

  	
  Bank’s Sole Discretion

  	
   

  
	
   

  	
  (c)

  	
  Mandatory Prepayments of
  Loans

  	
   

  
	
   

  	
  (d)

  	
  Special Borrowing Base
  Determination

  	
   

  
	
  2.05

  	
   

  	
  Repayment

  	
   

  
	
   

  	
  (a)

  	
  The Loans

  	
   

  
	
   

  	
  (b)

  	
  Interest

  	
   

  
	
  2.06

  	
   

  	
  Fees

  	
   

  
	
   

  	
  (a)

  	
  Agency and Other Fees

  	
   

  
	
   

  	
  (b)

  	
  Facility Fee

  	
   

  
	
   

  	
  (c)

  	
  Increase in Borrowing Base

  	
   

  
	
   

  	
  (d)

  	
  Commitment Fees

  	
   

  
	
   

  	
  (e)

  	
  Letter of Credit Fees

  	
   

  
	
  2.07

  	
   

  	
  Computation of Fees and
  Interest

  	
   

  
	
  2.08

  	
   

  	
  Payments by Borrower;
  Borrowings Pro Rata

  	
   

  
	
  2.09

  	
   

  	
  Issuing the Letters of Credit

  	
   

  
	
  2.10

  	
   

  	
  Payments by the Banks to
  Administrative Agent

  	
   

  
	
  2.11

  	
   

  	
  Sharing of Payments, Etc.

  	
   

  
	
   

  	
   

  
	
  ARTICLE III TAXES, YIELD PROTECTION AND
  ILLEGALITY

  	
   

  
	
  3.01

  	
   

  	
  Taxes

  	
   

  
	
  3.02

  	
   

  	
  Illegality

  	
   

  
	
  3.03

  	
   

  	
  Increased Costs and
  Reduction of Return

  	
   

  
	
  3.04

  	
   

  	
  Funding Losses

  	
   

  
	
  3.05

  	
   

  	
  Inability
  to Determine Rates

  	
   

  
	
  3.06

  	
   

  	
  Survival

  	
   

  
	
  3.07

  	
   

  	
  Foreign
  Lenders, Participants, and Assignees

  	
   

  
	
  3.08

  	
   

  	
  Withholding Tax

  	
   

  
	
   

  	
   

  
	
  ARTICLE IV
  SECURITY

  	
   

  
	
  4.01

  	
   

  	
  Agreement
  to Deliver Guarantees and Security Documents

  	
   

  
	
  4.02

  	
   

  	
  Perfection
  and Protection of Security Interests and Liens

  	
   

  
	
  4.03

  	
   

  	
  Offset

  	
   

  
	
  4.04

  	
   

  	
  Letters in
  Lieu/Power of Attorney

  	
   

  
	
  4.05

  	
   

  	
  Assignment
  of Runs

  	
   

  

 

i

 

	
  ARTICLE V
  CONDITIONS PRECEDENT

  	
   

  
	
  5.01

  	
   

  	
  Conditions
  of Initial Loans

  	
   

  
	
   

  	
  (a)

  	
  Credit
  Agreement, Notes and Security Documents

  	
   

  
	
   

  	
  (b)

  	
  Resolutions;
  Incumbency; Organization Documents

  	
   

  
	
   

  	
  (c)

  	
  Certificates

  	
   

  
	
   

  	
  (d)

  	
  Payment of
  Fees

  	
   

  
	
   

  	
  (e)

  	
  Opinions of
  Counsel

  	
   

  
	
   

  	
  (f)

  	
  Title

  	
   

  
	
   

  	
  (g)

  	
  Environmental

  	
   

  
	
   

  	
  (h)

  	
  Operating
  Accounts

  	
   

  
	
   

  	
  (i)

  	
  Company Due
  Diligence

  	
   

  
	
   

  	
  (j)

  	
  Operating
  Agreements

  	
   

  
	
   

  	
  (k)

  	
  Contingent
  Liabilities

  	
   

  
	
   

  	
  (l)

  	
  Insurance
  Certificates

  	
   

  
	
   

  	
  (m)

  	
  Other Documents

  	
   

  
	
  5.02

  	
   

  	
  Conditions
  to All Loans

  	
   

  
	
   

  	
  (a)

  	
  Notice

  	
   

  
	
   

  	
  (b)

  	
  Continuation
  of Representations and Warranties

  	
   

  
	
   

  	
  (c)

  	
  No Existing
  Default

  	
   

  
	
   

  	
   

  
	
  ARTICLE VI
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  6.01

  	
   

  	
  Existence
  and Authority

  	
   

  
	
  6.02

  	
   

  	
  Organizational
  Authorization; No Contravention

  	
   

  
	
  6.03

  	
   

  	
  Governmental
  Authorization

  	
   

  
	
  6.04

  	
   

  	
  Binding
  Effect

  	
   

  
	
  6.05

  	
   

  	
  Litigation

  	
   

  
	
  6.06

  	
   

  	
  No Default

  	
   

  
	
  6.07

  	
   

  	
  ERISA

  	
   

  
	
  6.08

  	
   

  	
  Margin
  Regulations

  	
   

  
	
  6.09

  	
   

  	
  Title to
  Oil and Gas Properties

  	
   

  
	
  6.10

  	
   

  	
  Oil and Gas
  Operations

  	
   

  
	
  6.11

  	
   

  	
  Initial
  Reserve Report

  	
   

  
	
  6.12

  	
   

  	
  Gas Imbalances

  	
   

  
	
  6.13

  	
   

  	
  Taxes

  	
   

  
	
  6.14

  	
   

  	
  Financial
  Condition

  	
   

  
	
  6.15

  	
   

  	
  Environmental
  Matters

  	
   

  
	
  6.16

  	
   

  	
  Regulated Entities

  	
   

  
	
  6.17

  	
   

  	
  No Burdensome
  Restrictions

  	
   

  
	
  6.18

  	
   

  	
  Copyrights,
  Patents, Trademarks and Licenses, etc.

  	
   

  
	
  6.19

  	
   

  	
  Subsidiary,
  Affiliates and Ownership

  	
   

  
	
  6.20

  	
   

  	
  Insurance

  	
   

  
	
  6.21

  	
   

  	
  Full Disclosure

  	
   

  
	
  6.22

  	
   

  	
  Solvency

  	
   

  
	
   

  	
   

  
	
  ARTICLE VII
  AFFIRMATIVE COVENANTS

  	
   

  
	
  7.01

  	
   

  	
  Financial
  Statements

  	
   

  
	
  7.02

  	
   

  	
  Certificates;
  Other Production and Reserve Information

  	
   

  
	
  7.03

  	
   

  	
  Notices

  	
   

  
	
  7.04

  	
   

  	
  Preservation
  of Company Existence, Etc.

  	
   

  

 

ii

 

	
  7.05

  	
   

  	
  Maintenance
  of Mortgaged Properties

  	
   

  
	
  7.06

  	
   

  	
  Insurance

  	
   

  
	
  7.07

  	
   

  	
  Payment of
  Obligations

  	
   

  
	
  7.08

  	
   

  	
  Compliance
  with Laws

  	
   

  
	
  7.09

  	
   

  	
  Inspection
  of Property and Books and Records

  	
   

  
	
  7.10

  	
   

  	
  Environmental Laws

  	
   

  
	
  7.11

  	
   

  	
  Use of
  Proceeds

  	
   

  
	
  7.12

  	
   

  	
  Further
  Assurances

  	
   

  
	
  7.14

  	
   

  	
  Phase I
  Reports

  	
   

  
	
  7.15

  	
   

  	
  ERISA Information
  and Compliance

  	
   

  
	
  7.16

  	
   

  	
  Operating
  Accounts

  	
   

  
	
  7.17

  	
   

  	
  Guarantees

  	
   

  
	
   

  	
   

  
	
  ARTICLE VIII
  NEGATIVE COVENANTS

  	
   

  
	
  8.01

  	
   

  	
  Limitation
  on Liens

  	
   

  
	
  8.02

  	
   

  	
  Disposition
  of Assets

  	
   

  
	
  8.03

  	
   

  	
  Consolidations
  and Mergers

  	
   

  
	
  8.04

  	
   

  	
  Loans and
  Investments

  	
   

  
	
  8.05

  	
   

  	
  Limitation on
  Indebtedness

  	
   

  
	
  8.06

  	
   

  	
  Transactions
  with Affiliates

  	
   

  
	
  8.07

  	
   

  	
  Margin
  Stock

  	
   

  
	
  8.08

  	
   

  	
  Contingent
  Obligations

  	
   

  
	
  8.09

  	
   

  	
  Restricted
  Distributions

  	
   

  
	
  8.10

  	
   

  	
  Minimum
  Tangible Net Worth

  	
   

  
	
  8.11

  	
   

  	
  Current Ratio

  	
   

  
	
  8.12

  	
   

  	
  Minimum
  Interest Coverage Ratio

  	
   

  
	
  8.13

  	
   

  	
  Change in Business

  	
   

  
	
  8.14

  	
   

  	
  Accounting
  Changes

  	
   

  
	
  8.15

  	
   

  	
  Derivative
  Contracts

  	
   

  
	
  8.16

  	
   

  	
  ERISA Compliance

  	
   

  
	
   

  	
   

  
	
  ARTICLE IX
  EVENTS OF DEFAULT

  	
   

  
	
  9.01

  	
   

  	
  Event of
  Default

  	
   

  
	
   

  	
  (a)

  	
  Non-Payment

  	
   

  
	
   

  	
  (b)

  	
  Representation
  or Warranty

  	
   

  
	
   

  	
  (c)

  	
  Specific Defaults

  	
   

  
	
   

  	
  (d)

  	
  Other Defaults

  	
   

  
	
   

  	
  (e)

  	
  Guarantees

  	
   

  
	
   

  	
  (f)

  	
  Cross-Default

  	
   

  
	
   

  	
  (g)

  	
  Insolvency;
  Voluntary Proceedings

  	
   

  
	
   

  	
  (h)

  	
  Involuntary
  Proceedings

  	
   

  
	
   

  	
  (i)

  	
  Monetary
  Judgment

  	
   

  
	
   

  	
  (j)

  	
  Loss of Permit

  	
   

  
	
   

  	
  (k)

  	
  Adverse Change

  	
   

  
	
   

  	
  (l)

  	
  Change of
  Control/Change of Management

  	
   

  
	
  9.02

  	
   

  	
  Remedies

  	
   

  
	
  9.03

  	
   

  	
  Rights Not
  Exclusive

  	
   

  
	
   

  	
   

  
	
  ARTICLE X.
  ADMINISTRATIVE AGENT

  	
   

  

 

iii

 

	
  10.01

  	
   

  	
  Appointment
  and Authorization

  	
   

  
	
  10.02

  	
   

  	
  Delegation
  of Duties

  	
   

  
	
  10.03

  	
   

  	
  Liability of
  Administrative Agent

  	
   

  
	
  10.04

  	
   

  	
  Reliance by
  Administrative Agent

  	
   

  
	
  10.05

  	
   

  	
  Notice of
  Default

  	
   

  
	
  10.06

  	
   

  	
  Credit Decision

  	
   

  
	
  10.07

  	
   

  	
  Indemnification

  	
   

  
	
  10.08

  	
   

  	
  Administrative
  Agent in Individual Capacity

  	
   

  
	
  10.09

  	
   

  	
  Successor Administrative
  Agent

  	
   

  
	
   

  	
   

  
	
  ARTICLE XI.
  MISCELLANEOUS

  	
   

  
	
  11.01

  	
   

  	
  Amendments
  and Waivers

  	
   

  
	
  11.02

  	
   

  	
  Notices

  	
   

  
	
  11.03

  	
   

  	
  No Waiver;
  Cumulative Remedies

  	
   

  
	
  11.04

  	
   

  	
  Costs and Expenses

  	
   

  
	
  11.05

  	
   

  	
  Indemnity

  	
   

  
	
  11.06

  	
   

  	
  Payments Set
  Aside

  	
   

  
	
  11.07

  	
   

  	
  Successors
  and Assigns

  	
   

  
	
  11.08

  	
   

  	
  Assignments

  	
   

  
	
  11.09

  	
   

  	
  Set-off

  	
   

  
	
  11.10

  	
   

  	
  Interest

  	
   

  
	
  11.11

  	
   

  	
  Automatic
  Debits of Fees

  	
   

  
	
  11.12

  	
   

  	
  Collateral
  Matters; Derivative Contracts

  	
   

  
	
  11.13

  	
   

  	
  USA Patriot
  Act Notice

  	
   

  
	
  11.14

  	
   

  	
  Notification
  of Addresses, Lending Offices, Etc.

  	
   

  
	
  11.15

  	
   

  	
  Counterparts

  	
   

  
	
  11.16

  	
   

  	
  Severability

  	
   

  
	
  11.17

  	
   

  	
  No Third
  Parties Benefited

  	
   

  
	
  11.18

  	
   

  	
  GOVERNING
  LAW

  	
   

  
	
  11.19

  	
   

  	
  ARBITRATION

  	
   

  
	
   

  	
  (a)

  	
  Arbitration

  	
   

  
	
   

  	
  (b)

  	
  Governing
  Rules

  	
   

  
	
   

  	
  (c)

  	
  No Waiver;
  Provisional Remedies, Self-Help and Foreclosure

  	
   

  
	
   

  	
  (d)

  	
  Arbitrator
  Qualifications and Powers; Awards

  	
   

  
	
   

  	
  (e)

  	
  Judicial
  Review

  	
   

  
	
   

  	
  (f)

  	
  Miscellaneous

  	
   

  
	
  11.20

  	
   

  	
  Restatement
  of Prior Credit Agreement

  	
   

  
	
  11.21

  	
   

  	
  Entire
  Agreement

  	
   

  
	
  11.22

  	
   

  	
  NO ORAL
  AGREEMENTS

  	
   

  

 

iv

 

	
  SCHEDULES

  	
   

  
	
   

  	
   

  
	
  Schedule 2.01

  	
  Commitments and Pro Rata Shares

  
	
  Schedule 4.01

  	
  Security Documents

  
	
  Schedule 6.05

  	
  Litigation

  
	
  Schedule 6.14

  	
  Material Adverse Effect

  
	
  Schedule 8.05

  	
  Additional Permitted Indebtedness

  
	
   

  	
   

  
	
  EXHIBITS

  	
   

  
	
   

  	
   

  
	
  Exhibit A

  	
  Form of Note

  
	
  Exhibit B

  	
  Form of Notice of Borrowing

  
	
  Exhibit C

  	
  Form of Notice of
  Conversion/Continuation

  
	
  Exhibit D

  	
  Form of Letter-in-Lieu

  
	
  Exhibit E

  	
  Form of Compliance Certificate

  
	
  Exhibit F

  	
  Form of Assignment and Acceptance
  Agreement

  
	
  Exhibit G

  	
  Form of Pricing Grid Certificate

  

 

v

 

CREDIT
AGREEMENT

 

This CREDIT
AGREEMENT (the “Agreement”)
is dated as of September 23, 2005, among STROUD
ENERGY, LTD., a Texas limited partnership (formerly known as STROUD INVESTMENTS 2001,
LTD., “Borrower”), STROUD OIL PROPERTIES, LP, a Delaware limited partnership (successor by merger to Stroud Oil
Properties, Inc., “SOP”), STROUD ENERGY
MANAGEMENT GP, LLC, a Texas
limited liability company (formerly
known as Stroud Energy Management, Ltd., “SEM”), STROUD
ENERGY, INC., a Delaware corporation (“Parent”), STROUD ENERGY GP, LLC, a Delaware limited liability company (“SEGP”), STROUD ENERGY LP, LLC, a Delaware limited liability company
(“SELP”;
SOP, SEM, Parent, SEGP and SELP are collectively, the “Guarantors” and each
a “Guarantor”),
each of the banks which is or which may from time to time become a signatory
hereto (individually, a “Bank” and
collectively, the “Banks”), WELLS FARGO BANK, NATIONAL
ASSOCIATION, a
national banking association, as Lead Arranger, Issuing Bank (in such capacity,
together with its successors in such capacity “Issuing Bank”) and Administrative Agent
for the Banks (in such capacity, together with its successors in such capacity “Administrative Agent”) and JPMORGAN CHASE BANK, N.A., as syndication
agent for the Banks (“Syndication
Agent”).

 

RECITALS

 

WHEREAS, Borrower, certain Guarantors,
Issuing Bank, Administrative Agent, and the Banks are party to that certain
Senior Secured Revolving Credit Credit Agreement dated as of June 19,
2003, as amended by First Amendment to Senior Secured Revolving Credit
Agreement effective July 2, 2003, and by Limited Waiver and Second
Amendment to Senior Secured Revolving Credit Agreement effective January 12,
2004, and by Third Amendment to Senior Secured Revolving Credit Agreement
effective March 31, 2004, and by Confirmation and Fourth Amendment to
Senior Secured Revolving Credit Agreement effective October 30, 2004, and
by Fifth Amendment to Senior Secured Revolving Credit Agreement dated as of July 27,
2005 (as amended, the “Prior
Credit Agreement”);

 

WHEREAS, Borrower and Guarantors have
requested that Administrative Agent and the Banks amend and restate the Prior
Credit Agreement to reflect changes resulting from the Private Placement
(defined herein);

 

WHEREAS, subject to the conditions precedent
set forth herein, the Banks and Administrative Agent have agreed to amend and
restate the Prior Credit Agreement;

 

NOW THEREFORE, in consideration of the
premises, the representations, warranties, covenants and agreements contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Borrower, Guarantors, Issuing Bank,
Administrative Agent and the Banks hereby agree that effective as of the
Closing Date, the Prior Credit Agreement is and shall be amended and restated
in its entirety on the terms and conditions set forth herein.

 

Borrower, Guarantors, Issuing Bank,
Administrative Agent and the Banks hereby further agree effective as of the
Closing Date as follows:

 

 

ARTICLE I.

 

DEFINITIONS

 

1.01        Certain
Defined Terms. The following terms have the following meanings:

 

Acquisition
means any transaction or series of related transactions for the purpose of or
resulting, directly or indirectly, in (a) the acquisition of all or
substantially all of the assets of a Person, or of any business or division of
a Person, (b) the acquisition of in excess of 50% of the capital stock of
a corporation (or similar entity), which stock has ordinary voting power for
the election of the members of such entity’s board of directors or persons
exercising similar functions (other than stock having such power only by reason
of the happening of a contingency), or the acquisition of in excess of 50% of
the partnership interests or equity of any Person not a corporation which
acquisition gives the acquiring Person the power to direct or cause the
direction of the management and policies of such Person, or (c) a merger
or consolidation or any other combination with another Person provided that
Borrower is the surviving entity.

 

Administrative Agent
means Wells Fargo Bank, in its
capacity as Administrative Agent for the Banks hereunder or any successor
thereto.

 

Administrative Agent’s Payment
Office means the address for payments as
Administrative Agent may from time to time specify.

 

Affiliate
means, as to any Person, any other Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, such Person. A
Person shall be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of the other Person, whether through the
ownership of voting securities, by contract, or otherwise. For Borrower,
Affiliate shall include Parent, SEGP, SELP, SOP, SEM, and any Subsidiary
thereof.

 

Agent-Related Persons
as to the Administrative Agent, means Administrative Agent, its Affiliates, and
the officers, directors, employees, agents and attorneys-in-fact of
Administrative Agent and its Affiliates.

 

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

 

Applicable Margin
means, with respect to LIBOR Loans and Base Rate Loans, the amounts set forth
on the Pricing Grid.

 

Assignee
has the meaning specified in Subsection 11.08(b).

 

Attorney Costs
means and includes all reasonable fees and disbursements of any law firm or
other external counsel, together with all disbursements of internal counsel.

 

Available Borrowing Base
means, at the particular time in question, the Borrowing Base amount then in
effect minus the Effective Amount at such time.

 

Bankruptcy Code
means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et
seq.), as amended, and regulations promulgated thereunder.

 

2

 

Bank
means any financial institution a party hereto as having a Commitment, and its
successors and assigns, and Banks shall
mean all Banks.  References to “Banks” shall include Wells Fargo Bank, and such other lending institutions now a party or hereafter a
party to this Agreement.

 

Base Rate
means, for any day, the fluctuating rate of interest in effect for such day which
rate per annum shall be equal to the higher of (i) the rate of interest as
publicly announced from time to time by Administrative Agent as its “reference
rate” (the “reference rate” is a rate set by Administrative Agent based upon
various factors including costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate), or (ii) one-half
of one percent (0.50%) per annum above the Federal Funds Rate in effect from
time to time. Any change in the reference rate announced by Administrative
Agent shall take effect at the opening of business on the day specified in the
public announcement of such change.

 

Base Rate Loan
means a Loan that bears interest based at the Base Rate.

 

Borrower
shall have the meaning set forth in the introductory paragraph hereto.

 

Borrowing
means a borrowing hereunder consisting of Loans of the same Interest Rate Type
made to Borrower on the same day by any of the Banks under Article II,
and, other than in the case of Base Rate Loans, having the same
Interest Period.

 

Borrowing Base
means at the particular time in question, the amount provided for in Section 2.04 provided, however,
in no event shall the Borrowing Base ever exceed the Maximum Loan Amount.

 

Borrowing Base Period
means each six (6) month period commencing October 1, and April 1
of each year.

 

Borrowing Date
means any date on which a Borrowing occurs under Section 2.01.

 

Business Day
means any day other than a Saturday, Sunday or other day on which commercial
banks in Dallas, Texas are authorized or required by law to close and, if the
applicable Business Day relates to any LIBOR Loan, means such a day on which
dealings are carried on in the applicable offshore dollar interbank market.

 

Capital Adequacy Regulation
means any guideline, request or directive of any central bank or other
Governmental Authority, or any other law, rule or regulation, whether or
not having the force of law, in each case, regarding capital adequacy of any
bank or of any corporation controlling a bank.

 

Capital Lease
means a lease or other agreement conveying the right to use real and/or
personal Property, which obligations are required to be classified and
accounted for as a capital lease under GAAP.

 

Cash Equivalents
means: (a) securities issued or fully guaranteed or insured by the United
States Government or any agency thereof and backed by the full faith and credit
of the United States having maturities of not more than twelve (12) months from
the date of acquisition; (b) certificates of deposit, time deposits,
Eurodollar time deposits, or bankers’ acceptances having in each case a tenor
of not more than three (3) months from the date of acquisition issued by
any U.S. commercial bank or any 

 

3

 

branch or agency of a non-U.S. commercial bank licensed to conduct
business in the U.S. having combined capital and surplus of not less than Five
Hundred Million Dollars ($500,000,000); and (c) commercial paper of an
issuer rated in one of the two highest rating categories of Standard and Poor’s
Rating Service, a division of McGraw Hill, Inc., or Moody’s Investor
Services, Inc. at the time of acquisition, and in either case having a
tenor of not more than twelve (12) months.

 

Change of Control means any of the
following: (a) any acquisition or acquisitions pursuant to which any
Person or group (as defined in Section 13(d)(3) or 14(d)(2) of
the Exchange Act) has become the direct or indirect beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the
Voting Stock of Parent, (b) Parent is merged with or into or consolidated
with another Person, (c) Parent, either individually or in connection with
one or more of it’s Subsidiaries, sells, conveys, transfers or leases, or its
Subsidiaries sell, convey, transfer or lease, all or substantially all of the
assets of Parents and its Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including equity or
partnership interests in its Subsidiaries, to any Person, or (d) the first
day on which a majority of the individuals who constitute the board of
directors of Parent are not Continuing Directors.

 

Closing
means the date on which this Agreement is signed by Borrower, Guarantors,
Administrative Agent and the Banks.

 

Closing Date
means the date on which all conditions precedent set forth in Section 5.01 are satisfied or
waived by the Banks.

 

Code
means the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.

 

Collateral
means all Property of any kind which is subject to a Lien granted by Borrower
or any Guarantor in favor of Administrative Agent for the benefit of the Banks
or which under the terms of any Security Document is purported to be subject to
such Lien.

 

Commitment
means as to each Bank, such Bank’s Pro Rata Share of the lesser of the current
Borrowing Base and the Maximum Loan Amount, as such Commitment may be
terminated and/or reduced from time to time in accordance with the provisions
hereof.

 

Compliance Certificate
means a certificate substantially in the form of Exhibit ”E”.

 

Consolidated Interest Expense
means, for any fiscal period, the aggregate amount of all costs, fees and
expenses, including capital expenses, paid by the Parent and its Subsidiaries
on a consolidated basis in such fiscal period, which are classified as interest
expense on the Parent’s consolidated financial statements.

 

Consolidated Net Income
means, for any period, the consolidated net income (or net loss) of Parent and
its Subsidiaries for such period.

 

Consolidated Tangible Net Worth
means, at any date, an amount equal to the Shareholders’ Equity less any
intangible asset determined in accordance with GAAP, provided, there shall be
excluded from the calculation of tangible net worth the effect of any non-cash
ceiling test write down, provided, further, the non-cash mark-to-market value
or liability of any Derivative Contracts pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities, shall be excluded from the calculation of Tangible Net
Worth.

 

4

 

Contingent Obligation
means, as to any Person without duplication, any direct or indirect liability
of that Person with or without recourse, (a) with respect to any
Indebtedness, dividend, letter of credit or other similar obligation (the “primary obligations”) of another
Person (the “primary obligor”), including
any obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to advance
or provide funds for the payment or discharge of any such primary obligation,
or to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of the primary obligor, (iii) to
purchase Property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or
hold harmless the holder of any such primary obligation against loss in respect
thereof (each, a “Guaranty Obligation”); (b) with
respect to any Surety Instrument issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings or
payments; (c) with respect to any Derivative Contract; or (d) to
purchase any materials, supplies or other Property from, or to obtain the
services of, another Person if the relevant contract or other related document
or obligation requires that payment for such materials, supplies or other
Property, or for such services, shall be made regardless of whether delivery of
such materials, supplies or other Property is ever made or tendered, or such
services are ever performed or tendered. The amount of any Contingent
Obligation shall, in the case of Guaranty Obligations, be deemed equal to the
maximum stated or determinable amount of the primary obligation in respect of
which such Guaranty Obligation is made or, if not stated or if indeterminable,
the maximum reasonably anticipated liability in respect thereof, and in the
case of other Contingent Obligations, shall be equal to the maximum reasonably
anticipated liability in respect thereof.

 

Continuing Director means an
individual who (a) is a member of the board of directors of the Parent and
(b) was (i) a member of the board of directors of Parent at Closing, (ii) identified
in the Preliminary Offering Memo as a person who was expected to become a
director of the Parent, or (iii)  first nominated for election or elected
to the Parent’s board of directors by a vote of at least two-thirds of the
directors still in office who were Continuing Directors.

 

Contractual Obligation
means, as to any Person, any provision of any security issued by such Person or
of any agreement, undertaking, contract, indenture, mortgage, deed of trust or
other instrument, document or agreement to which such Person is a party or by
which it or any of its Property is bound.

 

Conversion/Continuation Date
means any date on which, under Section 2.02,
Borrower (a) converts Loans of one Interest Rate Type to another Interest
Rate Type, or (b) continues as Loans of the same Interest Rate Type, but
with a new Interest Period, Loans having Interest Periods expiring on such
date.

 

Current Assets
means, for any Person, all assets of such Person that, in accordance with GAAP,
would be included as consolidated current assets on a balance sheet as of the
date of calculation, provided that, for purposes of calculating Parent’s
Current Assets to Current Liabilities, Available Borrowing Base under this
Agreement shall be included as Current Assets, and any non-cash mark-to-market
value of any Derivative Contracts pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities, shall be excluded from Current Assets.

 

Current Liabilities
means, for any Person, all liabilities of such Person that, in accordance with
GAAP, would be included as consolidated current liabilities on a balance sheet
as of the date of calculation; provided that, for purposes of
calculating Parent’s Current Ratio pursuant to Section 8.11, 

 

5

 

any non-cash obligations pursuant to SFAS No. 133 Accounting for Derivative Instruments an Hedging
Activities, shall be excluded as Current Liabilities.

 

Default
means any event or circumstance which, with the giving of notice, the lapse of
time, or both, would constitute an Event of Default.

 

Default
Rate shall have the meaning set forth in Section 2.05(b)(iii).

 

Derivative Contracts
means all futures contracts, forward contracts, swap, cap or collar contracts,
option contracts, hedging contracts or other derivative contracts or similar
agreements covering Oil and Gas commodities or prices or financial, monetary or
interest rate instruments.

 

Dispositions
has the meaning specified in Section 8.02.

 

Dollars, dollars and $ each mean lawful money of the
United States.

 

EBITDA
means for any fiscal period, without duplication, (i) Consolidated Net
Income of Parent, plus (ii) consolidated income taxes, plus (iii) consolidated
depreciation, depletion, amortization and other non-cash items reducing
Consolidated Net Income, plus (iv) Consolidated Interest Expense.

 

Effective Amount
means on any date, the aggregate outstanding principal amount of all Borrowings
after giving effect to any prepayments or repayments of Borrowings occurring on
such date plus the LC Obligation, after giving effect to any reimbursement in
respect thereof occurring on such date.

 

Eligible Assignee
means (i) a commercial bank organized under the laws of the United States,
or any state thereof, and having a combined capital and surplus of at least
$100,000,000.00; (ii) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation
and Development (the “OECD”), or
a political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000.00, provided that such bank is acting through
a branch or agency located in the United States; and (iii) any other
Person approved by Administrative Agent.

 

Environmental Claims
means all material claims by any Governmental Authority or other Person
alleging potential liability or responsibility for violation of any
Environmental Law, or for release of Hazardous Substances or injury to the
environment.

 

Environmental Laws
means all material federal, state or local laws, statutes, common law duties,
rules, regulations, ordinances and codes, together with all material
administrative orders, requests, licenses, authorizations and permits of, and
agreements with, any Governmental Authorities, in each case relating to
environmental, health, and safety matters.

 

ERISA
means the Employee Retirement Income Security Act of 1974, and regulations
promulgated thereunder.

 

ERISA
Affiliate means any trade or business (whether or
not incorporated) under common control with the Company within the meaning of Section 414(b),
(c), (m) or (o) of the Code for purposes of provisions relating to Section 412
of the Code).

 

6

 

ERISA
Event means, with respect to the Borrower or any
ERISA Affiliate (a) any event described in Section 4043(c) of
ERISA with respect to a Pension Plan, (b) the withdrawal of the Borrower
or any ERISA Affiliate from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA, (c) the complete or partial withdrawal of the Borrower or any ERISA
Affiliate from any Multiemployer Plan, (d) the termination of, the filing
of a notice of intent to terminate a Pension Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA, (e) the
institution of proceedings to terminate a Pension Plan or Multiemployer Plan by
the PBGC, (f) the failure by the Borrower or any ERISA Affiliate to make
when due required contributions to a Multiemployer Plan or Pension Plan unless
such failure is cured within thirty (30) days, (g) any other event or
condition that might reasonably be expected to constitute ground under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multiemployer Plan or for the imposition of liability under
Section 4069 or 4212(c) of ERISA, (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA, (i) the
loss of qualification or tax exempt status under the Code of any Pension Plan
maintained, or contributed to by, or (j) the termination of a Pension Plan
described in Section 4064 of ERISA.

 

Event of Default
means any of the events or circumstances specified in Section 9.01.

 

Exchange Act
means the Securities Exchange Act of 1934, as amended, and regulations
promulgated thereunder.

 

Federal Funds Rate
means, for any day, the rate set forth in the weekly statistical release
designated as H.15(519), or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, “H.15(519)”)
on the preceding Business Day opposite the caption “Federal Funds
(Effective)”; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
average as determined by Administrative Agent of the rates for the last
transaction in overnight federal funds arranged prior to 9:00 a.m. (New
York, New York time) on that day by each of three leading brokers of federal
funds transactions in New York, New York selected by Administrative Agent.

 

FRB
means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.

 

GAAP
means generally accepted accounting principles set forth from time to time in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S.
accounting profession), as modified by the requirements of applicable U.S.
securities laws and the rules and pronouncements of the Securities and
Exchange Commission and its staff, which are applicable to the circumstances as
of the date of determination.

 

General
Partner  shall mean SEM, the general partner of
Borrower, and its successors in such capacity.

 

Governmental Authority
means any nation or government, any state or other political subdivision
thereof, any central bank (or similar monetary or regulatory authority)
thereof, any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

 

7

 

Guarantees
means collectively the guarantees executed by each of the Guarantors
guaranteeing Borrower’s Obligations in favor of Administrative Agent and the
Banks as required under Section 7.16
hereof as same may be amended or ratified from time to time.

 

Guarantors
means Parent, SEGP, SELP, SOP, SEM, and any direct or indirect Subsidiaries of
Parent now or hereafter created.

 

Hazardous Substances
means any substances defined as “hazardous substances,”
“hazardous materials,” “hazardous wastes,” or “toxic substances”
under Environmental Laws.

 

Highest Lawful Rate
means, for each Bank, the maximum rate (or, if the context so permits or
requires, an amount calculated at such rate) of interest which, at the time in
question would not cause the interest charged on the portion of the loan owed
to such Bank at such time to exceed the maximum amount which such Bank would be
allowed to contract for, charge, take, reserve, or receive under applicable law
after taking into account, to the extent required by applicable law, any and
all relevant payments or charges under the Loan Documents. To the extent Texas
law is applicable, the Banks hereby notify and disclose to Borrower that, for
purposes of Texas Finance Code §303.001, as it may from time to time be
amended, the “applicable ceiling” shall be the “weekly ceiling” from time to time in effect as limited by
Texas Finance Code §303.009; provided, however, that to the extent permitted by
applicable law, The Banks reserve the right to change the “applicable
ceiling” from time to time by further notice and disclosure to
Borrower.

 

Hydrocarbon Interests means leasehold
and other interests in or under Oil and Gas leases, mineral fee interests,
overriding royalty and royalty interests, net profit interests, production
payment interests relating to Oil and Gas wherever located, including any
beneficial, reserved or residual interest of whatever nature.

 

Indebtedness
of any Person means, without duplication, (a) all indebtedness for
borrowed money; (b) all obligations issued, undertaken or assumed as the
deferred purchase price of Property or services (other than trade payables
entered into in the ordinary course of business on ordinary terms not more than
60 days past due); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
Property, assets or businesses; (e) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to Property acquired by the Person (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such Property)
including, without limitation, production payments, net profit interests and
other Hydrocarbon Interests subject to repayment out of future Oil and Gas
production; (f) all obligations with respect to Capital Leases; (g) all
net obligations with respect to Derivative Contracts; (h) Contingent Obligations,
(i) all indebtedness referred to in clauses (a) through (h) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in Property
(including accounts and contracts rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness; and (j) all Guaranty Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through (h) above.

 

Indemnified Liabilities has the meaning
specified in Section 11.05.

 

Indemnified Person has the meaning
specified in Section 11.05.

 

8

 

Independent Auditor
has the meaning specified in Subsection 7.01(a).

 

Initial Reserve  Report
has the meaning specified in Section 6.11.

 

Insolvency Proceeding
means (a) any case, action or proceeding relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.

 

Intercompany Loan means a revolving loan from Borrower
to Guarantors as evidenced by the Intercompany Note, which is to be used solely
for activities related to or in furtherance of the Principal Business.

 

Intercompany Note means that certain promissory note of
even date herewith executed by Guarantors in favor of Borrower in the maximum
principal amount of $30,000,000.

 

Interest Coverage Ratio shall mean for the ratio
of (i) EBITDA for a particular fiscal quarter to (ii) Interest
Expense for such fiscal quarter computed as of the end of such fiscal quarter
for the four fiscal quarter period then ended.

 

Interest Expense
means, for any fiscal period, the aggregate amount of all costs, fees and
expenses paid by the Parent, Borrower and the other Guarantors in such fiscal
period which are classified as interest expense on the Parent’s consolidated
financial statements all as determined in accordance with GAAP.

 

Interest Payment Date
means (i) as to any Base Rate Loan, the last Business Day of each calendar
quarter and (ii) as to any Loan other than a Base Rate Loan, the last day
of each Interest Period applicable to such Loan, provided, however, that if any
Interest Period for a LIBOR Loan exceeds
three (3) months, the date that falls three (3) months after the
beginning of such Interest Period, and the date that falls three (3) months
after each Interest Payment Date thereafter for such Interest Period, is also
an Interest Payment Date.

 

Interest Period
means, as to any LIBOR Loan, the period commencing on the Borrowing Date of
such Loan or on the Conversion/Continuation Date on which the Loan is converted
into or continued as LIBOR Loan, and ending on the date one, two, three or six
months thereafter as selected by Borrower in its Notice of Borrowing or Notice
of Conversion/Continuation; provided that: (i) if any Interest Period
would otherwise end on a day that is not a Business Day, that Interest Period
shall be extended to the following Business Day unless, in the case of a LIBOR
Loan, the result of such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall end on the
preceding Business Day; (ii) any Interest Period pertaining to a LIBOR
Loan that begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of the calendar
month at the end of such Interest Period; and (iii) no Interest Period for
any Loan shall extend beyond the Termination Date.

 

Interest Rate Type
means, with respect to any Loan, the interest rate, being either the Base Rate
or the LIBOR forming the basis upon which interest is charged against such Loan
hereunder.

 

Investment Company
has the meaning specified in Section 6.16.

 

9

 

IRS
means the Internal Revenue Service, and any Governmental Authority succeeding
to any of its principal functions under the Code.

 

Issue
means with respect to any Letter of Credit, to issue or extend the expiry of,
or to renew or increase the amount of, such Letter of Credit; and the terms “Issued,” “Issuing” and “Issuance” have corresponding meanings.

 

Issuing Bank
means Wells Fargo Bank.

 

LC Application
means an application or agreement for a standby Letter of Credit in the current
form promulgated by Issuing Bank with appropriate insertions or in such other
form as shall be reasonably acceptable to Issuing Bank duly executed by
Borrower pursuant to Section 2.09(a).

 

LC Collateral
means any amounts held by Issuing Bank, as security for LC Obligations of
Borrower.

 

LC Collateral Account
means a blocked deposit account held by Issuing Bank.

 

LC Obligation
means, at the time in question, the sum of the Matured LC Obligations plus the
aggregate amount available under all Letters of Credit then outstanding.

 

LC Related Document
means the Letters of Credit, LC Applications and any other document relating to
any Letter of Credit including any of Issuing Bank’s standard form documents
for Letter of Credit issuances.

 

Lending Office
means, as to any bank, the office or offices of such Bank specified as its “Lending
Office,” or such other office or offices as such Bank may from time to time
notify Borrower and Administrative Agent.

 

Letter of Credit
means any standby letter of credit issued by Issuing Bank pursuant to this
Agreement and upon an LC Application.

 

Letter
of Credit Fee means the annualized variable rate
set forth on the Pricing Grid as the LIBOR Rate.

 

Letters
in Lieu means the letters described under Section 4.04(a).

 

LIBOR
means a per annum rate of interest (rounded upwards, if necessary, to the
nearest .01%) equal to the quotient obtained by dividing (i) the rate at
which Administrative Agent is offered deposits by major banks in dollars in the
aggregate amount of the relevant Loans and for a period comparable to the
applicable Interest Period in the London interbank market at approximately 11:00 a.m.
(London time), two (2) Business Days prior to the beginning of the
relevant Interest Period, by (ii) a percentage equal to 100% minus the
average maximum rate of all reserve requirements relating to the LIBOR Rate
Loans under regulations issued by the Board of Governors of the Federal Reserve
System or any other Governmental Authority during such Interest Period
(including, without limitation, any margin, emergency, supplemental, special or
other reserves required by applicable Law) applicable to Administrative Agent.
The determination and calculation of the LIBOR and each component thereof by
Administrative Agent shall be conclusive and binding, absent manifest error.

 

10

 

LIBOR Rate Loan
means a Loan that bears interest based on LIBOR plus the Applicable Margin.

 

Lien
means with respect to any Property, any right or interest therein of a creditor
to secure Indebtedness owed to such creditor or any other arrangement with such
creditor which provides for the payment of such Indebtedness out of such
Property or which allows such creditor to have such debt satisfied out of such
Property prior to the general creditors of any owner thereof, including any
security interest, mortgage, deed of trust, pledge, hypothecation, assignment,
charge or deposit arrangement, encumbrance, lien (statutory or other) or
preferential arrangement of any kind or nature whatsoever in respect of any
Property (including those created by, arising under or evidenced by any conditional
sale or other title retention agreement and the interest of a lessor under a
Capital Lease), any financing lease having substantially the same economic
effect as any of the foregoing, or the filing of any financing statement naming
the owner of the asset to which such lien relates as debtor, under the Uniform
Commercial Code or any comparable law and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor under
a lease on Oil and Gas Properties or the interest of a lessor under an
operating lease.

 

Loan
means an extension of credit by a Bank to Borrower under Article II.

 

Loan Documents
means this Agreement, the Notes, any Letter of Credit Application, any Letter
of Credit, the Guarantees, the Security Documents, any Derivative Contracts
entered into between Borrower, any of the Banks, or any Affiliate of the Banks,
and all other agreements, instruments, or documents delivered to Administrative
Agent, Issuing Bank or any Bank in connection herewith.

 

Majority Banks means, at any time, the Banks (such Banks
must include at least one Bank other than Administrative Agent) holding at
least fifty percent (50%) of the sum of the Effective Amount or, if there is no
Effective Amount, the Banks holding at least fifty percent (50%) of the sum of
the Commitments of all of the Banks.

 

Margin Stock
means “margin stock” as such term is defined in
Regulation T, U or X of the FRB.

 

Marketable
Title means record title free and clear from
reasonable doubt as to matters of law and fact such that a prudent operator of
Oil and Gas Properties, advised of the facts and their legal significance,
would willingly accept.

 

Material Adverse Effect
means (a) a material adverse change in, or a material adverse effect upon,
the operations, business, properties or financial condition of Borrower or
Parent and its Subsidiaries taken as a whole; (b) a material impairment of
the ability of Borrower or Guarantors to perform under any Loan Document and to
avoid any Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against Borrower, its Subsidiaries
or any Guarantor of any Loan Document.

 

Matured LC Obligation
means the aggregate amount of payments theretofore made by Issuing Bank in
respect to Letters of Credit and not theretofore reimbursed by Borrower to
Issuing Bank or deemed Loans pursuant to Section 2.01(b).

 

Maximum Loan
Amount means the
amount of $200,000,000.

 

11

 

Monthly Status Report
means a status report prepared by Borrower in form, scope and content
acceptable to Administrative Agent, setting forth as of such month then ended (i) detailing
production from the Mortgaged Properties, the volumes of Oil and Gas produced
and saved, the volumes of Oil and Gas sold, gross revenue, net income, related
leasehold operating expenses, severance taxes, other taxes, capital costs and
any production imbalances or take or pay imbalances incurred during such period
and (ii) such additional information with respect to any of the Mortgaged
Properties as may be reasonably requested by Administrative Agent, including
the names and addresses of current purchasers of production and copies of
current division orders from such purchasers showing Borrower’s interest in the
subject wells and Oil and Gas Properties.

 

Mortgages
means the Mortgages, Deeds of Trust, Assignments of Production, Security
Agreements and Financing Statements from Borrower, Guarantors, or Subsidiaries
thereof, as applicable, in favor of Administrative Agent, for the ratable
benefit of the Banks, dated as of the dates set forth on Schedule 4.01 together
with all other such instruments now or hereafter executed and all supplements,
assignments, amendments and restatements thereto (or any agreement in
substitution therefore).

 

Mortgaged Properties
means the Oil and Gas Properties described in the Mortgages as the same may be
amended or supplemented from time to time, until released.

 

Multiemployer Plan
means a “multiemployer plan,” within
the meaning of Section 4001 (a)(3) of ERISA, to which Borrower or any
ERISA Affiliate makes, is making, or is obligated to make contributions or,
during the preceding seven (7) calendar years, has made, or been obligated
to make, contributions.

 

Notes
mean the promissory notes, whether one or more, specified in Section 2.01, substantially in
the same form as Exhibit ”A,” including any amendments,
modifications, renewals or replacements of such promissory notes.

 

Notice of Borrowing
means a notice in substantially the form of Exhibit ”B.”

 

Notice of
Continuation/Conversion means a notice in
substantially the form of Exhibit ”C.”

 

Obligations
means all advances, debts, liabilities, obligations, covenants and duties
arising under any Loan Document owing by Borrower to any Bank (including
obligations under any Derivative Contract by Borrower to any of the Banks or
any of their Affiliates), Administrative Agent, Issuing Bank or any Indemnified
Person, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter
arising.

 

Oil and Gas
means petroleum, natural gas and other related hydrocarbons or minerals or any
of them and all other commercial substances produced or extracted in
association therewith.

 

Oil and Gas Properties
means Hydrocarbon Interests now owned or hereafter acquired by Borrower,
Guarantors or Subsidiaries thereof and contracts executed in connection
therewith and all tenements, hereditaments, appurtenances, and properties belonging,
affixed or incidental to such Hydrocarbon Interests, including, without
limitation, any and all Property, real or personal, now owned or hereafter
acquired by Borrower, Guarantors or Subsidiaries thereof and situated upon or
to be situated upon, and used, built for use, or useful in connection with the
operating, working or developing of such Hydrocarbon Interests, including,
without limitation, any and all petroleum and/or natural gas wells, buildings,
structures, field separators, processing plants, liquid extractors, plant
compressors, pumps, 

 

12

 

pumping units, field gathering systems, tank and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers, liters,
apparatus, equipment, appliances, tools, implements, cables, wires, towers,
taping, tubing and rods, surface leases, rights-of-way, easements and
servitudes, and all additions, substitutions, replacements for, fixtures and
attachments to any and all of the foregoing owned directly or indirectly by
Borrower, Guarantors or Subsidiaries thereof.

 

Operating Agreements
shall have the meaning set forth in Section 5.01(j).

 

Organization Documents
means, for any corporation, the certificate or articles of incorporation, the
bylaws, any certificate of determination or instrument relating to the rights
of the shareholders of such corporation, any shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee thereof)
of such corporation necessary in connection with the authorization of the
foregoing documents or others in connection with the due organization of such
corporation; for any limited liability company the articles of organization,
certificate of authorization, operating agreement, organizational agreement,
certificate of formation, regulations, certificates of qualification, joint
resolutions of members (or any committee thereof) authorizing the foregoing;
and for any partnership, the agreement of partnership and any certificates of
such partnership or instrument relating to the rights of the partners of such
partnership and all applicable resolutions of any corporate partners of such
partnerships authorizing the foregoing.

 

Other Taxes
means any present or future stamp or documentary taxes or any other excise or
Property taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents.

 

Parent has
the meaning set forth in the introductory paragraph hereto.

 

Participant has
the meaning set forth in Section 11.08(a).

 

Partners
means the General Partner and the holders of the limited partnership interests.

 

Partnership
Agreement shall mean Borrower’s Fourth Amended and
Restated Agreement of Limited Partnership dated as of the Closing Date.

 

PBGC  means
the Pension Benefit Guaranty Corporation, or any Governmental Authority
succeeding to any of its principal functions under ERISA.

 

Pension Plan
means a pension plan (as defined in Section 3(2) of ERISA) subject to
Title IV of ERISA, other than a Multiemployer Plan, which Borrower sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of
ERISA) has made contributions at any time during the immediately preceding five
(5) plan years.

 

Permitted Liens
has the meaning set forth in Section 8.01.

 

Permitted Tax Distributions means
such cash distributions as are necessary from time to time in order to pay
amounts equal to cash payments due under federal, state and local consolidated
income taxes payable by Parent and franchise, ad valorem and other taxes
payable by Parent or the other Guarantors.

 

13

 

Person
means an individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture or Governmental
Authority.

 

Plan
means an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to ERISA, that Borrower or any ERISA Affiliate sponsors,
maintains or has an obligation to contribute to, or has maintained, contributed
to or had an obligation to contribute to, at any time during the past seven (7) years.

 

Preliminary Offering Memo means that certain
Preliminary Offering Memorandum of Parent, dated August 19, 2005 describing how Borrower and Guarantors (other
than Parent) became owned directly or indirectly by Parent.

 

Pricing
Grid means the annualized variable rates (stated
in terms of basis points (“bps”)
set forth below for the Applicable Margin, Commitment Fee and Letter of Credit
Fee based upon the ratio of Effective Amount to the Borrowing Base as follows:

 

	
  Effective Amount/

  	
   

  	
  Applicable Margin

  	
   

  	
   

  	
   

  
	
  Borrowing Base amount

  	
   

  	
  LIBOR Rate

  	
   

  	
  Base Rate

  	
   

  	
  Commitment Fee

  	
   

  
	
   

  	
  > 90%

  	
   

  	
  200.0 bps

  	
   

  	
  50.0 bps

  	
   

  	
  37.5 bps

  	
   

  
	
   

  	
  > 75.0%;
  < 90.0%

  	
   

  	
  175.0 bps

  	
   

  	
  25.0 bps

  	
   

  	
  37.5 bps

  	
   

  
	
   

  	
  > 50.0%;
  < 75.0%

  	
   

  	
  150.0 bps

  	
   

  	
  0.0 bps

  	
   

  	
  37.5 bps

  	
   

  
	
   

  	
  < 50.0%

  	
   

  	
  125.0 bps

  	
   

  	
  0.0 bps

  	
   

  	
  25.0 bps

  	
   

  

 

The Pricing Grid for any date shall be determined by reference to the
ratio of the daily average Effective Amount to the Borrowing Base over the
fiscal quarter most recently ended and any change (x) shall become effective
upon the delivery to the Administrative Agent of a Pricing Grid Certificate (in
the form of Exhibit G
hereto) of a Responsible Officer of General Partner (which certificate shall be
delivered (A) simultaneously with the delivery of each Notice of
Borrowing, Notice of Continuation/Conversion or a request for issuance of a
Letter of Credit and (B) promptly after receipt of notice from
Administrative Agent of any change in the amount of the Borrowing Base) and (y)
shall apply to the Base Rate Loans outstanding on such delivery date or made on
and after such delivery date. 
Notwithstanding the foregoing, at any time during which Borrower has
failed to deliver the Pricing Grid Certificate when due, the ratio of Effective
Amount to the Borrowing Base shall be deemed, solely for the purposes of this
definition, to be greater than 90% until such time as Borrower shall deliver
such certificate.

 

Principal Business
means the business of the exploration for, and development, acquisition,
production, and upstream marketing of Oil and Gas.

 

Prior Partners means the partners
in Borrower under the Prior Partnership Agreement.

 

Prior Partnership Agreement means Borrower’s
Third Amended and Restated Agreement of Limited Partnership dated as of January 1,
2004, as amended by that certain First Amendment to Third Amended and Restated
Agreement of Limited Partnership effective as of January 1, 2004.

 

Private
Placement means the reorganization and other transactions
substantially as described in the Preliminary Offering Memo.

 

14

 

Property
means property of all kinds, real, personal or mixed, tangible or intangible
(including without limitation, all rights thereto), whether owned or acquired
on or after the date of this Agreement.

 

Pro Rata Share
means, as to any Bank at any time, the percentage set forth opposite its name
on Schedule 2.01 hereto.

 

Reportable Event
means, any of the events set forth in Section 4043(b) of ERISA or the
regulations thereunder, other than any such event for which requirement under
ERISA to provide notice to the PGBC has been waived by regulations.

 

Required Banks means, at any time, the Banks (such Banks
must include at least one Bank other than Administrative Agent) holding at
least sixty-six and two-thirds percent (66 2/3%) of the sum of the Effective
Amount or, if there is no Effective Amount, the Banks holding at least
sixty-six and two-thirds percent (66 2/3%) of the sum of the Commitments of all
of the Banks.

 

Requirement of Law
means, as to any Person, any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its Property or to
which the Person or any of its Property is subject.

 

Reserve Report
means a report, in form and substance satisfactory to Administrative Agent,
prepared in a manner consistent with practices of reservoir engineers who
prepare such reports for use in reserve-based lending transactions, which sets
forth the present discounted value of the proven reserves attributable to the
Mortgaged Properties.

 

Responsible Officer
means the president or any vice president, treasurer, chief financial officer
or chief accounting officer of Parent, SEGP,
SELP, SOP or SEM, as appropriate.

 

Restricted Distributions
has the same meaning set forth in Section 8.09.

 

Scheduled Borrowing Base
Determination has the meaning specified in Subsection 2.04(a).

 

Security Documents
means the Mortgages, assignments of production, collateral assignments,
security agreements, pledges, assignments, Letters in Lieu and related
financing statements set forth on Schedule 4.01 (as the same may be
amended, supplemented or modified from time to time) together with any and all
other instruments now or hereafter executed in connection with or as security
for the payment of the Obligations.

 

SEGP
has the meaning set forth in the introductory paragraph hereto.

 

SELP has
the meaning set forth in the introductory paragraph hereto.

 

SEM has
the meaning set forth in the introductory paragraph hereto.

 

Shareholder’s Equity means as to
Parent, at any time, the sum of (a) the par value (or stated value on
Parent’s books) of the capital stock of Parent, plus (b) the amount of the
paid-in capital and consolidated retained earnings of Parent outstanding, in
each case as such amounts which would be shown on their its consolidated
balance sheet prepared as of such time in accordance with GAAP, but

 

15

 

(i) excluding all treasury stock, (ii) excluding all capital
stock which is subscribed and unissued, (iii) excluding all amounts
attributable to minority interests in any such subsidiaries,  and (iv) calculating the foregoing by
treating as liabilities rather than equity all capital stock and other equity securities
which Parent would be required to purchase, redeem or otherwise acquire prior
to the Termination Date at the election of any holder thereof, upon the passage
of time, or upon the occurrence of any contingency (other than the voluntary
election of Parent to make such purchase, redemption or acquisition)

 

Solvent
means, as to any Person at any time, that (a) the fair value of all of the
Property of such Person is greater than the amount of such Person’s liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32) of
the Bankruptcy Code; (b) the present fair saleable value of all of the
Property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person’s ability to pay as such
debts and liabilities mature; and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s Property would constitute unreasonably
small capital.

 

SOP
has the meaning set forth in the introductory paragraph hereto.

 

Special
Borrowing Base Determination has the meaning
specified in Subsection 2.04(d).

 

Subsidiary means
any corporation, association, partnership, joint venture or other business
entity of which more than 50% of the voting stock or other equity interests (in
the case of Persons other than corporations), is owned or controlled directly
or indirectly by the Person, or one or more of the Subsidiaries of the Person,
or a combination thereof. Unless the context otherwise clearly requires,
references herein to a “Subsidiary”
refer to a Subsidiary of Parent.

 

Surety Instruments
means all Letters of Credit (including standby), banker’s acceptances, bank
guaranties, shipside bonds, surety bonds and similar instruments.

 

Taxes
means any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto, excluding, in the
case of each Bank and Administrative Agent, any of the foregoing (including
income taxes or franchise taxes) as are imposed on or measured by each Bank’s
net income, gross receipts or capital by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or Administrative Agent,
as the case may be, is organized or maintains a Lending Office.

 

Termination Date means the earlier of (a) September 23,
2009, or (b) the date on which the Banks’ Commitments terminate in
accordance with this Agreement.

 

Unfunded Pension Liability
means the excess of a Plan’s benefit liabilities under Section 4001(a)(16)
of ERISA, over the current value of that Plan’s assets, determined in
accordance with the assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable Plan year.

 

United States
and U.S. each means the United States of
America.

 

Voting Stock means, with
respect to any Person, securities of any class or classes of capital stock or
other interests (including partnership interests) in such Person entitling the
holders 

 

16

 

thereof
(whether at all times or at the time that such class of capital stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such
Person.

 

Wells Fargo Bank means
Wells Fargo Bank, National Association (successor-by-merger
to Wells Fargo Bank Texas, N.A.), a national banking association, and
any bank successor in interest thereto.

 

1.02        Other
Interpretive Provisions. The meanings of defined terms are equally
applicable to the singular and plural forms of the defined terms. Unless
otherwise specified or the context clearly requires otherwise, the words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Subsection,
Section, Schedule and Exhibit references are to this Agreement. The
term “documents” includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term “including” is
not limiting and means “including without
limitation.” In the computation of periods of time from a specified
date to a later specified date, the word “from” means “from and including;” the words “to”
and “until” each mean “to but
excluding,” and the word “through” means “to and including.” Unless otherwise expressly provided
herein, (i) references to agreements (including this Agreement) and other
contractual instruments shall be deemed to include all subsequent amendments
and other modifications thereto, but only to the extent such amendments and
other modifications are not prohibited by the terms of any Loan Document, and (ii) references
to any statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation. The captions and headings of this
Agreement are for convenience of reference only and shall not affect the
interpretation of this Agreement. This Agreement and other Loan Documents may
use several different limitations, tests or measurements to regulate the same
or similar matters. All such limitations, tests and measurements are cumulative
and shall each be performed in accordance with their terms. This Agreement and
the other Loan Documents are the result of negotiations among and have been
reviewed by counsel to Administrative Agent, Borrower and the other parties and
are the products of all parties. Accordingly, they shall not be construed
against Borrower, the Banks or Administrative Agent merely because of Borrower’s,
Banks’ or Administrative Agent’s involvement in their preparation.

 

1.03        Accounting
Principles. Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.

 

ARTICLE II.

 

THE CREDIT

 

2.01        Amounts
and Terms of the Commitment.

 

(a)           Each
Bank severally agrees, on the terms and conditions set forth herein, to make
Loans to Borrower (each such loan, a “Loan”) during the period of time from and
after the Closing Date up to the Termination Date, so long as (i) all
Loans by each Bank do not exceed such Bank’s Pro Rata Share of the aggregate
amount of Loans then requested from all Banks, and (ii) the aggregate
amount of such Bank’s Loans and LC Obligation outstanding at any time does not
exceed such Bank’s Pro Rata Share of the Borrowing Base determined as of the
date on which the requested Loan is to be made. 
The obligation of Borrower to repay to each Bank the aggregate amount of
all Loans made by such Bank, together with interest accruing in connection
therewith, shall be evidenced by a single promissory note 

 

17

 

(herein called such Bank’s “Note”) made
by Borrower payable to the order of such Bank in the form of Exhibit ”A” with appropriate
insertions.  The amount of principal
owing on any Bank’s Note at any given time shall be the aggregate amount of all
Loans theretofore made by such Bank minus all payments of principal theretofore
received by such Bank on such Note. 
Interest on each Note shall accrue and be due and payable as provided
herein. Borrower may borrow, repay and reborrow any amounts loaned hereunder.
The obligation of Borrower to repay the aggregate amount of all Loans made by
the Banks, together with interest accruing in connection therewith, shall be
evidenced by the Notes.

 

(b)           Subject
to the terms and conditions of Section 2.09 below
and relying upon the representations and warranties herein set forth, Issuing
Bank agrees to issue standby Letters of Credit upon the request of Borrower at
any time and from time to time on and after the Closing Date and up to five (5) days
prior to the Termination Date. No Letter of Credit will be issued in a face
amount which, after giving effect to the issuance of such Letter of Credit,
would cause either the LC Obligation to exceed $10,000,000 or the Effective
Amount to exceed the Borrowing Base then in effect. If any Letter of Credit has
been drawn upon and the amount so drawn has not been reimbursed, for all
purposes hereof to the extent of the Available Borrowing Base then existing,
such funding shall be deemed a Loan in an amount equal to the matured LC
Obligations applicable thereto.

 

(c)           Each
Borrowing (other than fundings of Letters of Credit deemed to be Loans under Section 2.01(b)) shall be made
subject to the following procedures:

 

(i)            Each
Borrowing of Loans shall be made upon Borrower’s irrevocable written notice
delivered to Administrative Agent in the form of a Notice of Borrowing duly
completed; which notice must be received by Administrative Agent prior to 11:00 a.m.
(Dallas, Texas time) (i) three (3) Business Days prior to the
requested Borrowing Date, in the case of LIBOR Rate Loans; and (ii) on the
requested Borrowing Date, in the case of Base Rate Loans.

 

(ii)           Each
Notice of Borrowing shall specify (i) the amount of the Borrowing, which
shall be in an aggregate minimum amount (A) for Base Rate Loans equal to
the lesser of (y) $500,000 or any multiple integrals of $100,000 in excess
thereof or (z) the unadvanced portion of the Available Borrowing Base and (B) for
LIBOR Rate Loans $2,500,000 or any multiple integrals of $100,000 in excess
thereof (if the Available Borrowing Base as of such Borrowing Date will be less
than $2,500,000, then Borrower may not request a LIBOR Rate Loan);
(ii) the requested Borrowing Date, which shall be a Business Day; (iii) the
Interest Rate Type of Loans comprising the Borrowing; and (iv) for LIBOR
Rate Loans the duration of the Interest Period applicable to such Loans. If the
Notice of Borrowing fails to specify the duration of the Interest Period for
any Borrowing comprised of LIBOR Rate Loans, such Interest Period shall be
three (3) months.

 

(iii)          Administrative
Agent will promptly notify each Bank of its receipt of any Notice of Borrowing
and of the amount of such Bank’s Pro Rata Share of that Borrowing, and such Notice
of Borrowing shall not thereafter be revocable by Borrower.

 

(iv)          Provided
the applicable conditions in Article 5
are met, each Bank will make the amount of its Pro Rata Share of each Borrowing
available to Administrative Agent for the account of Borrower at Administrative
Agent’s Payment Office by 12:30 p.m. (Dallas, Texas time) on the Borrowing
Date requested by Borrower in funds immediately available to Administrative
Agent.  The proceeds of all such Loans
will then be made available to Borrower by Administrative Agent to Borrower’s
operating account with Administrative Agent of like funds as received by
Administrative Agent.

 

18

 

2.02        Conversion
and Continuation Elections.

 

(a)           Prior
to the Termination Date, Borrower may, upon irrevocable written notice to
Administrative Agent in accordance with Subsection 2.02(b): (i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest Period, in
the case of LIBOR Loans, to convert any such Loans into Loans of any other
Interest Rate Type; or (ii) elect as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods expiring on such
day; provided, that no more than five (5) LIBOR Loan tranches may exist at
any one time and if at any time a LIBOR Loan in respect of any Borrowing is
reduced, by payment, prepayment, or conversion of part thereof to less than
$2,000,000, such LIBOR Loan shall automatically convert into a Base Rate Loan.

 

(b)           Borrower shall deliver an irrevocable
Notice of Conversion/Continuation to be received by Administrative Agent not
later than 11:00 a.m. (Dallas, Texas time) at least (i) three (3) Business
Days in advance of the Conversion/Continuation Date, if the Loans are to be
converted into LIBOR Loans; (ii) as of the last day of the applicable
Interest Period, in the case of LIBOR Loans, to continue any such Loans having
Interest Periods expiring on such day as LIBOR Loans of the same or different
Interest Period; and (iii) one (1) Business Day in advance of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the
aggregate amount of Loans to be converted or renewed; (C) the Interest
Rate Type of Loans resulting from the proposed conversion or continuation; and (D) other
than in the case of conversions into Base Rate Loans, the duration of the
requested Interest Period.

 

(c)           If
upon the expiration of any Interest Period applicable to LIBOR Loans, Borrower
has failed to timely notify Administrative Agent of its selection for a new
Interest Period to be applicable to LIBOR Loans, or if any Default or Event of
Default then exists, Borrower shall be deemed to have elected to convert such
LIBOR Loans into Base Rate Loans effective as of the expiration date of such
Interest Period.

 

(d)           Administrative
Agent will promptly notify each Bank of its receipt of a Notice of
Conversion/Continuation, or, if no timely notice is provided by Borrower,
Administrative Agent will promptly notify each Bank of the details of any
automatic conversion.  All conversions
and continuations shall be made ratably according to the respective Bank’s Pro
Rata Share of outstanding principal amounts of the Loans with respect to which
the notice was given.

 

2.03        Optional
Prepayments. Subject to Section 3.04, Borrower may, at any time or from time to time:

 

(a)           prepay Base Rate Loans upon irrevocable
notice to Administrative Agent of not less than one (1) Business Day, in
whole or in part, in minimum principal amounts of $100,000 or integral
multiples thereof (unless the portion of the Effective Amount consisting of
Base Rate Loans is less than $100,000, then such prepayments shall be equal to
the then outstanding amount of Base Rate Loans); and

 

(b)           prepay
LIBOR Loans upon irrevocable notice to Administrative Agent not less than three
(3) Business Days, in whole or in part, in minimum principal amounts of
$500,000 or integral multiples thereof.

 

Such notice of prepayment shall specify the
date and amount of such prepayment and the Interest Rate Type(s) of Loans to be
prepaid. Administrative Agent will promptly notify each Bank of its receipt of
any such notice and of such Bank’s Pro Rata Share of such prepayment. The
payment amount 

 

19

 

specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount prepaid
and any amounts required pursuant to Section 3.04.  Except as provided herein there shall be no
penalty or premium for such prepayment.

 

2.04        Borrowing
Base Determinations, Mandatory Prepayments of Loans.

 

(a)           Scheduled Borrowing Base Determinations.
At all times prior to the Termination Date the Effective Amount shall not
exceed the Borrowing Base then in effect. The initial Borrowing Base hereunder
shall be $70,000,000.  The Borrowing Base shall be redetermined by
the Banks in their sole discretion for each Borrowing Base Period (each such
determination a “Scheduled Borrowing Base Determination”) commencing October 1, 2005,
and effective as of the date set forth in such notice of redetermination. The
Borrowing Base shall represent the determination by the Banks, in accordance
with the provisions herein contained and their lending practices then in effect
for loans of this nature, of the loan collateral value assigned to the
Mortgaged Properties and such other credit factors (including without
limitation the assets, liabilities, cash flow, current Derivative Contracts,
business, properties, prospects, management and ownership of Borrower) which
Banks in their sole discretion deem significant. Upon each redetermination of
the Borrowing Base, Administrative Agent shall recommend to the Banks a new
Borrowing Base and the Banks in accordance with their customary policies and
procedures for extending credit to Oil and Gas reserve-based customers shall
(by unanimous agreement in the case of Borrowing Base increases and by
agreement of the Required Banks in the case of Borrowing Base affirmations or
decreases) establish the redetermined Borrowing Base.  If Borrower does not furnish the Reserve
Reports or all such other information and data by the date required, the Banks
may nonetheless determine a new Borrowing Base.

 

(b)           Banks’ Sole Discretion. The Banks
shall have no obligation to determine the Borrowing Base at any particular
amount, either in relation to the Maximum Loan Amount or otherwise.
Furthermore, Borrower acknowledges that the Banks have no obligation to
increase the Borrowing Base and may reduce the Borrowing Base in accordance
with Section 2.04(a), in either
case, at any time or as a result of any circumstance and that any increase in
the Borrowing Base is subject to the individual credit approval processes of
each of the Banks which processes shall be conducted on a basis consistent with
each such Bank’s credit standards and assumptions then in effect.

 

(c)           Mandatory Prepayments of Loans. If
on any date the Effective Amount shall exceed the Borrowing Base, then Borrower
shall, within thirty (30) days, exercise either one or a combination of the
following: (i) prepay the amount by which the Effective Amount exceeds the
Borrowing Base on such date; (ii) commence to prepay the amount necessary
to reduce the Effective Amount to the Borrowing Base in five (5) equal
consecutive monthly installments;
or (iii) promptly pledge additional unencumbered assets of sufficient
value and character (as determined by the Banks in their sole discretion) that
when added to the Collateral will cause the Borrowing Base to equal or exceed
the Effective Amount.

 

(d)           Special Borrowing Base Determination.
In addition to Scheduled Borrowing Base Determinations pursuant to Subsection 2.04(a) the
Banks and the Borrower each may request a special redetermination once during
any Borrowing Base Period (“Special Borrowing Base Determination”). In the event
Borrower requests a Special Borrowing Base Determination, Borrower shall
deliver written notice of such request to the Administrative Agent with
sufficient copies for each Bank which shall include: (i) Reserve Report(s)
covering the Mortgaged Properties prepared by Borrower as of a date not more
than thirty (30) calendar days prior to the date of such request, (ii) such
other information as the Administrative Agent shall request, and (iii) the
amount of the Borrowing Base requested by Borrower to become effective.  Likewise, in the event the Banks exercise
their option for a 

 

20

 

Special Borrowing Base Determination, upon written request and
notification by Administrative Agent to Borrower, Borrower shall furnish the
information described above within thirty (30) days of such request.  The Banks shall redetermine the Borrowing
Base in accordance with the procedures set forth in Section 2.04(a),
which redetermined Borrowing Base shall then be the effective Borrowing Base
until further redetermination.

 

2.05        Repayment.

 

(a)           The Loans. Borrower shall repay to
Administrative Agent for the Banks’ respective Pro Rata Shares the Effective
Amount (with the amount paid in respect of any undrawn Letters of Credit to be
held as cash collateral by Administrative
Agent in accordance with Section 2.09(f))
on or before the Termination Date, on which date all accrued unpaid interest
and outstanding expenses hereunder or under the Loan Documents shall be due and
payable in full.

 

(b)           Interest.

 

(i)            The
Loans shall bear interest on the aggregate outstanding principal amount of all
Borrowings thereof from the applicable Borrowing Date or date of conversion or
continuation pursuant to Section 2.02, as
the case may be, at a rate per annum equal to the lesser of (a) the Base
Rate or LIBOR, as the case may be, plus the
Applicable Margin, if applicable, or (b) the Highest Lawful Rate.

 

(ii)           Interest
on each Loan shall be paid in arrears on each Interest Payment Date, and during
the existence of any Event of Default under Section 9.01(a),
(f) or (g) or
upon acceleration of any or all of the Obligations, interest shall be paid on
demand of Administrative Agent.

 

(iii)          Notwithstanding
Subsection (b)(i) of this Section 2.05, while any Event
of Default under Section 9.01(a), (g) or (h) exists
or upon acceleration of the Obligations, Borrower shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Obligations then due and payable, at a rate
per annum equal to the lesser of (x) the Highest Lawful Rate or (y) the Base
Rate plus the Applicable Margin plus two percent (2%) (the “Default Rate”).

 

2.06        Fees.

 

(a)           Agency and Other Fees.  Borrower shall pay to Administrative Agent
and its Affiliates such fees and other amounts as Borrower shall be required to
pay to Administrative Agent and its Affiliates from time to time pursuant to
any separate agreement between Borrower and Administrative Agent or any of its
Affiliates setting forth the compensation to be paid to Administrative Agent
and its Affiliates in consideration for providing services in connection with
the credit facilities provided pursuant hereto.

 

(b)           Increase in Borrowing Base. Borrower
shall pay to Administrative Agent, as a fee for the ratable account of the
Banks, a fee for Borrowing Base increases resulting from redeterminations under
Subsection 2.04 hereof, equal
to one-quarter of one percent (0.25%) of each marginal increase over the
previous maximum Borrowing Base. Any fee arising under this Subsection 2.06(b) is to be paid upon the effective date of the related Borrowing
Base increase.

 

21

 

(c)           Commitment Fees. Borrower shall pay
to Administrative Agent, for the ratable benefit of each Bank, an aggregate
commitment fee calculated on the average daily amount of the Available
Borrowing Base at a per annum rate equal to the amount set forth on the Pricing
Grid. Such commitment fee shall accrue from the Closing Date to the Termination
Date and shall be due and payable quarterly in arrears on the last Business Day
of the last month of each quarter commencing on September 30, 2005,
through the Termination Date, with the final payment to be made on the
Termination Date; provided that, in connection with
any reduction in the Borrowing Base or termination of Commitment, the accrued
commitment fee calculated for the period ending on such date shall also be paid
on the date of such reduction or termination, with the following quarterly
payment being calculated on the basis of the period from such reduction or
termination date to the following quarterly payment date. The commitment fees
provided in this subsection shall accrue at all times after the Closing
Date up to the Termination Date, including at any time during which one or more
conditions in Section 5.02 are not met.

 

(d)           Letter of Credit Fees.  Borrower agrees to pay (i) to Issuing
Bank, for the ratable account of the Banks, a fee for each Letter of Credit, to
be paid quarterly in arrears following the Issuance of such Letter of Credit
(including the initial Issuance and any renewal, extension or increase in the
amount thereof) in the amount equal to the greater of (x) $500.00 and (y) the
product equal to the Letter of Credit Fee multiplied by the amount available
under such Letter of Credit (such fee shall be deemed to be fully earned and
owing upon the Issuance of such Letter of Credit, and no refund shall be due in
the event such Letter of Credit is terminated prior to its expiry date), (ii) to
the Issuing Bank for its account a fee for the issuance of each Letter of
Credit (including the initial Issuance and any renewal, extension or increase
in the amount thereof), at the Issuance of such Letter of Credit, in an amount
equal to the greater of (x) $500.00 and (y) one-eighth of one percent (0.125%)
multiplied by the aggregate amount available under each Letter of Credit (such
fees shall be prorated for any period less than a full year but shall not be
refunded in the event any such Letter of Credit is terminated prior to its
expiry date) and (iii) Issuing Bank’s usual and customary fees for
amendment to transfer of or negotiation of the terms of each Letter of
Credit.  Administrative Agent shall pay
to each Bank its Pro Rata Share of the Letter of Credit fees paid pursuant to Section 2.06(d)(i).
Administrative Agent shall pay to Issuing Bank the Letter of Credit fees paid
pursuant to Section 2.06(d)(ii) and
(iii).

 

2.07        Computation
of Fees and Interest.

 

(a)           All
computations of interest and fees shall be made on the basis of a 360-day year
and actual days elapsed, except that interest on Base Rate Loans shall be
computed on the basis of a 365/366-day year and actual days elapsed. Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof (including the
first day but excluding such last day).

 

(b)           Each
determination of an interest rate by Administrative Agent, except in case of
manifest error, shall be final, conclusive and binding on the parties.

 

2.08        Payments
by Borrower; Borrowings Pro Rata .

 

(a)           All payments to be made by Borrower shall
be made without set-off, recoupment or counterclaim.  All payments by Borrower shall be made in
immediately available funds to Administrative Agent at Administrative Agent’s
Payment Office for the account of Administrative Agent or the Bank to whom such
payment is owed, and shall be made in dollars and in immediately available
funds, no later than 12:00 p.m. (Dallas, Texas time) on the date specified
herein. Except to the extent otherwise provided herein, (i) each payment
by Borrower of fees payable to the Banks shall be made for 

 

22

 

the account of the
Banks pro rata in accordance with their respective Pro Rata Shares, (ii) each
payment of principal of Loans shall be made for the account of the Banks pro
rata in accordance with their respective outstanding principal amount of Loans,
and (iii) each payment of interest on Loans shall be made for the account
of the Banks pro rata in accordance with their respective shares of the
aggregate amount of interest due and payable to the Banks.

 

(b)           Administrative Agent will promptly
distribute to each Bank its applicable share of such payment in like funds as
received.  Any payment received by
Administrative Agent later than 12:00 p.m. (Dallas, Texas time) shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue. 
When Administrative Agent collects or receives money on account of the
Obligations or otherwise pursuant to the Security Documents if such money is
insufficient to pay all such Obligations, such money shall be applied first to
any reimbursements due Administrative Agent.

 

(c)           Subject
to the provisions set forth in the definition of “Interest
Period” herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.

 

(d)           Unless
Administrative Agent receives notice from Borrower prior to the date on which
any payment is due to the Banks that Borrower will not make such payment in
full as and when required, Administrative Agent may assume that Borrower has made
such payment in full to Administrative Agent on such date in immediately
available funds and Administrative Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Bank on such due date an
amount equal to the amount then due such Bank. 
If and to the extent Borrower has not made such payment in full to
Administrative Agent, each Bank shall repay to Administrative Agent on demand
such amount distributed to such Bank, together with interest thereon for each
day from the date such amount is distributed to such Bank at the Federal Funds
Rate for the first three (3) days following demand by Administrative Agent
and for each day thereafter until the date repaid at the Base Rate.

 

(e)           Except
to the extent otherwise expressly provided herein, each Borrowing hereunder
shall be from the Banks pro rata in accordance with their respective Pro Rata
Shares.

 

2.09        Issuing
the Letters of Credit. 

 

(a)           In
order to effect the issuance of a Letter of Credit, Borrower shall submit a Borrowing
Request and a LC Application in writing by telecopy to Issuing Bank not later
than 1:00 p.m., Dallas, Texas time, three (3) Business Days before
the requested date of issuance of such Letter of Credit. Each such Borrowing
Request and LC Application shall be signed by Borrower, specify the Business
Day on which such Letter of Credit is to be issued, the purpose for the
requested Letter of Credit, specify the availability for Letters of Credit
under the Available Borrowing Base and the $10,000,000 aggregate LC Obligation
limitation as of the date of issuance of such Letter of Credit, the expiry date
thereof which shall not be later than the earlier of (i) twelve (12)
months from the date of issuance of such Letter of Credit and (ii) five (5) days
prior to the Termination Date and be accompanied by a current Pricing Grid
Certificate.

 

(b)           Upon
satisfaction of the applicable terms and conditions set forth in Article V, Issuing
Bank shall issue such Letter of Credit to the specified beneficiary not later than
the close of business, Dallas, Texas time, on the date so specified. Issuing
Bank shall provide Borrower and each Bank with a copy of each Letter of Credit
so issued. Each such Letter of Credit shall (i) provide for the 

 

23

 

payment of drafts, presented for honor thereunder by the beneficiary in
accordance with the terms thereon, at sight when accompanied by the documents
described therein and (ii) unless otherwise expressly agreed by Issuing
Bank and Borrower at the time such Letter of Credit is issued, be subject to
the rules of the “International Standby
Practices 1998” or such later version as may be published by the
Institute of International Banking Law and Practice (the “ISP 1998”) and shall, as to matters not governed
by the ISP 1998, be governed by, and construed and interpreted in accordance
with, the laws of the State of Texas.

 

(c)           Upon
the issuance date of each Letter of Credit, Issuing Bank shall be deemed,
without further action by any party hereto, to have sold to each other Bank,
and each other Bank shall be deemed, without further action by any party
hereto, to have purchased from Issuing Bank, a participation, to the extent of
such Bank’s Commitment Percentage, in such Letter of Credit, the obligations
thereunder and in the reimbursement obligations of Borrower due in respect of
drawings made under such Letter of Credit. 
If requested by Issuing Bank, the other Banks will execute any other
documents reasonably requested by Issuing Bank to evidence the purchase of such
participation.

 

(d)           Upon
the presentment of any draft for honor under any Letter of Credit by the
beneficiary thereof which Issuing Bank determines is
in compliance with the conditions for payment thereunder, Issuing Bank shall
promptly notify Borrower, and each Bank of the intended date of honor of such
draft and Borrower hereby promises and agrees, at Borrower’s option, to either (i) pay
to Issuing Bank, by 2:00 p.m., Dallas, Texas time, on the date payment is
due as specified in such notice, the full amount of such draft in immediately
available funds or (ii) request a Loan pursuant to the provisions of Sections 2.01(a) and 2.02 of this Agreement in the full
amount of such draft, which request shall specify that the Borrowing Date is to
be the date payment is due under the Letter of Credit as specified in Issuing
Bank’s notice.  If Borrower fails timely
to make such payment because a Loan cannot be made pursuant to Section 2.01(a) and/or Section 5.02, each Bank shall,
notwithstanding any other provision of this Agreement (including the occurrence
and continuance of a Default or an Event of Default), make available to Issuing
Bank an amount equal to its Pro Rata Share of the presented draft on the day
Issuing Bank is required to honor such
draft.  If such amount is not in fact
made available to Administrative Agent by such Bank on such date, such Bank
shall pay to Issuing Bank, on demand made by Issuing Bank, in addition to such
amount, interest thereon at the Federal Funds Rate for the first three (3) days
following demand and thereafter until paid at the Base Rate.  Upon receipt by Administrative Agent from the
Banks of the full amount of such draft, notwithstanding any other provision of
this Agreement (including the occurrence and continuance of a Default or an
Event of Default) the full amount of such draft shall automatically and without
any action by Borrower, be deemed to have been a Base Rate Loan as of the date
of payment of such draft.  Nothing in
this paragraph (d) or elsewhere in
this Agreement shall diminish Borrower’s obligation under this Agreement to
provide the funds for the payment of, or on demand to reimburse Issuing Bank
for payment of, any draft presented to, and duly honored by, Issuing Bank under any Letter of Credit, and the automatic funding of a
Loan as in this paragraph provided shall not constitute a cure or waiver of the
Event of Default for failure to provide timely such funds as in this paragraph
agreed.

 

(e)           In
order to induce the issuance of Letters of Credit by Issuing Bank and the
purchase of participations therein by the other Banks, Borrower agrees with
Issuing Bank and the other Banks that neither Administrative Agent nor any Bank
(including the Issuing Bank) shall be responsible or liable (except as provided
in the following sentence) for, and Borrower’s unconditional obligation to
reimburse Issuing Bank for amounts paid by Issuing Bank, as provided in Subsection 2.09(d) above,
on account of drafts so honored under the Letters of Credit shall not be
affected by any circumstance, act or omission whatsoever (whether or not known
to Administrative Agent or any Bank (including the Issuing Bank) other than a
circumstance, act or omission resulting from the gross negligence or willful 

 

24

 

misconduct of the Issuing Bank. 
Borrower agrees that any action taken or omitted to be taken by the
Issuing Bank under or in connection with any Letter of Credit or any related
draft, document or Property shall be binding on Borrower and shall not put the
Issuing Bank under any resulting liability to Borrower, unless such action or
omission is the result of the gross negligence or willful misconduct of the
Issuing Bank.  Borrower hereby waives
presentment for payment (except the presentment required by the terms of any
Letter of Credit) and notice of dishonor, protest and notice of protest with
respect to drafts honored under the Letters of Credit. Issuing Bank agrees promptly to notify Borrower whenever a draft is
presented under any Letter of Credit, but failure to so notify Borrower shall
not in any way affect Borrower’s obligations hereunder.  Subject to Section 3.03,
if while any Letter of Credit is outstanding, any law, executive order or
regulation is enforced, adopted or interpreted by any public body, governmental
agency or court of competent jurisdiction so as to affect any of Borrower’s
obligations or the compensation to Issuing Bank in respect of the Letters of
Credit or the cost to Issuing Bank of establishing and/or maintaining the
Letters of Credit (or any participation therein), Issuing Bank shall promptly
notify Borrower thereof in writing and within ten (10) Business Days after
receipt by Borrower of Issuing Bank’s request (through Administrative Agent)
for reimbursement or indemnification or within thirty (30) days after receipt
of a notice in respect of Taxes or Other Taxes, Borrower shall reimburse or
indemnify Issuing Bank, as the case may be, with respect thereto so that
Issuing Bank shall be in the same position as if there had been no such
enforcement, adoption or interpretation. 
The foregoing agreement of Borrower to reimburse or indemnify the
Issuing Bank shall apply in (but shall not be limited to) the following
situations:  an imposition of or change
in reserve, capital maintenance or other similar requirements or in excise or
similar taxes or monetary restraints, except a change in franchise taxes
imposed on Issuing Bank or in tax on the net income of Issuing Bank.

 

(f)            In
the event that any provision of a Letter of Credit Application is inconsistent
with, or in conflict of, any provision of this Agreement, including provisions
for the rate of interest applicable to drawings thereunder or rights of setoff
or any representations, warranties, covenants or any events of default set
forth therein, the provisions of this Agreement shall govern.

 

(g)           If
the Obligations, or any part thereof, are declared or otherwise become
immediately due and payable pursuant to Article IX
of this Agreement, then all LC Obligations shall become immediately due and
payable without regard for actual drawings or payments on the Letters of
Credit, and Borrower shall be obligated to pay to Administrative Agent
immediately an amount equal to the LC Obligations.  All amounts made due and payable by Borrower
under this Section 2.09(g) may
be applied as Issuing Bank elects to any of the various LC Obligations; provided,
however, that such amounts applied by Issuing Bank to the LC Obligations
shall be (a) first applied to the Matured LC Obligations, and (b) second
held by Issuing Bank as LC Collateral in the LC Collateral Account until all
remaining Obligations have been satisfied. 
This Section 2.09(g) shall
not limit or impair any rights which Administrative Agent, the Issuing Bank or
any of the Banks may have under any other document or agreement relating to any
Letter of Credit or LC Obligation, including without limitation, any LC
Application.  Borrower hereby grants a
security interest in and lien on the LC Collateral Account to Administrative
Agent for and on behalf of the Issuing Bank and the Banks as security for the
Obligations.  Borrower agrees to execute
and deliver from time to time such documentation as Administrative Agent may
reasonably request to further assure such security interest.

 

2.10        Payments
by the Banks to Administrative Agent.

 

(a)           Unless
Administrative Agent receives notice from a Bank on or prior to the Closing
Date or, with respect to any Borrowing after the Closing Date, at least one (1) Business
Day prior to the date of such Borrowing, that such Bank will not make available
as and when required hereunder to Administrative Agent for the account of
Borrower the amount of that Bank’s Pro Rata Share 

 

25

 

of the Borrowing, Administrative Agent may assume that each Bank has
made such amount available to Administrative Agent in immediately available
funds on the Borrowing Date and Administrative Agent may (but shall not be so
required), in reliance upon such assumption, make available to Borrower on such
date a corresponding amount.  If and to
the extent any Bank shall not have made its full amount available to
Administrative Agent in immediately available funds and Administrative Agent in
such circumstances has made available to Borrower such amount, that Bank shall
on the Business Day following such Borrowing Date make such amount available to
Administrative Agent, together with interest at the Federal Funds Rate for the
first three (3) days during such period and thereafter at the Base
Rate.  A notice of Administrative Agent
submitted to any Bank with respect to amounts owing under this subsection (a) shall be
conclusive, absent manifest error.  If
such amount is so made available, such payment to Administrative Agent shall
constitute such Bank’s Loan on the date of Borrowing for all purposes of this
Agreement.  If such amount is not made
available to Administrative Agent on the Business Day following the Borrowing
Date, Administrative Agent will notify Borrower of such failure to fund and,
upon demand by Administrative Agent, Borrower shall pay such amount to
Administrative Agent for Administrative Agent’s account, together with interest
thereon for each day elapsed since the date of such Borrowing, at a rate per
annum equal to the interest rate applicable at the time to the Loans comprising
such Borrowing.

 

(b)           The
failure of any Bank to make any Loan on any Borrowing Date shall not relieve
any other Bank of any obligation hereunder to make a Loan on such Borrowing Date,
but no Bank shall be responsible for the failure of any other Bank to make the
Loan to be made by such other Bank on any Borrowing Date.

 

2.11        Sharing
of Payments, Etc.   If any Bank
shall obtain on account of the Obligations made by it any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) or receive any collateral in respect thereof in excess of the amount
such Bank was entitled to receive pursuant to the terms hereof, such Bank shall
immediately (a) notify Administrative Agent of such fact, and (b) purchase
from the other Banks such participations in the Loans made by them as shall be
necessary to cause such purchasing Bank to share the excess payment according
to the terms hereof; provided, however, that if all or any
portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank’s ratable share (according to the proportion
of (i) the amount of such paying Bank’s required repayment to (ii) the
total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered.  Borrower agrees that any Bank
so purchasing a participation from another Bank may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
setoff, but subject to Section 11.09)
with respect to such participation as fully as if such Bank were the direct
creditor of Borrower in the amount of such participation. Administrative Agent
will keep records (which shall be conclusive and binding in the absence of manifest
error) of participations purchased under this Section and will in each
case notify the Banks following any such purchases or repayments.

 

ARTICLE III.

 

TAXES,
YIELD PROTECTION AND ILLEGALITY

 

3.01        Taxes.

 

(a)           Any
and all payments by Borrower to each Bank or Administrative Agent under this
Agreement and any other Loan Document shall be made free and clear of, and
without deduction or 

 

26

 

withholding for any Taxes. In addition, Borrower shall pay all Other
Taxes. However, Borrower may delay paying or discharging any Other Taxes so
long as it is in good faith contesting the validity thereof by appropriate
proceedings and has set aside on its books adequate reserve therefor.

 

(b)           Borrower
agrees to indemnify and hold harmless each Bank and Administrative Agent for
the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section) paid by each
Bank and Administrative Agent to the extent such Bank or Administrative Agent
has provided Borrower with five (5) Business Days’ notice of its intent to
pay or discharge same and any liability (including penalties, interest,
additions to tax and reasonable expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted (except to the extent of Other Taxes contested by Borrower provided in
Subsection 3.01(a) above).
Payment under this indemnification shall be made within thirty (30) days after
the date the Bank or Administrative Agent makes written demand therefor.

 

(c)           If
Borrower shall be required by law to deduct or withhold any Taxes or Other
Taxes from or in respect of any sum payable hereunder to any Bank or
Administrative Agent, then: (i) the sum payable shall be increased as
necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums payable
under this Section) such Bank or Administrative Agent, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions or withholdings been made; (ii) Borrower shall make such
deductions and withholdings; (iii) Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and (iv) Borrower shall also pay to each
Bank or Administrative Agent for the account of such Bank, at the time interest
is paid, all additional amounts which the respective Bank specifies as
necessary to preserve the after-tax yield Bank would have received if such
Taxes or Other Taxes had not been imposed.

 

(d)           Upon
request of Administrative Agent, Borrower shall furnish Administrative Agent
the original or a certified copy of a receipt evidencing payment by Borrower of
Taxes or Other Taxes under subsection (c) of
this Section, or other evidence of payment satisfactory to Administrative
Agent.

 

(e)           If
Borrower is required to pay additional amounts to any Bank or Administrative Agent
pursuant to subsection (c) of
this Section, then upon written request of Borrower such Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such additional
payment by Borrower which may thereafter accrue, if such change in the judgment
of such Bank is not otherwise disadvantageous to such Bank.

 

3.02        Illegality.

 

(a)           If
any Bank reasonably determines that the introduction of any Requirement of Law,
or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make LIBOR Loans, then, on
notice thereof by the Bank to Borrower through Administrative Agent, any
obligation of that Bank to make LIBOR Loans shall be suspended until such Bank
notifies Administrative Agent and Borrower that the circumstances giving rise
to such determination no longer exist (which the Bank agrees to do promptly
thereafter).

 

(b)           If
any Bank reasonably determines that it is unlawful to maintain any LIBOR Loan,
such Loan will automatically convert into a Base Rate Loan either on the last
day of the Interest 

 

27

 

Period thereof, if such Bank may lawfully continue to maintain such
LIBOR Loans to such day, or immediately, if such Bank may not lawfully continue
to maintain such LIBOR Loan.

 

(c)           If the obligation of any Bank to make or
maintain LIBOR Loans has been so terminated or suspended, all Loans which would
otherwise be made by such Bank as LIBOR Loans shall be instead Base Rate Loans.

 

(d)           Before
giving any notice to Administrative Agent under this Section, the affected Bank
shall designate a different Lending Office with respect to its LIBOR Loans if
such designation will avoid the need for giving such notice or making such
demand and will not, in the judgment of the Bank, be illegal or otherwise
disadvantageous to the Bank.

 

3.03        Increased
Costs and Reduction of Return.

 

(a)           If
any Bank determines that, due to either (i) the introduction of any new
law or regulation or any change (other than any change by way of imposition of
or increase in reserve requirements included in the calculation of the LIBOR)
in or in the interpretation of any law or regulation or (ii) the
compliance by that Bank with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the actual cost to such Bank of agreeing to make or
making, funding or maintaining any LIBOR Loans, then Borrower shall be liable
for, and shall from time to time, upon demand (with a copy of such demand to be
sent to Administrative Agent), pay to Administrative Agent for the account of
such Bank, additional amounts as are sufficient to compensate such Bank for
such increased costs.

 

(b)           If
any Bank reasonably shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv) compliance
by the Bank (or its Lending Office) or any corporation controlling the Bank
with any such Capital Adequacy Regulation, affects the amount of capital
required to be maintained by the Bank or any corporation controlling the Bank
and (taking into consideration such Bank’s or such corporation’s policies with
respect to such Bank’s capital adequacy) reasonably determines that the amount
of such capital is increased as a consequence of its Commitments, loans,
credits or obligations under this Agreement, then, upon demand of such Bank to
Borrower through Administrative Agent, Borrower shall pay to the Bank, from
time to time as specified by the Bank, additional amounts sufficient to compensate
the Bank for such increase.

 

3.04        Funding
Losses. Borrower shall reimburse each Bank and hold each Bank harmless
from any loss or expense which the Bank may actually sustain or incur as a
consequence of: (a) the failure of Borrower to make on a timely basis any
payment of principal of any LIBOR Loan; (b) the failure of Borrower to
borrow, continue or convert a Loan after Borrower has given (or is deemed to
have given) a Notice of Borrowing or a Notice of Conversion/Continuation
(including by reason of the failure to satisfy any condition precedent
thereto); (c) the failure of Borrower to make any prepayment in accordance
with any notice delivered under Section 2.03; (d) the prepayment or other payment (including after
acceleration thereof) of any LIBOR Rate Loan on a day that is not the last day
of the relevant Interest Period; or (e) the automatic conversion under Section 3.02 of any LIBOR Rate Loan to a Base Rate Loan on a day that is
not the last day of the relevant Interest Period; including any such loss or
expense arising from the liquidation or reemployment of funds obtained by it to
maintain its LIBOR Rate Loans or from fees payable to terminate the deposits
from which such funds were obtained. For purposes of calculating amounts
payable by Borrower to the Banks under this Section and under Section 3.03,

 

28

 

each LIBOR Loan made by a Bank (and each related reserve, special
deposit or similar requirement) shall be conclusively deemed to have been
funded at the LIBOR for such LIBOR Rate Loan by a matching deposit or other
borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such LIBOR Rate Loan is in fact so funded.

 

3.05        Inability
to Determine Rates. If any Bank determines that for any reason adequate
and reasonable means do not exist for determining the LIBOR for
any requested Interest Period with respect to a proposed LIBOR Loan, or that
the LIBOR applicable for any requested Interest Period with respect to a
proposed LIBOR Loan does not adequately and
fairly reflect the cost to such Bank of funding such Loan, Administrative Agent
will promptly so notify Borrower. Thereafter, the obligation of such Bank to
make, maintain or convert Loans into LIBOR Rate Loans hereunder shall be
suspended until Administrative Agent upon the instruction of the Banks revokes
such notice in writing and each LIBOR Rate Loan that has been affected will
automatically, on the last day of the then-existing Interest Period therefor,
convert into a Base Rate Loan. Upon receipt of such notice, Borrower may revoke
any Notice of Borrowing or Notice of Conversion/Continuation then submitted by
it. If Borrower does not revoke such Notice, the Banks shall make, convert or
continue the Loans, as proposed by Borrower, in the amount specified in the
applicable notice submitted by Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans instead of LIBOR Loans. If any of the
Banks notify Borrower through Administrative Agent of any event occurring after
the date hereof that will entitle such Bank to compensation pursuant to Section 3.01 or 3.03 or if any of the Banks shall
notify the Borrower through Administrative Agent of any event as to illegality
under Section 3.02, then such
Bank shall designate a different Lending Office for the Loans affected by such
event if such designation will, as the case may be, avoid the need for, or
reduce the amount of, such compensation or avoid such illegality and will not,
in the sole opinion of the Bank, be disadvantageous to the Bank.

 

3.06        Survival.
The agreements and obligations of Borrower in this Article III shall survive the payment of all other Obligations.

 

3.07        Foreign
Lenders, Participants, and Assignees. 
Each Bank, Participant (by accepting a participation interest under this
Agreement), and Assignee (by executing an Assignment and Assumption Agreement)
that is not organized under the laws of the United States of America or one of
its states (a) represents to Administrative Agent and Borrower that (i) no
Taxes are required to be withheld by Administrative Agent or Borrower with
respect to any payments to be made to it in respect of the Obligations, and (ii) it
has furnished to Administrative Agent and Borrower two (2) duly completed
copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8,
or other form acceptable to Administrative Agent that entitles it to exemption
from U. S. Federal withholding Tax on all interest payments under the Loan
Documents, and (b) covenants to (i) provide Administrative Agent and
Borrower a new Form 4244, Form 1001, Form W-8, or other form
acceptable to Administrative Agent upon the expiration or obsolescense of any
previously delivered form according to applicable laws and regulations, duly
executed and completed by it, and (ii) comply from time to time with all
applicable laws and regulations with regard to the withholding Tax
exemption.  If any of the foregoing is
not true or the applicable forms are not provided, then Borrower and
Administrative Agent (but without duplication) may deduct and withhold from
interest payments under the Loan Documents any United States Federal-Income Tax
at the maximum rate under the Code.

 

3.08        Withholding Tax

 

(a)           If
any Bank is a “foreign corporation, partnership or trust”
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under 

 

29

 

Sections 1441 or 1442 of the Code, such Bank agrees with and in favor
of Administrative Agent, to deliver to Administrative Agent:

 

(i)            if
such Bank claims an exemption from, or a reduction of, withholding tax under a
United States tax treaty, properly completed IRS Forms 1001 and W-8 before the
payment of any interest in the first calendar year and before the payment of
any interest in each third succeeding calendar year during which interest may
be paid under this Agreement;

 

(ii)           if
such Bank claims that interest paid under this Agreement is exempt from United
States withholding tax because it is effectively connected with a United States
trade or business of such Bank, two properly completed and executed copies of
IRS Form 4224 before the payment of any interest is due in the first
taxable year of such Bank and in each succeeding taxable year of such Bank
during which interest may be paid under this Agreement, and IRS Form W-9;
and

 

(iii)          such
other form or forms as may be required under the Code or other laws of the
United States as a condition to exemption from, or reduction of, United States
withholding tax.

 

Such Bank agrees to promptly notify
Administrative Agent of any change in circumstances which would modify or
render invalid any claimed exemption or reduction.

 

(b)           If
any Bank claims exemption from, or reduction of, withholding tax under a United
States tax treaty by providing IRS Form 1001 and such Bank sells, assigns,
grants a participation in, or otherwise transfers all or part of the
Obligations of Borrower to such Bank, such Bank agrees to notify Administrative
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Bank.  To
the extent of such percentage amount, Administrative Agent will treat such Bank’s
IRS Form 1001 as no longer valid.

 

(c)           If
any Bank claiming exemption from United States withholding tax by filing IRS Form 4224
with Administrative Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of Borrower to such Bank,
such Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.

 

(d)           If
any Bank is entitled to a reduction in the applicable withholding tax,
Administrative Agent may withhold from any interest payment to such Bank an
amount equivalent to the applicable withholding tax after taking into account
such reduction.  If the forms or other
documentation required by subsection (a) of
this Section are not delivered to Administrative Agent, then
Administrative Agent may withhold from any interest payment to such Bank not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax.

 

(e)           If
the IRS or any other Governmental Authority of the United States or other
jurisdiction asserts a claim that Administrative Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered, was not properly executed, or because such
Bank failed to notify Administrative Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify Administrative Agent fully for
all amounts paid, directly or indirectly, by Administrative Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to Administrative Agent under this
Section, together 

 

30

 

with all costs and expenses (including Attorney Costs).  The obligation of the Banks under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
Administrative Agent.

 

ARTICLE IV.

 

SECURITY

 

4.01        Agreement
to Deliver Guarantees and Security Documents. At Closing, Borrower shall execute, and shall cause the Guarantors,
as applicable, to execute, such Guarantees, Mortgages, financing statements and
other Security Documents in form and substance satisfactory to Administrative
Agent for the purpose of guaranteeing Borrower’s Obligations and granting and
perfecting first and prior liens or security interests (subject to any
Permitted Liens) in the Mortgaged Properties and other Collateral described
therein. Borrower shall and shall cause Guarantors to enter into such Mortgages
and amendments and supplements thereto from time to time covering all of the
Oil and Gas Properties now owned or acquired on or after Closing.

 

4.02        Perfection
and Protection of Security Interests and Liens. Borrower will, and will
cause Guarantors, as applicable, from time to time deliver to Administrative
Agent such additional Guarantees, Mortgages, letters of credit, financing
statements, amendments, assignment and continuation statements, extension
agreements and other documents, properly completed and executed (and
acknowledged when required) by Borrower and Guarantors, as applicable, in form
and substance satisfactory to Administrative Agent, which the Banks request for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in the Collateral securing any Obligations.

 

4.03        Offset.
To secure the repayment of the Obligations, Borrower hereby grants
Administrative Agent and each Bank a security interest, a lien, and a right of
offset, each of which shall be in addition to all other interests, liens, and
rights of Administrative Agent at common law, under the Loan Documents, or
otherwise, and each of which shall be upon and against (a) any and all
moneys, securities or other Property (and the proceeds therefrom) of Borrower
now or hereafter held or received by or in transit to Administrative Agent or
any Bank from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and (b) any and all
deposits (general or special, time or demand, provisional or final) of Borrower
with Administrative Agent or any Bank, including certificates of deposit. Upon
the occurrence of any Default, Administrative Agent or any Bank is hereby
authorized to foreclose upon and apply, at any time and from time to time,
without notice to Borrower to the extent permitted by law, any and all items
hereinabove referred to against the Obligations then due and payable.

 

4.04        Letters
in Lieu/Power of Attorney.

 

(a)           In
connection with the rights of Administrative Agent under Section 4.05
below, Borrower shall provide to Administrative Agent undated letters, in form
of Exhibit D
attached hereto, from Borrower in blank to each purchaser of production and
disburser of proceeds of production from or attributable to the Mortgaged
Properties, with the addressees left blank, authorizing and directing the
addressees to make future payments attributable to production from the
Mortgaged Properties directly to Administrative Agent for the ratable benefit
of the Banks.

 

(b)           Borrower hereby designates Administrative
Agent as its agent and attorney-in-fact, to act in their name, place, and stead
for the purpose of completing and delivering any and all of the letters in lieu
of transfer orders delivered by Borrower to Administrative Agent, including, 

 

31

 

without
limitation, completing any blanks contained in such letter and attaching
exhibits thereto describing the relevant Collateral. The Borrower hereby
ratifies and confirms all that Administrative Agent shall lawfully do or cause
to be done by virtue of this power of attorney and the rights granted with
respect to such power of attorney. This power of attorney is coupled with the
interest of Administrative Agent in the Collateral, shall commence and be in
full force and effect as of the Closing Date and shall remain in full force and
effect and shall be irrevocable so long as any Obligation remains outstanding
or unpaid or any Commitment exists. The powers conferred on Administrative
Agent by this appointment are solely to protect the interests of Administrative
Agent and each of the Banks under the Loan Documents and shall not impose any
duty upon Administrative Agent to exercise any such powers. Administrative
Agent shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and shall not be responsible to Borrower
or any other Person for any act or failure to act with respect to such powers,
except for gross negligence or willful misconduct.

 

4.05        Assignment
of Runs. Notwithstanding that, under the Mortgages, Borrower or a
Guarantor, as applicable, has assigned to Administrative Agent for the ratable
benefit of the Banks all of the proceeds of runs accruing to the Mortgaged
Properties covered thereby:

 

(a)           Until
such time as Administrative Agent shall notify Borrower or Guarantor, as
applicable, to the contrary, Borrower or Guarantor, as applicable, shall be
entitled to receive from the purchasers or disbursers of production all such
proceeds of runs, subject however to the liens created under the Mortgages,
which liens are hereby affirmed and ratified. Upon the occurrence and during
the continuance of a Default or such other time as Administrative Agent shall
in its discretion so elect, Administrative Agent may deliver to the addressees
the letters-in-lieu described in Section 4.04
above and may exercise all rights and remedies granted under the Mortgages,
including the right to obtain possession of all proceeds of runs then held by
Borrower or Guarantor, as applicable, or to receive directly from the purchaser
or disburser of production all other proceeds of runs.

 

(b)           In
no case shall any failure, whether purposed or inadvertent, by Administrative
Agent to collect directly any such proceeds of runs constitute in any way a
waiver, remission or release of any of its rights under the Mortgages, nor
shall any release of any other proceeds of runs or of any rights of
Administrative Agent to collect other proceeds of runs thereafter.

 

(c)           Borrower
or Guarantor, as applicable, will upon the instruction of Administrative Agent
join with Administrative Agent in notifying in writing and accompanied (if
necessary) by certified copies of the Mortgages the purchasers or disbursers of
production produced from the Mortgaged Properties of the existence of the
Mortgages, and instructing that all proceeds of runs be paid directly to
Administrative Agent for the ratable benefit of the Banks.

 

ARTICLE V.

 

CONDITIONS
PRECEDENT

 

5.01        Conditions
of Initial Loan.  The
effectiveness of this Agreement and the obligation of each Bank and
Administrative Agent to amend and restate the Prior Credit Agreement, to make
Loans hereunder and the obligation of the Issuing Bank to issue Letters of
Credit hereunder, are subject to the condition that Administrative Agent shall
have received all of the following, in form and substance satisfactory to
Administrative Agent and each Bank, and in sufficient copies for each Bank:

 

32

 

(a)           Credit Agreement, Notes and Security Documents.
This Agreement, the Notes, the Guarantees and the Security Documents
executed by each party thereto and, where appropriate, properly acknowledged
and notarized.

 

(b)           Resolutions; Incumbency; Organization Documents.  (i) Copies of resolutions of SEM, individually
and in its capacity as the general partner of Borrower, authorizing the
transactions contemplated hereby, certified as of Closing by a Responsible
Officer of SEM; (ii) Certificate of an officer of SEM certifying the names
and true signatures of the officers or such Persons authorized to execute,
deliver and perform, as applicable, this Agreement, the Notes, the Guarantees
and all other Loan Documents to be delivered by SEM and Borrower hereunder; (iii) Copies
of resolutions of SEGP, individually and in its capacity as the general partner
of SOP, authorizing the transactions contemplated hereby, certified as of
Closing by a Responsible Officer of SEGP; (iv) Certificate of an officer
of SEGP certifying the names and true signatures of the officers or such
Persons authorized to execute, deliver and perform, as applicable, this
Agreement, the Notes, the Guarantees and all other Loan Documents to be
delivered by SEGP and SOP hereunder; (v) Copies of resolutions of Parent
authorizing the transactions contemplated hereby, certified as of Closing by a
Responsible Officer of Parent; (vi)  Certificate of an officer of Parent
certifying the names and true signatures of the officers or such Persons
authorized to execute, deliver and perform, as applicable, this Agreement, the
Notes, the Guarantees and all other Loan Documents to be delivered by Parent
hereunder; (vii) Copies of resolutions of SELP authorizing the
transactions contemplated hereby, certified as of Closing by a Responsible
Officer of SELP; (viii)  Certificate of an officer of SELP certifying the
names and true signatures of the officers or such Persons authorized to
execute, deliver and perform, as applicable, this Agreement, the Notes, the
Guarantees and all other Loan Documents to be delivered by SELP hereunder; and (ix) the
Organization Documents of Borrower and Guarantors as in effect on the Closing
Date.

 

(c)           Certificates. A current certificate
for Borrower (i) from its state of formation, evidencing its proper
registration as a limited partnership, and (ii) from each state wherein
such Person is qualified under the laws of such jurisdiction wherein its
ownership, lease or operation of Borrower’s Property or the conduct of its
business requires such registration or qualification and where the failure to
be so qualified would reasonably be expected to result in a Material Adverse
Effect.  A current certificate for each
Guarantor (i) from its state of formation, evidencing its proper
registration as a limited partnership, limited liability company or
corporation, as applicable, and (ii) from each state wherein such Person
is qualified under the laws of such jurisdiction wherein its ownership, lease
or operation of Property or the conduct of its business requires such
registration or qualification and where the failure to be so qualified would
reasonably be expected to result in a Material Adverse Effect

 

(d)           Payment of Fees. Payment by
Borrower of all accrued and unpaid fees, costs and expenses owed pursuant to
this Agreement including (i) any fees payable to Administrative Agent
payable on the Closing Date, (ii) fees for Administrative Agent’s counsel,
Haynes and Boone, LLP and any other costs, fees and expenses due under Section 11.04 and for which
Borrower has received an invoice as of the Closing Date and (iii) fees and
expenses associated with the filing of the Security Documents.

 

(e)           Intercompany Note.  A copy of the Intercompany Note duly executed
by Guarantors, in form and substance acceptable to Lenders.

 

(f)            Opinions
of Counsel. An opinion of counsel for Borrower and Guarantors,
as to matters described in Sections
6.01, 6.02, 6.03, 6.04 and 6.16, in the form satisfactory to
Administrative Agent dated as of the Closing Date.

 

33

 

(g)           Title. Borrower shall have evidence
of Marketable Title, on at least 80% of the net present value of the Mortgaged
Properties subject to no other liens, other than Permitted Liens, as evidenced
by opinions of title or other title information reasonably satisfactory to
Administrative Agent.

 

(h)           Environmental. Borrower shall
provide an Environmental Phase I Report, in form and scope satisfactory to
Administrative Agent covering the Mortgaged Properties.  Administrative Agent shall be satisfied with
the physical condition of the Oil and Gas Properties and Borrower’s compliance
with Environmental Laws.

 

(i)            Operating Accounts.  Borrower shall have established with
Administrative Agent all of its primary deposit and disbursement accounts.

 

(j)            Company Due Diligence. Due diligence
review satisfactory to Administrative Agent including, but not limited to,
review of and satisfaction with Borrower’s and Guarantors’, legal structure and
formation documents.

 

(k)           Operating Agreements. Administrative
Agent shall be satisfied with the terms of Borrower’s existing and proposed
material operating, management, processing, transportation, marketing and other
agreements applicable to the Mortgaged Properties (collectively herein, the “Operating Agreements”).

 

(l)            Contingent Liabilities. Review
satisfactory to Administrative Agent of Borrower’s Contingent Liabilities, if
any.

 

(m)          Insurance Certificates. Borrower shall provide to Administrative
Agent, insurance certificates in form and substance reasonably
satisfactory to Administrative Agent, from Borrower’s insurance carriers
reflecting the current insurance policies required under Section 7.06
including any necessary endorsements to reflect Administrative Agent as “loss payee” or “additional insured,” as
applicable, for the ratable benefit of the Banks.

 

(n)           Other Documents. Such other
approvals, opinions, documents or materials as Administrative Agent may
request.

 

5.02        Conditions
to All Loans. The obligation of each Bank to make any Loan (including
the initial Loan) or to continue or convert any Loan under Section 2.02
(other than automatic conversions from LIBOR Rate Loans to Base Rate Loans
under Section 2.02(c)) is subject to the satisfaction of the following conditions
precedent on the relevant Borrowing Date or Conversion/Continuation Date
(except that clause (a) below will not apply to Loans made pursuant
to Section 2.09(c));

 

(a)           Notice. Administrative Agent shall
have received a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable;

 

(b)           Continuation of Representations and Warranties.
The representations and warranties in Article VI shall be true and correct on and as of such Borrowing Date
or Conversion/Continuation Date with the same effect as if made on and as of
such Borrowing Date or Conversion/Continuation Date (except to the extent such
representations and warranties expressly refer to an earlier or other date, in
which case they shall be true and correct as of such earlier or other date);
and

 

34

 

(c)           No Existing Default. No Default or
Event of Default shall exist or shall result from such Borrowing or
continuation or conversion.

 

ARTICLE VI.

 

REPRESENTATIONS
AND WARRANTIES

 

Borrower
represents and warrants to Administrative Agent and each of the Banks that:

 

6.01        Existence and Authority.
Each of Borrower and
Guarantors (i) is a limited partnership, limited liability company or
corporation, respectively, duly formed and validly existing under the laws of
their state of incorporation or formation; (ii) has the power and
authority and all material governmental licenses, authorizations, consents and
approvals to own its assets, carry on its business and to execute, deliver, and
perform its obligations under the Loan Documents; (iii) is duly registered
as a foreign limited partnership, limited liability company or corporation,
respectively, and is licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of Property or the conduct
of its business requires such qualification or license; and (iv) is in
compliance in all material respects with all Requirements of Law.

 

6.02        Organizational
Authorization; No Contravention. The execution, delivery and
performance by Borrower and Guarantors of this Agreement and each other Loan
Document to which such Person is a party, have been duly authorized by all
necessary corporate, company, and partnership action, and do not and will not: (a) contravene
the terms of any of that Person’s Organization Documents; (b) conflict
with or result in any breach or contravention of, or the creation of any Lien
under, any document evidencing any material Contractual Obligation to which
such Person is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its Property is subject; or (c) violate
any Requirement of Law.

 

6.03        Governmental
Authorization. Except for recordations and filings relating to the
Security Documents, no approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority is
necessary or required in connection with the execution, delivery or performance
by, or enforcement against, Borrower and Guarantors of this Agreement or any
other Loan Document to which it is a party.

 

6.04        Binding Effect. This
Agreement and each other Loan Document to which Borrower or Guarantors are a
party constitute the legal, valid and binding obligations of such Person to the
extent it is a party thereto, enforceable against such Person in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors’ rights generally or by equitable principles relating to
enforceability.

 

6.05        Litigation.
Except as set forth on Schedule 6.05
hereto, there are no actions, suits, proceedings, claims or disputes pending,
or to the knowledge of Borrower, threatened or contemplated, at law, in equity,
in arbitration or before any Governmental Authority, against Borrower or
Guarantors, or any of their respective Properties or Limited Partners which: (i) purport
to affect or pertain to this Agreement or any other Loan Document, or any of
the transactions contemplated hereby or thereby; or (ii) if determined
adversely to Borrower or Guarantors, would reasonably be expected to have a
Material Adverse Effect. No injunction, writ, temporary restraining order or
any order of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain execution, delivery 

 

35

 

or performance of this Agreement or any other Loan Document, or
directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.

 

6.06        No
Default. No Default or Event of Default exists or would be reasonably
expected to result from the incurring of any of the Obligations by Borrower. As
of the Closing Date, except as set forth on Schedule 6.05 hereto, neither
Borrower nor Guarantors are in default under or with respect to any Contractual
Obligation in any respect which, individually or together with all such
defaults, would reasonably be expected to have a Material Adverse Effect, or
that would, if such default had occurred after the Closing Date, create an
Event of Default under Subsection 9.01(f).

 

6.07        ERISA.

 

(a)           Borrower has complied in all material
respects with ERISA and, where applicable, the Code regarding each Plan.

 

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

 

(c)           No act, omission or transaction has
occurred which could result in imposition on Borrower (whether directly or
indirectly) of (i) either a civil penalty assessed pursuant to section 502(c),
(i) or (1) of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code or (ii) breach of fiduciary duty liability damages
under section 409 of ERISA.

 

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

 

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

 

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

 

(g)           Borrower does not sponsor, maintain or
contribute to an employee welfare benefit plan, as defined in section 3(l)
of ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
Borrower in its sole discretion at any time without any material liability.

 

(h)           Borrower does not sponsor, maintain or
contribute to, or has at any time in the preceding six calendar years,
sponsored, maintained or contributed to, any Multiemployer Plan.

 

(i)            Borrower
is not required to provide security under section 401 (a)(29) of the Code
due to a Plan amendment that results in an increase in current liability for
the Plan.

 

36

 

6.08        Margin
Regulations. The proceeds of the Loans shall be used solely for the purposes
set forth in and permitted by Section 7.11. Neither
Borrower nor Guarantors are generally engaged in the business of purchasing or
selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.

 

6.09        Title
to Oil and Gas Properties. Borrower has good and Marketable Title to
its Oil and Gas Properties, subject to the Permitted Liens, and has good title
to all other Property which is necessary or used in the ordinary conduct of its
business. No consents or rights of first refusal exist or remain outstanding
with respect to Borrower’s interests in its Oil and Gas Properties pursuant to
Borrower’s acquisition thereof.

 

6.10        Oil
and Gas Operations. The Oil and Gas attributable to the Oil and Gas
Properties will be produced and marketed in accordance with all applicable laws
and regulations. The Hydrocarbon Interests and Operating Agreements
attributable to the Oil and Gas Properties are in force and effect in
accordance with their terms, and Borrower shall comply with all material terms
thereof during the term of this Agreement.

 

6.11        Initial
Reserve Report. Borrower has heretofore delivered to Administrative
Agent true and complete copies of reports prepared by Cawley, Gillespie &
Associates dated as of December 31,
2004, and DeGolyer and MacNaughton
dated as of December 31, 2004, (collectively, the “Initial
Reserve Report”) relating to an evaluation of the Oil and Gas
attributable to the Oil and Gas Properties described therein. To the knowledge
of Borrower, (i) the assumptions stated or used in the preparation of the
Initial Reserve Report were reasonable as of such date, (ii) all
information furnished by Borrower to Cawley, Gillespie & Associates taken as a whole, for use in the
preparation of the Initial Reserve Report was accurate in all material
respects, (iii) there has been no material adverse change in the amount of
the estimated Oil and Gas shown in the Initial Reserve Report since the date
thereof, except for changes which have occurred as a result of production in
the ordinary course of business, and (iv) the Initial Reserve Report does
not omit any statement or information necessary to cause the same not to be
misleading to Administrative Agent and the Banks in any material respect.

 

6.12        Gas
Imbalances. There are no gas imbalances, take or pay or other
prepayments with respect to any of the Mortgaged Properties in excess of
$50,000 which would require Borrower to deliver Oil and Gas produced from any
of the Mortgaged Properties at some future time without then or thereafter
receiving full payment therefor.

 

6.13        Taxes.
Borrower and Guarantors have filed all federal tax returns and reports required
to be filed, or appropriate extensions thereof, and each has paid all federal
taxes, assessments, fees and other governmental charges levied or imposed upon
it or its Properties, income or assets otherwise due and payable, except those
which are being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided. Borrower and Guarantors have filed
all state and other non-federal tax returns and reports required to be filed,
or appropriate extensions thereof, and each has paid all state and other non-federal
taxes, assessments, fees and other governmental charges levied or imposed upon
it or its Properties, income or assets otherwise due and payable, except those
which are being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided. To Borrower’s knowledge, there is
no proposed audit or tax assessment against Borrower or Guarantors that would,
if made, reasonably be expected to have a Material Adverse Effect.

 

6.14        Financial
Condition. The audited consolidated financial statement of Stroud Oil
Properties, Inc. as of December 31, 2004, and the year then ended and
the unaudited consolidated financial statements of Stroud Oil Properties, Inc.
as of June 30, 2005, and for the six months then ended 

 

37

 

fairly present the information contained therein and the financial
position and the results of operations of SOP, SEM and Borrower on a
consolidated basis.  Parent’s pro forma
financial statements as of December 31, 2004 and June 30, 2005, as
provided within the Preliminary Offering Memo, have been prepared in accordance
with the requirements of the Securities and Exchange Commission for the
presentation of pro forma financial information.  Except as disclosed on Schedule 6.14,
since the delivery of Borrower’s financial statement dated June 30, 2005, there
has been no Material Adverse Effect in the financial condition of Borrower.

 

6.15        Environmental
Matters.  The Oil and Gas
Properties are operated in accordance with all applicable Environmental
Laws.  Borrower is not aware of any
Environmental Claims against Borrower or any of the Oil and Gas Properties.
Borrower conducts in the ordinary course of business a review of the effect of
existing Environmental Laws and existing Environmental Claims on its business,
operations and properties, and such properties which it is acquiring or
planning to acquire.

 

6.16        Regulated
Entities. None of Borrower nor any Guarantor or any Person controlling
Borrower or Guarantors, is an “Investment Company” within the
meaning of the Investment Company Act of 1940. Neither Borrower nor any
Guarantor is subject to regulation under the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code, or any other federal or state statute or regulation limiting
its ability to incur Indebtedness.

 

6.17        No
Burdensome Restrictions. Neither Borrower nor Guarantors are a party to
or bound by any Contractual Obligation, or subject to any restriction in any
Organization Document, or any Requirement of Law, which would reasonably be
expected to have a Material Adverse Effect.

 

6.18        Copyrights,
Patents, Trademarks and Licenses, etc.  Borrower owns or is licensed or
otherwise has the right to use all of the material patents, trademarks, service
marks, trade names, copyrights, contractual franchises, authorizations and
other rights that are reasonably necessary for the operation of its businesses,
without conflict with the rights of any other Person.

 

6.19        Subsidiary, Affiliates and
Ownership. As
of the Closing Date, (a) Parent has no Subsidiaries other than Borrower
and the other Guarantors, (b) Borrower has no Subsidiaries, and (c) none
of Parent, Borrower, or any other Guarantor has any material equity investments
in any other corporation, partnership, limited liability company or other
entity.  As of the Closing Date, SEM will
remain the general partner of Borrower. 
As of the Closing Date, Parent will own, directly or indirectly, all of
the ownership interests in Borrower and the other Guarantors.

 

6.20        Insurance.
Borrower has previously identified the insurance policies covering its
Mortgaged Properties and the underwriters thereof, such policies and
underwriters being acceptable to Administrative Agent.  The Properties of Borrower are insured with
financially sound and reputable insurance companies not Affiliates of Borrower,
in such amounts, with such deductibles and covering such risks as Borrower
believes are customarily carried by companies of similar size engaged in
similar businesses and owning similar properties in localities where Borrower’s
Properties are located.

 

6.21        Full
Disclosure. None of the representations or warranties made by Borrower
or Guarantors in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, written statement or certificate furnished by or on behalf of
Borrower or Guarantors in connection with the Loan Documents (including the
offering and disclosure materials delivered by or on behalf of Borrower or
Guarantors to Administrative Agent or any of the Banks prior to the Closing
Date), taken as whole, contains any untrue statement of a material fact known
to Borrower, Guarantors or any Responsible Officer or omits any 

 

38

 

material fact known to Borrower, Guarantors or any Responsible Officer
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading as of
the time when made or delivered.

 

6.22        Solvency.
As of the Closing Date, after giving effect to the transactions occurring
on such date, each of Borrower and Guarantors is Solvent.

 

ARTICLE VII.

 

AFFIRMATIVE
COVENANTS

 

So long as the Issuing Bank or any Bank shall
have any Commitment hereunder, or any Loan or other Obligation shall remain
unpaid or unsatisfied, unless the Banks and the Issuing Bank waive compliance
in writing:

 

7.01        Financial
Statements. Parent shall maintain for itself and its Subsidiaries a
system of accounting established and administered in accordance with GAAP
consistently applied, and deliver to Administrative Agent, with sufficient
copies for each Bank:

 

(a)           As
soon as available, but not later than one hundred twenty (120) days after the
end of each year a copy of the audited annual consolidated financial statements
and unaudited annual consolidating financial statements of Parent and its
Subsidiaries as of the end of such year including the related balance sheet and
statements of income, stockholder’s equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year accompanied, in the case of the consolidated financial statements,
by an unqualified opinion from an independent accounting firm acceptable to
Administrative Agent (the “Independent Auditor”) along
with a certificate of Borrower’s and Guarantors’, as applicable, Derivative
Contract position, Parent’s calculations confirming no Event of Default and
Parent’s compliance with all financial covenants herein, all as certified by a
Responsible Officer of Parent as fairly presenting the financial position and
the results of operations of Parent and its Subsidiaries in accordance with
GAAP;

 

(b)           As
soon as available, but not later than sixty (60) days after the close of each
of the first three quarters of each year, a copy of the unaudited quarterly
consolidated and consolidating balance sheet of Parent as of the end of such
quarter and the related statements of income, equity, and cash flows for the
period commencing on the first day and ending on the last day of such quarter,
and certified by a Responsible Officer of Parent as fairly presenting, in
accordance with GAAP, consistently applied, the financial position and the
results of operations of Parent and its Subsidiaries together with a
certificate regarding Borrower’s and Guarantors’, as applicable, Derivative
Contract position and calculations confirming no Event of Default and Parent’s
compliance with all financial covenants herein;

 

(c)           As soon as filed with the Securities and
Exchange Commission, copies of all registration statements, annual reports,
quarterly reports, current reports and other similar reports;

 

(d)           As soon as delivered to stockholders of
Parent, all other financial and other information furnished to the such
stockholders; and

 

(e)           As soon as available, but in no event later
than 30 days before the end of each fiscal year of Parent, budget projections
of Parent and its Subsidiaries for the following fiscal year.

 

39

 

7.02        Certificates;
Other Production and Reserve Information. Borrower shall furnish to
Administrative Agent, with sufficient copies for each Bank:

 

(a)           as
soon as available but in any event no later than sixty (60) days following the
end of each month during the term of this Agreement, commencing as of September 30,
2005 for the month ended July 31, 2005, a Monthly Status Report in a form
reasonably acceptable to the Banks, as of the calendar month then ended;

 

(b)           concurrently
with the delivery of the statements and reports of Parent referred to in Subsections 7.01 (a) and (b) a Compliance Certificate
executed by a Responsible Officer of Parent;

 

(c)           commencing March 1, 2006 and
annually thereafter, as soon as available but in any event no later than each March 1,
of each year during the term of this Agreement, Reserve Reports prepared by an
independent petroleum engineer reasonably acceptable to the Administrative
Agent and the Banks covering the Mortgaged Properties as of December 31 of
the previous year and commencing September 1, 2005, and annually
thereafter, as soon as available but in any event no later than September 1
of each year during the term of this Agreement, Reserve Reports prepared by
Borrower’s in-house petroleum engineer covering the Mortgaged Properties as of June 30
of such year,  (all foregoing Reserve
Reports subject to being acceptable to the Administrative Agent and the Banks);

 

(d)           promptly
upon the request of the Administrative Agent, such copies of all geological,
engineering and related data contained in Borrower’s files or readily
accessible to Borrower relating to its Mortgaged Properties as may reasonably
be requested;

 

(e)           on
request by Administrative Agent, or if required by regulations to which
Administrative Agent or any of the Banks is subject, title opinions from legal
counsel acceptable to Administrative Agent, in form and substance acceptable to
Administrative Agent, covering Borrower’s interests in the Mortgaged Property
as may be designated by Administrative Agent, and Administrative Agent’s
security interests under the Security Documents in question; and

 

(f)            promptly,
such additional information regarding the business, financial or business
affairs of Borrower as Administrative Agent, at the request of any Bank, may
from time to time reasonably request.

 

7.03        Notices.
Borrower shall promptly notify Administrative Agent:

 

(a)           of
the occurrence of any Default or Event of Default, and of the occurrence or
existence of any event or circumstance that would reasonably be expected to
become a Default or Event of Default;

 

(b)           of
any matter that has resulted or may reasonably be expected to result in a
Material Adverse Effect, including (i) breach or non-performance of, or
any default under, a Contractual Obligation of Borrower; (ii) any dispute,
litigation, investigation, proceeding or suspension between Borrower and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting Borrower, including
pursuant to any applicable Environmental Laws;

 

(c)           of
any material change in accounting policies or financial reporting practices by
Parent, not required by GAAP, occurring subsequent to the Closing Date;

 

40

 

(d)           of
the formation or acquisition of any Subsidiary.

 

(e)           of
any change in the number and/or make-up of the members of the board of
directors of Parent; and

 

Each notice under this Section shall be
accompanied by a written statement by a Responsible Officer of General Partner
setting forth details of the occurrence referred to therein, and stating what
action, if any, Borrower proposes to take with respect thereto and at what
time. Each notice under Subsection 7.03(a) shall
describe with particularity any and all clauses or provisions of this Agreement
or other Loan Document that have been (or foreseeably will be) breached or
violated;

 

7.04        Preservation
of Company Existence, Etc.  Borrower shall:

 

(a)           preserve
and maintain in full force and effect its corporate, partnership or limited
liability company existence as appropriate, and shall maintain its good
standing under the laws of each state wherein it is registered to transact
business except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect;

 

(b)           preserve and maintain in full force and
effect all governmental rights, privileges, qualifications, permits, licenses
and franchises necessary or desirable in the normal conduct of its business
except where the failure to do so would not reasonably be expected to have a
Material Adverse Effect;

 

(c)           preserve
its business organization and goodwill except where the failure to do so would
not reasonably be expected to have a Material Adverse Effect; and

 

(d)           preserve
or renew all of its registered patents, trademarks, trade names and service
marks, the non-preservation of which could reasonably be expected to have a
Material Adverse Effect.

 

7.05        Maintenance
of Mortgaged Properties.

 

(a)           Borrower
shall maintain and preserve all its Mortgaged Properties in the ordinary course
of Borrower’s Principal Business and in a manner consistent with a prudent
operator in the Oil and Gas industry.

 

(b)           During
each Borrowing Base Period during the term of this Agreement, Borrower shall be
authorized to make one or more Dispositions of the Mortgaged Properties that
have a market value of less than $500,000 in the aggregate. In the event
Borrower elects to sell one or more Mortgaged Properties to one or more third
parties, Borrower shall promptly advise Administrative Agent in writing of the
Properties to be sold and Administrative Agent shall, within ten (10) days
of Administrative Agent’s receipt of Borrower’s notice, furnish to Borrower a
statement reflecting such Oil and Gas Properties’ dollar contribution to the
then existing Borrowing Base. As of the day of closing of each sale transaction
pursuant to this subsection (b),
Administrative Agent shall release the Liens under the Security Documents encumbering
such Oil and Gas Properties, the Borrowing Base shall be reduced by the
aggregate contribution to the Borrowing Base of the Oil and Gas Properties sold
and Borrower shall pay to Administrative Agent for the ratable benefit of the
Banks out of sales proceeds the amount, if any, by which the amount of
then-outstanding Loans exceeds the reduced Borrowing Base.

 

41

 

(c)           Notwithstanding
the provisions of subsection (b) above,
Borrower shall not make any Dispositions of Oil and Gas Properties pursuant to
this Section 7.05 during the period
of time following the occurrence of an Event of Default until such Event of
Default has been remedied or resolved in accordance with the other terms of
this Agreement.

 

7.06        Insurance.  Borrower shall maintain, with financially
sound and reputable independent insurers, insurance with respect to its
Properties and business against loss or damage satisfactory to Administrative
Agent, naming Administrative Agent, for the ratable benefit of the Banks, as “loss payee” under its property loss policies and as “additional insured” on its comprehensive and general
policies (but not on directors and officers policies), which policies shall not
be amended or changed without at least thirty (30) days written notice to
Administrative Agent.  Borrower shall
renew such policies on terms no less favorable to Administrative Agent for the
ratable benefit of the Banks during the term of this Agreement. Any substitute
underwriter shall be as financially sound as Borrower’s existing
underwriters.  So long as no Event of
Default exists and is continuing, proceeds of any insurance policies shall be
applied first to the restoration, repair or replacement of the Properties to
the extent such actions would be reasonably prudent and the remainder, if any,
shall be applied to the Obligations to prepay the Obligations in any manner or
order as elected by Administrative Agent at the time of such prepayments. Upon
an Event of Default, and for so long as same is continuing, proceeds of any
insurance policies shall be applied to the Obligations in such manner and order
as the Administrative Agent and Majority Banks may elect.

 

7.07        Payment
of Obligations. Borrower shall pay and discharge as the same shall
become due and payable, its obligations and liabilities, including: (a) all
Tax liabilities, assessments and governmental charges or levies upon it or its
Properties or assets, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by Borrower; (b) all lawful claims prior to the time at which,
if such claims remain unpaid, a Lien upon the Borrower’s Property would be
imposed by law; and (c) all Indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.

 

7.08        Compliance
with Laws. Borrower and Guarantors shall comply with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its
business, except where the failure to do so would not reasonably be expected to
result in a Material Adverse Effect.

 

7.09        Inspection
of Property and Books and Records. Borrower and Guarantors shall
maintain proper books of record and account, in which, in all material
respects, full, true and correct entries in accordance with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of Borrower. Borrower shall permit representatives and
independent contractors of Administrative Agent or any Bank to visit and
inspect any of its Properties, to examine Borrower’s Organizational Documents,
and financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective directors, officers, and, in the presence of one or more
Responsible Officer thereof, independent public accountants, all at the expense
of Borrower and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to Borrower;
provided, however, when an Event of Default exists Administrative Agent or any
Bank may do any of the foregoing at the expense of Borrower at any time during
normal business hours and without advance notice.

 

42

 

7.10        Environmental
Laws.

 

(a)           Borrower
shall conduct its operations and keep and maintain its Property in material
compliance with all Environmental Laws;

 

(b)           Borrower
will promptly furnish to Administrative Agent all written notices of violation,
orders, claims, citations, complaints, penalty assessments, suits or other
proceedings received by Borrower or any Subsidiary, or of which it has notice,
pending or threatened against Borrower or Guarantors by any Governmental
Authority with respect to any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations in connection
with its ownership or use of its Properties or the operation of its business,
except where any such alleged violations or incidents of non-compliance would
not, individually or in the aggregate, result in a penalty, assessment, fine or
other cost or liability exceeding $50,000.

 

(c)           Borrower
will promptly furnish to Administrative Agent all requests for information,
notices of claim, demand letters, and other notifications, received by Borrower
or Guarantors in connection with its ownership or use of its Properties or the
conduct of its business, relating to potential responsibility with respect to
any investigation or clean-up of Hazardous Substances at any location, except
where any such alleged responsibility would not, individually or in the
aggregate, result in a penalty, assessment, fine or other cost or liability
exceeding $50,000.

 

7.11        Use of Proceeds.  Borrower
shall use the proceeds of the Loans to (i) pay fees and expenses incurred
in connection with this Agreement and (ii) provide for the working capital
and general corporate purpose needs of the Borrower including future
acquisitions and capital expenditures.

 

7.12        Further
Assurances. Borrower will promptly and will cause Guarantors, as
applicable, to promptly cure any defects in the creation and issuance of the
Notes and the execution and delivery of this Agreement, the Guarantees, the
Security Documents or any other instruments referred to or mentioned herein or
therein. Further, Borrower at its expense will promptly do all acts and things,
and will execute and file or record all instruments reasonably requested by
Administrative Agent, to establish, perfect, maintain and continue the
perfected security interest of Administrative Agent in or the Lien of
Administrative Agent on the Mortgaged Properties. Borrower will pay the
reasonable costs and expenses of all filings and recordings and all searches
reasonably deemed necessary by Administrative Agent to establish and determine
the validity and the priority of the Liens created or intended to be created by
the Security Documents; and Borrower will satisfy all other claims and charges
which in the reasonable opinion of Administrative Agent might prejudice or
impair any of the Mortgaged Properties or any Liens thereon in favor of
Administrative Agent for the benefit of the Issuing Bank and the Banks.

 

7.13        Phase I
Reports. As soon as available, and in any case within three (3) Business
Days prior to closing any acquisition of Oil and Gas Properties where the
Borrower’s liability for environmental remediation potentially associated with
the ownership and/or operation of all such Oil and Gas Properties is expected
to exceed $100,000, Borrower shall deliver to Administrative Agent an
environmental site assessment report covering such Oil and Gas Properties to be
acquired in form and substance satisfactory to Administrative Agent.

 

7.14        ERISA
Information and Compliance. Borrower will promptly
furnish to the Administrative Agent with sufficient copies to the Banks (i) promptly
after the filing thereof with the United States Secretary of Labor, the
Internal Revenue Service or the PBGC, copies of each annual and other report
with respect to each Plan or any trust created thereunder, (ii) immediately
upon becoming aware of the occurrence of any ERISA Event or of any non-exempt “prohibited
transaction,” as

 

43

described in section 406 of ERISA or in section 4975
of the Code, in connection with any Plan or any trust created thereunder, a
written notice signed by a Responsible Officer thereof specifying the nature
thereof, what action the Borrower is taking or proposes to take with respect
thereto, and, when known, any action taken or proposed by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately
upon receipt thereof, copies of any notice of the PBGCs intention to terminate
or to have a trustee appointed to administer any Plan.  With respect to each Pension Plan, Borrower
will (i) satisfy in full and in a timely manner, without incurring any
late payment or underpayment charge or penalty and without giving rise to any
lien, all of the contribution and funding requirements of section 412 of
the Code (determined without regard to subsections (d), (e), (f) and (k)
thereof) and of section 302 of ERISA (determined without regard to
sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be
paid, to the PBGC in a timely manner, without incurring any late payment or
underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.

 

7.15        Operating Accounts.
Until all Obligations have been paid in full, Borrower shall maintain all
primary deposit and disbursement accounts with Wells Fargo Bank.

 

7.16        Guarantees. 
As an inducement to the Banks and Administrative Agent entering into this
Agreement, Borrower shall cause the payment and performance of the Obligations
to be fully guaranteed jointly and severally by each Guarantor up to the full amount of the
Obligations. Further, Borrower shall cause each Guarantor to enter into such
Mortgage and other Security Documents as may be required under Section 4.01. On the date
of creation or acquisition by Parent or Borrower of any direct or indirect
Subsidiary, (i) Parent or Borrower shall execute and deliver to
Administrative Agent the Security Documents necessary to pledge all of Parent’s
or Borrower’s equity interest, as applicable, in such Subsidiary and (ii) Parent
or Borrower shall cause such Subsidiary to execute and deliver to
Administrative Agent a Guaranty and such Mortgage and other Security Documents
as may be required under Section 4.01 above.

 

ARTICLE VIII.

 

NEGATIVE
COVENANTS

 

So long as the Issuing Bank or any Bank shall
have any Commitment hereunder, or any Loan or other Obligation shall remain
unpaid or unsatisfied, unless the Issuing Bank or the Banks waive compliance in
writing:

 

8.01        Limitation
on Liens. Borrower and each Guarantor agrees that it shall not,
directly or indirectly, make, create, incur, assume or suffer to exist any Lien
upon or with respect to any part of its Property, whether now owned or
hereafter acquired, other than the following (“Permitted Liens”):

 

(a)           any
Lien created under the Security Documents or any other Loan Document;

 

(b)           any
usual and customary liens arising under Oil and Gas leases for royalty payments
not yet due and payable and reciprocal liens arising under operating agreements
for joint interest billings not yet due and payable or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the Property subject thereto
with adequate reserves set aside therefor;

 

(c)           Liens
for Taxes, fees, assessments or other governmental charges which are not
delinquent or remain payable without penalty, or to the extent that non-payment
thereof is permitted by

 

44

 

Section 7.07 or
which are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject thereto with adequate reserves set aside therefore;

 

(d)           carrier,
warehousemen, mechanic, landlord, materialmen, repairmen or other similar
statutory Liens arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject thereto with adequate
reserves set aside therefor;

 

(e)           Liens
consisting of pledges or deposits required in the ordinary course of business
in connection with workers’ compensation, unemployment insurance and other
social security legislation;

 

(f)            easements,
rights-of-way, restrictions, defects or other exceptions to title and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, are not incurred to secure
Indebtedness, and which do not in any case materially detract from the value of
the Property subject thereto or interfere with the ordinary conduct of the
businesses of Borrower; and

 

(g)           Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depository institution;
provided that (i) such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by Borrower, (ii) Borrower
maintains (subject to such right of set-off) dominion and control over such
account(s), and (iii) such deposit account is not intended by Borrower to
provide cash collateral to the depository institution.

 

8.02        Disposition
of Assets. Borrower and each Guarantor agrees that it shall not,
directly or indirectly, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of transactions) (collectively, “Dispositions”) any Property used or
useful by Borrower or the Guarantors in connection with the Oil and Gas
Properties (including accounts and notes receivable, with or without recourse
attributable to the Mortgaged Properties) or enter into any agreement to do any
of the foregoing, except:

 

(a)           Dispositions
of inventory including Oil and Gas produced in the ordinary course of business;

 

(b)           Dispositions
as permitted under Sections 7.05 hereof;
and

 

(c)           Dispositions
of obsolete or worn-out equipment in the ordinary course of business;

 

Provided, that at
the time of any Disposition under (a), (b) or (c) above, no
Event of Default shall exist or shall result from such Disposition.

 

8.03        Consolidations
and Mergers. Borrower and each Guarantor agrees that it shall not
merge, amalgamate or consolidate with or into, or permit any of its
Subsidiaries to merge, amalgamate or consolidate with or into, any Person or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions), or permit any such Subsidiary to convey,
transfer, lease or 

 

45

 

otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of its assets to any Person.

 

8.04        Loans
and Investments. Borrower and each Guarantor agrees that it shall not
purchase or acquire or make any commitment therefor, any capital stock, equity
interest, or any obligations or other securities of, or any interest in, any
Person, or make or commit to make any Acquisitions, or make or commit to make any
advance, loan, extension of credit or capital contribution to or any other
investment in, any Person including any Affiliate of Borrower, except for:

 

(a)           investments
in Cash Equivalents;

 

(b)           extensions
of credit in the nature of accounts receivable or notes receivable arising from
the sale or lease of goods or services in the ordinary course of business;

 

(c)           Investments
in Derivative Contracts permitted under Section 8.15;
and

 

(d)           investments with or purchases from third
parties that are (i) customary in the Oil and Gas business, (ii) made
in the ordinary course of Borrower’s business, and (iii) made in the form
of or pursuant to Operating Agreements, farm-in agreements, farm-out
agreements, development agreements, unitization agreements, joint bidding agreements,
service contracts and other similar agreements;

 

(e)           new leases with respect to Oil and Gas
Properties; and

 

(f)            the Intercompany Loan.

 

8.05       Limitation on
Indebtedness. Borrower and each Guarantor agrees that neither it nor any of its Subsidiaries shall create, incur,
assume, suffer to exist, or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:

 

(a)           Indebtedness
incurred pursuant to this Agreement;

 

(b)           Indebtedness
consisting of Contingent Obligations permitted pursuant to Section 8.08;

 

(c)           current
liabilities for lease operating expenses, capital expenditures, accounts
payable, expense accruals, Taxes and assessments incurred or assumed in the
ordinary course of business;

 

(d)           Indebtedness
listed on Schedule 8.05
hereto; and

 

(e)           Indebtedness
incurred pursuant to Section 8.04(f).

 

8.06        Transactions
with Affiliates. None of Borrower or Guarantors shall, nor shall any of
the Borrower or Guarantors permit any of their Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of transactions
(including, but not limited to, the purchase, sale, lease or exchange of
Property, the making of any investment, the giving of any guaranty, the
assumption of any obligation or the rendering of any service) with any of their
Affiliates unless such transaction or series of transactions is not in
violation of this Agreement and upon fair and reasonable terms no less
favorable to it than it would obtain in a comparable arm’s length transaction
with a Person that is not such an 

 

46

 

Affiliate.  Provided, so long as
no Event of Default exists, the foregoing restriction shall not affect any
transactions between Borrower and any Guarantor, or between Guarantors.

 

8.07        Margin
Stock. Borrower shall not use any portion of the Loan proceeds,
directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance Indebtedness of Borrower or others incurred to purchase
or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security
in any transaction that is subject to Section 13 or 14 of the Exchange
Act.

 

8.08        Contingent Obligations.
Borrower and each Guarantor agrees that it shall not create, incur, assume or
suffer to exist any Contingent Obligations except:

 

(a)           endorsements
for collection or deposit in the ordinary course of business;

 

(b)           obligations
under plugging bonds, performance bonds and fidelity bonds issued for the
account of Borrower, obligations to indemnify or make whole any surety and
similar agreements incurred in the ordinary course of;

 

(c)           this
Agreement, Derivative Contracts permitted or required pursuant to Section 8.15 with any of the
Banks or any Affiliates of the Banks; and

 

(d)           other
Contingent Obligations not described under (a), (b) or (c) above not
to exceed $500,000 in the aggregate.

 

8.09        Restricted
Distributions.  Borrower shall
not purchase, redeem or otherwise acquire for value any of its Partners’ equity
interests, rights or options to acquire such interests, now or hereafter
outstanding and will not declare or pay any dividend, distribution, or return
capital to its Partners, or make any distribution of assets or Property to its
Partners (collectively “Restricted
Distributions”), except:

 

(a)           a
one time tax sharing distribution in an amount not to exceed $1,750,000, as computed pursuant to Section 5.8(a) of
the Prior Partnership Agreement, to the Prior Partners for the short tax year
begun on January 1, 2005 and ending on the Closing Date, to be paid on the
Closing Date;

 

(b)           quarterly
Permitted Tax Distributions; provided no Event of Default has occurred or is
continuing and no Event of Default would occur as a result of such
distribution; and

 

(c)           once per fiscal year, a distribution to
Parent in an amount equal to the outstanding balance of the Intercompany Loan
as of the time of such distribution, to be used solely for the repayment of the
outstanding balance of the Intercompany Loan.

 

8.10        Minimum Tangible Net Worth. Parent shall maintain at all times
Consolidated Tangible Net Worth in an amount not less than 75.0% of Parent’s
Consolidated Tangible Net Worth as of September 30, 2005, plus (b) Parent’s
Consolidated Net Income after September 30, 2005 on a cumulative basis (provided no negative adjustment will
be made in the event such amount is a deficit figure for such period)
multiplied by seventy-five percent (75%), plus (c) one hundred
percent (100%) of the net proceeds of any capital contribution or equity
offering after September 30, 2005.

 

8.11        Current
Ratio. Parent shall maintain at all times, on a consolidated basis, a
current ratio of Current Assets to Current Liabilities of not less than
1.00:1.00.

 

47

 

8.12        Minimum Interest Coverage Ratio.  Parent shall maintain at all times, on a
consolidated basis, an Interest Coverage Ratio of not less than 3.00:1.00.

 

8.13        Change
in Business. Borrower and Guarantors shall not engage in any business
or activity other than the Principal Business.

 

8.14        Accounting
Changes. Borrower shall not make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change the
fiscal year of Borrower or any Subsidiary.

 

8.15        Derivative
Contracts. Borrower shall not enter into or in any manner be liable
under any Derivative Contract attributable to Mortgaged Properties except:

 

(a)           Derivative
Contracts entered into with the purpose and effect of fixing prices on Oil and
Gas attributable to the Mortgaged Properties and expected to be produced by
Borrower provided that at all times: (1) the aggregate of all such
Derivative Contracts limits or reduces such market price risk for a term of not
more than thirty-six (36) months; (2) no such contract, when aggregated
with all Derivative Contracts permitted under this Section 8.15(a) requires
such Person to deliver more than 80% of total estimated Oil and Gas to be
produced during the following Borrowing Base Period from the proved Oil and Gas
Properties as so designated in the most recent Reserve Report furnished by
Borrower under Section 7.02(c)  as adjusted for
any acquisitions or divestitures, and (3) each such contract shall
be with any of the Banks or any Affiliates of the Banks, or with a counter-party
or have a guarantor of the obligation of the counter-party who, at the time the
contract is made, has long-term obligations rated BBB or Baa2 or better,
respectively, by Standard & Poor’s Rating Group, a division of McGraw
Hill, Inc., or Moody’s Investors Service, Inc. (or a successor credit
rating agency).

 

(b)           Derivative
Contracts entered into with the purpose and effect of fixing interest rates on
a principal amount of Indebtedness of Borrower that is accruing interest at a
variable rate, provided that (1) the floating rate index of each such
contract generally matches the index used to determine the floating rates of
interest on the corresponding Indebtedness of Borrower to be hedged by such
contract; (2) no such contract with a counter-party other than a Bank or
its Affiliate requires Borrower to put up money, assets, letters of credit, or
other security against the event of its nonperformance prior to actual default
by Borrower in performing obligations thereunder; and (3) each such
contract shall be with a Bank or its Affiliate or with a counter-party or have
a guarantor of the obligation of the counter-party who, at the time the
contract is made, has long-term obligations rated AA or Aa2 or better,
respectively, by Standard & Poor’s Rating Group, a division of McGraw
Hill, Inc., or Moody’s Investors Service, Inc. (or a successor credit
rating agency).

 

(c)           In
the event Borrower enters into a Derivative Contract with any of the Banks or
any Affiliate of the Banks, the Contingent Obligation evidenced under such
Derivative Contract shall not be applied against such Bank’s Commitment nor
against the Effective Amount. Any Indebtedness to any Bank or any Affiliate of
the Banks incurred under any Derivative Contract shall be treated as an
Obligation pari passu and secured pro rata under
the Security Documents with all Obligations otherwise incurred hereunder or
under the other Loan Documents as more particularly provided under Section 11.12.
Borrower covenants and agrees the payment on each and all of such Derivative
Contracts with any of the Banks or their Affiliates is and shall be secured by
liens on the Collateral under the Security Documents.

 

48

 

8.16        ERISA Compliance. 
Borrower will not at any time:

 

(a)           Engage in any transaction in connection
with which Borrower could be subjected to either a civil penalty assessed
pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed
by Chapter 43 of Subtitle D of the Code;

 

(b)           Terminate any Pension Plan in a manner,
or take any other action with respect to any Plan, which could result in any
liability to Borrower to the PBGC;

 

(c)           Fail to make full payment when due of all
amounts which, under the provisions of any Plan, agreement relating thereto or
applicable law, Borrower is required to pay as contributions thereto;

 

(d)           Permit to exist any accumulated funding
deficiency within the meaning of Section 302 of ERISA or section 412
of the Code, whether or not waived, with respect to any Plan;

 

(e)           Permit the actuarial present value of the
benefit liabilities under any Plan maintained by Borrower which is regulated
under Title IV of ERISA to exceed the current value of the assets (computed on
a plan termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities. 
The term “actuarial present value of the benefit
liabilities” shall have the meaning specified in section 4041
of ERISA;

 

(f)            Contribute to or assume an obligation to
contribute to any Multiemployer Plan;

 

(g)           Acquire an interest in any Person that
causes such Person to become an ERISA Affiliate with respect to Borrower if
such Person sponsors, maintains or contributes to, or at any time in the six-year
period preceding such acquisition has sponsored, maintained, or contributed to,
(1) any Multiemployer Plan, or (2) any other Plan that is subject to
Title IV of ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the assets (computed
on a plan termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities;

 

(h)           Incur a liability to or on account of a
Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;

 

(i)            Contribute to or assume an obligation to
contribute to any employee welfare benefit plan, as defined in section 3(l)
of ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
such entities in their sole discretion at any time without any material
liability; or

 

(j)            Amend a Pension Plan resulting in an
increase in current liability such that Borrower is required to provide
security to such Plan under section 401 (a)(29) of the Code.

 

(k)           Cause or permit to occur an event that
could result in the imposition of a lien under section 412 of the Code or
sections 302 or 4068 of ERISA with respect to a Pension Plan, or cause or
permit to occur an ERISA Event to the extent such ERISA Event could reasonably
be expected to have a Material Adverse Effect.

 

49

 

ARTICLE IX.

 

EVENTS OF
DEFAULT

 

9.01        Event
of Default. Any of the following shall constitute an “Event of Default”:

 

(a)           Non-Payment. Borrower fails to pay,
when and as required to be paid herein, any amount of principal or interest of
any Loan or any Matured LC Obligation, or fails to pay within five (5) days
of when and as required to be paid herein, any fee or other amount payable
hereunder or under any other Loan Document; or

 

(b)           Representation or Warranty. Any
representation or warranty by Borrower or any Subsidiary or Guarantor made or
deemed made herein, in any other Loan Document, or which is contained in any
certificate, document or financial or other statement by Borrower, Subsidiary
or Guarantor, furnished at any time under this Agreement, or in or under any
other Loan Document, is incorrect in any material respect on or as of the date
made or deemed made; or

 

(c)           Specific Defaults. Borrower or
Guarantors fail to perform or observe any term, covenant or agreement contained
in any of Section 7.03(a) or
in Article VIII; or

 

(d)           Other Defaults. Borrower or
Guarantors fail to perform or observe any other term or covenant contained in
this Agreement (other than described in Subsections 9.01(a), (b) or (c)) or any other Loan Document, and
such default shall continue unremedied for a period of thirty (30) days after
the earlier of (i) the date upon which a Responsible Officer thereof knew
of such default or (ii) the date upon which written notice thereof is
given to Borrower by Administrative Agent; or

 

(e)           Guarantees.  Any Guarantor shall default under its
Guaranty or Security Agreement/ Pledge after any applicable grace period, as
may be provided therein; or

 

(f)            Cross-Default. Borrower (i) fails
to make any payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure continues
after the applicable grace or notice period, if any, specified in the relevant
document on the date of such failure in respect of any Indebtedness or
Contingent Obligation in excess of $100,000 principal amount; or (ii) fails
to perform or observe any other condition or covenant, or any other event shall
occur or condition exist, under any agreement or instrument relating to any
such Indebtedness or Contingent Obligation in excess of $100,000 principal
amount, if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness
to be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof
to be demanded; or

 

(g)           Insolvency; Voluntary Proceedings. Borrower
or any Guarantor (i) generally fails to pay, or admits in writing its
inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) commences
any Insolvency Proceeding with respect to itself, or (iii) takes any
action to effectuate or authorize any of the foregoing; or

 

(h)           Involuntary Proceedings. (i) Any
involuntary Insolvency Proceeding is commenced or filed against Borrower or any
Guarantor, judgment, warrant of attachment, execution or similar process, is
issued or levied against all or a substantial part of such Person’s Properties,
and any such proceeding or petition shall not be dismissed, or such writ,
judgment, warrant of attachment, 

 

50

 

execution or similar process shall not be released or vacated within
sixty (60) days after commencement, filing or levy; (ii) Borrower or any
Guarantor admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief is ordered in any Insolvency
Proceeding; or (iii) Borrower or any Guarantor acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its Property or business; or

 

(i)            Monetary Judgment. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against Borrower or any Guarantor involving in the aggregate a liability in
excess of $500,000 (to the extent not covered by independent third-party
insurance as to which the insurer does not dispute coverage), and the same
shall remain unsatisfied, unvacated or unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or

 

(j)            Loss of Permit. Any Governmental
Authority revokes or fails to renew any material license, permit or franchise
of Borrower, or Borrower for any reason loses any material license, permit or
franchise, or Borrower suffers the imposition of any restraining order, escrow,
suspension or impounding of funds in connection with any proceeding (judicial
or administrative) with respect to any material license, permit or franchise;
and, in each case such revocation, failure or loss could reasonably be expected
to have a Material Adverse Effect; and such default remains unremedied for a
period of thirty (30) days after the earlier of (i) the date upon which a
Responsible Officer thereof knew or reasonably should have known of such
default or (ii) the date upon which written notice thereof is given to
Borrower by Administrative Agent; or

 

(k)           Adverse Change. There occurs a
Material Adverse Effect;

 

(l)            Ownership of
Borrower/Change of Management. Either of Patrick J. Noyes or Stephen M. Clark shall
cease or fail for any reason to serve and function in his current respective
capacity as an executive officer of Parent, and shall not be succeeded in such
position by a person acceptable to the Majority Banks.  Parent shall cease to own directly or
indirectly all of the ownership interest in the sole general partner of
Borrower and shall not be succeeded in such capacity by a Person acceptable to
Administrative Agent and the Majority Banks. Parent shall cease to own,
directly or indirectly, 100% of the partnership interests of Borrower; or

 

(m)          Change of Control. 
The occurrence of a Change of Control.

 

9.02        Remedies. If any Event of Default
occurs and is continuing:

 

(a)           Upon
the occurrence of any event specified in Subsection (g) or
(h) of
Section 9.01, the unpaid
principal amount of all outstanding Loans, interest, LC Obligations and other
amounts payable under the Loan Documents shall automatically become due and
payable without further act of Administrative Agent, and in each case under 9.02(a), without presentment,
demand, protest, notice of intention to accelerate, notice of acceleration or
any other notice of any kind, all of which are hereby expressly waived by
Borrower;

 

(b)           Administrative
Agent shall, at the request of, or may, with the consent of, the Banks, declare
the Commitment, if any, of each of the Banks to make Loans or issue Letters of
Credit to be terminated and (i) upon the occurrence of any event specified
in Subsections 9.01(a) through (f) or (i) through
(l) may declare all or any part of
the unpaid principal of the Loans, all interest accrued and unpaid thereon, all
outstanding LC Obligations (with any amounts in respect of undrawn Letters of 

 

51

 

Credit to be held as cash collateral therefor in accordance with Section 2.09(g)) and all other
amounts payable under the Loan Documents to be immediately due and payable; and

 

(c)           Administrative
Agent may exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents and applicable law.

 

9.03        Rights
Not Exclusive. The rights provided for in this Agreement and the other
Loan Documents are cumulative and are not exclusive of any other rights,
powers, privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.

 

ARTICLE X.

 

ADMINISTRATIVE
AGENT

 

10.01      Appointment
and Authorization.

 

(a)           Each
Bank hereby irrevocably (subject to Section 10.09)
appoints, designates and authorizes Administrative Agent to take such action on
its behalf under the provisions of this Agreement and each other Loan Document
and to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document,
Administrative Agent shall have only such duties or responsibilities, as
expressly set forth herein, Administrative Agent shall not have or be deemed to
have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against
Administrative Agent.

 

(b)           The
Issuing Bank shall act on behalf of the Banks with respect to any Letters of
Credit Issued by it and the documents associated therewith until such time and
except for so long as Administrative Agent may agree at the request of any of
the Banks to act for such Issuing Bank with respect thereto; provided, however,
that the Issuing Bank shall have all of the benefits and immunities (i) provided
to Administrative Agent in this Article X
with respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit Issued by it or proposed to be Issued by it
and the application and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term “Administrative Agent,”
as used in this Article X, included the
Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing Bank.

 

10.02      Delegation
of Duties. Administrative Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Administrative Agent shall not be responsible
for the negligence or misconduct of any agent or attorney-in-fact that it
selects with reasonable care.

 

10.03      Liability
of Administrative Agent.  None of
the Agent-Related Persons shall (i) be liable for any action taken or
omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for
its own gross negligence or willful misconduct), or (ii) be responsible in
any manner to any of the Banks or any Affiliate of the Banks for any recital,
statement, representation or warranty made by Borrower or any Subsidiary or
Affiliate of Borrower, or any officer thereof, contained in this Agreement or
in any other 

 

52

 

Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by Administrative Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness (other than such Agent-Related Person’s own due
execution and delivery), genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or thereunder.  No Agent-Related Person shall be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of Borrower or any of the Borrower’s Subsidiaries or Affiliates.

 

10.04      Reliance
by Administrative Agent.

 

(a)           Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, electronic mail, facsimile, telex or telephone message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by Administrative Agent. Administrative Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other
Loan Document unless it shall first receive such advice or concurrence of the
Banks as it deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Banks and their Affiliates against any
and all liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Banks and such request and any action taken or failure to act pursuant
thereto shall be binding upon all of the Banks.

 

(b)           For
purposes of determining compliance with the conditions specified in Section 5.01, each Bank that
has made available to Administrative Agent its Pro Rata Share of the initial
Loan or subsequent Loan, as the case may be, shall be deemed to have consented
to, approved or accepted or to be satisfied with, each document or other matter
either sent by Administrative Agent to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Bank as a condition precedent
to such initial Loan or subsequent Loan, as applicable.

 

10.05      Notice
of Default. Administrative Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to Administrative Agent for the account of the Banks, unless
Administrative Agent shall have received written notice from a Bank or Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a “notice of default”.
Administrative Agent will notify the Banks of its receipt of any such
notice.  Subject to Subsection 10.04(a),
Administrative Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Banks in accordance with Article IX; provided, however,
that unless and until Administrative Agent has received any such request,
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.

 

10.06      Credit
Decision.  Each Bank acknowledges
that none of the Agent-Related Persons has made any representation or warranty
to it, and that no act by any Agent-Related Person hereafter taken, including
any review of the affairs of Borrower, Guarantors or Subsidiaries thereof,
shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Bank.  Each
Bank

 

53

 

represents to Administrative Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of Borrower, Guarantors or Subsidiaries
thereof, and all applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and
to extend credit to Borrower hereunder. 
Each Bank also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower.  Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by Administrative
Agent, Administrative Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Borrower which may come into the possession of any of the
Agent-Related Persons.

 

10.07      Indemnification.  Whether or not the transactions contemplated
hereby are consummated, the Banks and any Affliates of the Banks shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed
by or on behalf of Borrower and without limiting the obligation of the Borrower
to do so), pro rata according to each respective Bank’s Pro Rata Share, each
Agent-Related Person from and against any and all Indemnified Liabilities
INCLUDING SUCH INDEMNIFIED LIABILITIES AS MAY ARISE OR BE CAUSED BY THE
NEGLIGENCE, SOLE, JOINT, CONCURRENT, COMPARATIVE OR OTHERWISE of such
Agent-Related Persons; provided, however, that no Bank shall be
liable for the payment to any Agent-Related Persons of any portion of such
Indemnified Liabilities to the extent the same arise from (i) the gross
negligence or willful misconduct of any Agent-Related Person or (ii) a
claim or action asserted by one or more other Agent-Related Persons.  Without limitation of the foregoing, each
Bank shall reimburse Administrative Agent upon demand for its ratable share of
any costs or out-of-pocket expenses (including Attorney Costs) incurred by
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that
Administrative Agent is not reimbursed for such expenses by or on behalf of
Borrower.  The undertaking in this Section shall
survive the payment of all Obligations hereunder and the resignation or
replacement of Administrative Agent.

 

10.08      Administrative
Agent in Individual Capacity. 
Wells Fargo Bank and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in
and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with Borrower and its Subsidiaries and
Affiliates as though Wells Fargo Bank were not Administrative Agent hereunder
and without notice to or consent of the Banks. 
The Banks acknowledge that, pursuant to such activities, Wells Fargo
Bank or its Affiliates may receive information regarding Borrower or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of Borrower or such Subsidiary) and acknowledge that the
Agent-Related Persons shall be under no obligation to provide such information
to them.  With respect to its Loans,
Wells Fargo Bank shall have the same rights and powers under this Agreement as
any other Bank and may exercise the same as though it were not Administrative
Agent or the Issuing Bank.

 

54

 

10.09      Successor
Administrative Agent. Administrative Agent may resign as Administrative
Agent upon 30 days’ notice to the Banks. 
If Administrative Agent resigns under this Agreement, the Banks shall
appoint from among the Banks a successor administrative agent in the same
capacity as the retiring Administrative Agent for the Banks.  If no successor administrative agent is
appointed prior to the effective date of the resignation of such retiring
Administrative Agent, such retiring Administrative Agent may appoint, after
consulting with the Banks, a successor administrative agent from among the
Banks.  Upon the acceptance of its
appointment as successor administrative agent hereunder, such successor
administrative agent shall succeed to all the rights, powers and duties of the
retiring Administrative Agent and the term “Administrative Agent”
shall mean such successor administrative agent and the retiring Administrative
Agent’s appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent’s resignation hereunder as
Administrative Agent, the provisions of this Article X
and Sections 11.04 and 11.05 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement.  If no
successor administrative agent has accepted appointment as Administrative Agent
in the same capacity as the retiring Administrative Agent by the date which is
30 days following a retiring Administrative Agent’s notice of resignation, the
retiring Administrative Agent shall either withdraw its resignation or may
appoint as a successor administrative agent a commercial bank organized under
the laws of the United States of America or of any State thereof having a
commercial capital surplus of at least $500,000,000.

 

ARTICLE XI.

 

MISCELLANEOUS

 

11.01      Amendments
and Waivers. No amendment or waiver of any provision of this Agreement
or any other Loan Document, and no consent with respect to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by the Majority Banks (or by Administrative Agent at the written request
of the Majority Banks) and Borrower and acknowledged by Administrative Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided  however,
that no such waiver, amendment, modification, termination or consent shall,
unless in writing and signed by all of the Banks and Borrower and acknowledged
by Administrative Agent, do any of the following:

 

(a)           increase
or extend the Commitment of any Bank (or reinstate any Commitment terminated
pursuant to Section 9.02), or
increase the maximum amount of Letters of Credit;

 

(b)           postpone
the final maturity date of any Loan, or postpone or delay any date fixed by
this Agreement or any other Loan Document for any payment of principal,
interest, fees or other amounts due to the Banks (or any of them) hereunder or
under any other Loan Document;

 

(c)           reduce
the principal of, or the rate of interest specified herein on any Loan, or any
fees or other amounts payable hereunder or under any other Loan Document;

 

(d)           change
the definition of Majority Banks, the Pro Rata Shares or change in any manner
the percentage of Banks required to take any action under this Agreement;

 

(e)           amend
this Section 11.01 or any provision
of this Agreement which, by its terms, expressly requires the approval or
concurrence of all Banks;

 

55

 

(f)            release
all, substantially all, or any material portion of the Collateral (except for
releases in connection with dispositions of assets which are permitted
hereunder or under any Loan Document);

 

(g)           reduce
the amount or postpone the due date of any amount payable in respect of, or
extends the required expiration date of, any Letter of Credit, or change in any
manner the obligations of Banks relating to the purchase of participations in
Letters of Credit;

 

(h)           increase
the Borrowing Base pursuant to Section 2.04,
provided, the Required Banks may maintain or decrease the Borrowing Base
pursuant to Section 2.04;

 

and; provided  further, that (i) any amendment,
modification, termination or waiver of any of the provisions contained in Article V shall be effective
only if evidenced by a writing signed by or on behalf of Administrative Agent
and all of the Banks, (ii) no amendment, waiver or consent shall, unless
in writing and signed by the Issuing Bank in addition to any or all the Banks,
as the case may be, affect the rights or duties of the Issuing Bank under this
Agreement or any LC Related Document relating to any Letter of Credit Issued or
to be Issued by it, and (iii) no amendment, waiver or consent shall,
unless in writing and signed by Administrative Agent in addition to the any or
all of the Banks, as the case may be, affect the rights or duties of
Administrative Agent under this Agreement or any other Loan Document.

 

11.02      Notices.

 

(a)           All
notices, requests and other communications shall be in writing and mailed by
certified mail, electronically transmitted by e-mail, faxed or delivered, to
the address or facsimile number specified for notices on the signature page hereof,
or, as directed to Borrower, the Banks or Administrative Agent at such other
address as shall be designated by such party in a written notice to Borrower,
the Banks and Administrative Agent.

 

(b)           All
such notices, requests and communications shall, when transmitted by delivery,
certified mail, e-mail, or fax, shall be effective when delivered or
transmitted in legible form.

 

(c)           Any
agreement of Administrative Agent and the Banks herein to receive certain
notices by telephone, e-mail or facsimile is solely for the convenience and at
the request of Borrower. Administrative Agent and the Banks shall be entitled
to rely on the authority of any Person purporting to be a Person authorized by
Borrower to give such notice and Administrative Agent and the Banks shall not
have any liability to Borrower or other Person on account of any action taken
or not taken by Administrative Agent or any of the Banks in reliance upon such
telephonic, e-mail or facsimile notice. The obligation of Borrower to repay the
Loans shall not be affected in any way or to any extent by any failure by
Administrative Agent and the Banks to receive written confirmation of any
telephonic, e-mail or facsimile notice or the receipt by Administrative Agent
and the Banks of a confirmation which is at variance with the terms understood
by Administrative Agent and the Banks to be contained in the telephonic or
facsimile notice.

 

11.03      No
Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of Administrative Agent or any of the Banks, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.

 

56

 

11.04      Costs
and Expenses. Borrower shall:

 

(a)           whether
or not the transactions contemplated hereby are consummated, pay or reimburse
Administrative Agent within five (5) Business Days after reasonably
detailed written demand for all reasonable costs and expenses incurred by
Administrative Agent in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and thereby,
including Attorney Costs incurred by Administrative Agent with respect thereto;
and

 

(b)           pay
or reimburse Administrative Agent within five (5) Business Days after
written demand for all costs and expenses (including Attorney Costs) incurred
by it in connection with the enforcement, attempted enforcement, or
preservation of any rights or remedies under this Agreement or any other Loan
Document during the existence of an Event of Default or after acceleration of
the Loans (including in connection with any “workout”
or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).

 

11.05      Indemnity.
Whether or not the transactions contemplated hereby are consummated, Borrower
shall indemnify and hold the Agent-Related Persons, the Issuing Bank, each
Bank, and each of its officers, directors, employees, counsel, and attorneys-in-fact
(each, an “Indemnified Person”) harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, charges, expenses and disbursements (including Attorney Costs) of
any kind or nature whatsoever which may at any time (including at any time
following repayment of the Loans, and the termination, resignation or
replacement of Administrative Agent or replacement of any Bank), be imposed on,
incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
“Indemnified Liabilities”) WHETHER OR NOT SUCH
INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY INDEMNIFIED PARTY’S
NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT LIMITATION, THOSE CLAIMS
WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE
INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM; provided, that Borrower shall
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities to the extent same arise from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.

 

11.06      Payments
Set Aside. To the extent that Borrower makes a payment to
Administrative Agent or the Banks, or Administrative Agent or the Banks
exercise their rights of set-off, and such payment or the proceeds of such set-off
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by Administrative Agent or such Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then (a) to the extent permitted by
law and to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such set-off had not
occurred, and (b) each Bank severally agrees to pay to Administrative
Agent upon demand its Pro Rata Share of any amount so recovered from or repaid
by Administrative Agent.

 

57

 

11.07      Successors
and Assigns. The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of
Administrative Agent, Issuing Bank and each Bank.

 

11.08      Assignments.
No Bank may transfer, pledge, assign, sell any participation in, or
otherwise encumber its portion of the Obligations except as permitted by
clauses (a) or (b) below.

 

(a)            Any
Bank may (subject to the provisions of this section, in accordance with
applicable law, in the ordinary course of its business, and at any time) sell
to one or more Persons (each a “Participant”)
participating interests in its portion of the Obligations. The selling Bank
remains a “Bank” under the Loan
Documents, the Participant does not become a “Bank”
under the Loan Documents, and the selling Bank’s obligations under the Loan
Documents remain unchanged. The selling Bank remains solely responsible for the
performance of its obligations and remains the holder of its share of the
outstanding Loan for all purposes under the Loan Documents. Borrower and
Administrative Agent shall continue to deal solely and directly with the
selling Bank in connection with that Bank’s rights and obligations under the
Loan Documents, and each Bank must retain the sole right and responsibility to
enforce due obligations of the Companies. Participants have no rights under the
Loan Documents except certain voting rights as provided below. Subject to the
following, each Bank may obtain (on behalf of its Participants) the benefits of
Article XI with respect to all
participations in its part of the Obligations outstanding from time to time so
long as Borrower is not obligated to pay any amount in excess of the amount
that would be due to that Bank under Article XI calculated
as though no participations have been made. No Bank may sell any participating
interest under which the Participant has any rights to approve any amendment,
modification, or waiver of any Loan Document except as to matters in Section 11.01.

 

(b)           Each
Bank may make assignments to the Federal Reserve Bank. Each Bank may also
assign to one or more assignees (each an “Assignee”)
all or any part of its rights and obligations under the Loan Documents so long
as (i) the assignor Bank and Assignee execute and deliver to
Administrative Agent for its consent and acceptance an assignment and
assumption agreement in substantially the form of Exhibit F
(an “Assignment and Acceptance Agreement”)
and pay to Administrative Agent a processing fee of $3,000, (ii) the
Assignee acquires an identical percentage interest in the Commitment of the
assignor Bank and an identical percentage of the interests in the outstanding
Loan held by such assignor Bank, (iii) except in the case of an assignment
to another Bank or an assignment of all of a Bank’s rights and obligations
under this Agreement, any partial assignment shall be in an amount equal to
$5,000,000 or an integral multiple of $100,000 in excess thereof, and (iv) the
conditions (including, without limitation, minimum amounts of the Commitment
that may be assigned or that must be retained) for that assignment set forth in
the applicable Assignment and Acceptance Agreement are satisfied. The “Effective Date” in each Assignment and Acceptance Agreement
must (unless a shorter period is agreeable to Borrower and Administrative
Agent) be at least five (5) Domestic Business Days after it is executed
and delivered by the assignor Bank and Assignee to Administrative Agent for
acceptance. Once that Assignment and Acceptance Agreement is accepted by
Administrative Agent, then, from and after the Effective Date stated in it (i) Assignee
automatically becomes a party to this Agreement and, to the extent provided in
that Assignment and Acceptance Agreement, has the rights and obligations of a
Bank under the Loan Documents, (ii) the assignor Bank, to the extent
provided in that Assignment and Acceptance Agreement, is released from its
obligations to fund Borrowings under this Agreement and its reimbursement
obligations under this Agreement and, in the case of an Assignment and
Acceptance Agreement covering all of the remaining portion of the assignor Bank’s
rights and obligations under the Loan Documents, that Bank ceases to be a party
to the Loan Documents, (iii) Borrower shall execute and deliver to the
assignor Bank and Assignee the appropriate Notes in accordance with this
Agreement following the transfer, (iv) upon delivery of the Notes under
clause (iii) 

 

58

 

preceding, the assignor Bank shall return to Borrower all Notes
previously delivered to that Bank under this Agreement, and (v) Schedule 2.01 is automatically
deemed to be amended to reflect the name, address, telecopy number, and
Commitment of Assignee and the remaining Commitment (if any) of the assignor
Bank, and Administrative Agent shall prepare and circulate to Borrower and
Banks an amended Schedule 2.01 reflecting
those changes.

 

11.09      Set-off.
In addition to any rights and remedies of Administrative Agent and each of
the Banks provided by law, if an Event of Default exists, each Bank is
authorized at any time and from time to time, without prior notice to Borrower,
to the extent permitted by law, any such notice being waived by Borrower to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other Indebtedness at any time owing by, such Bank to or for the credit or
the account of Borrower against any and all Obligations owing to such Bank, now
or hereafter existing, irrespective of whether such Bank shall have made demand
under this Agreement or any Loan Document and although such Obligations may be
contingent or unmatured.  Each Bank
agrees promptly to notify Borrower after any such setoff and application made
by such Bank, provided that the failure to give such notice shall not affect
the validity of such setoff and applications. The rights of each Bank under
this Section 11.09 are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which such Bank may have.

 

11.10      Interest.
It is the intention of the parties hereto to conform strictly to Applicable
Usury Laws regarding the use, forbearance or detention of the indebtedness
evidenced by this Agreement, the Notes and the other Loan Documents, whether
such Laws are now or hereafter in effect, including the Laws of the United
States of America or any other jurisdiction whose Laws are applicable, and
including any subsequent revisions to or judicial interpretations of those
Laws, in each case to the extent they are applicable to this Agreement, the
Notes and the other Loan Documents (the “Applicable Usury Laws”).
Accordingly, if any acceleration of the maturity of the Notes or any payment by
Borrower or any other Person produces a rate in excess of the Highest Lawful
Rate or otherwise results in Borrower or such other Person being deemed to have
paid any interest in excess of the Maximum Amount, as hereinafter defined, or
if Administrative Agent or any of the Banks shall for any reason receive any
unearned interest in violation of any Applicable Usury Laws, or if any
transaction contemplated hereby would otherwise be usurious under any
Applicable Usury Laws, then, in that event, regardless of any provision
contained in this Agreement or any other Loan Document or other agreement or
instrument executed or delivered in connection herewith, the provisions of this
Section 11.10 shall govern and
control, and neither Borrower nor any other Person shall be obligated to pay,
or apply in any manner to, any amount that would be excessive interest.
Administrative Agent or the Banks shall never be deemed to have contracted for
or be entitled to receive, collect, charge, reserve or apply as interest on any
Loan (whether termed interest therein or deemed to be interest by judicial
determination or operation of law), any amount in excess of the Highest Lawful
Rate, and, in the event that Administrative Agent or any of the Banks ever
receive, collect, or apply as interest any such excess, such amount which would
be excessive interest shall be applied as a partial prepayment of principal and
treated hereunder as such, and, if the principal amount of the applicable Loans
are paid in full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest contracted for, received, collected,
charged reserved, paid or payable, including under any specific contingency,
exceeds the Highest Lawful Rate, Borrower, Administrative Agent and the Banks
shall, to the maximum extent permitted under applicable law, (a) characterize
any non-principal payment (other than payments which are expressly designated
as interest payments hereunder) as an expense or fee rather than as interest, (b) exclude
voluntary pre-payments and the effect thereof, and (c) amortize and spread
the total amount of interest throughout the entire stated term of the Loans so
that the interest rate is uniform throughout such term; provided that
if the Loans are paid in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, if any, then Administrative Agent or the 

 

59

 

Banks shall refund to Borrower the amount of such excess, or credit the
amount of such excess against the aggregate unpaid principal balance of all
Loans made by Administrative Agent or the Banks. As used herein, the term “Maximum Amount” means the maximum
nonusurious amount of interest which may be lawfully contracted for, reserved,
charged, collected or received by Administrative Agent or such Bank in
connection with the indebtedness evidenced by this Agreement, the Notes and
other Loan Documents under all Applicable Usury Laws. Texas Finance Code,
Chapter 346, which regulates certain revolving loan accounts and revolving
tri-party accounts, shall not apply to any revolving loan accounts created
under, or apply in any manner to, the Notes, this Agreement or the other Loan
Documents.

 

11.11      Automatic
Debits of Fees. With respect to any arrangement fee, letter of credit
fee or other fee, or any other cost or expense (including Attorney Costs) past
due and payable to Administrative Agent under the Loan Documents, Borrower
hereby irrevocably authorizes Administrative Agent, after giving five (5) Business
Days’ prior notice to Borrower, to debit any deposit account of Borrower with
Administrative Agent in an amount such that the aggregate amount debited from
all such deposit accounts does not exceed such fee or other cost or expense. If
there are insufficient funds in such deposit accounts to cover the amount of
the fee or other cost or expense then due, such debits will be reversed (in
whole or in part, in Administrative Agent’s sole discretion) and such amount
not debited shall be deemed to be unpaid. No such debit under this Section shall
be deemed a set-off.

 

11.12      Collateral Matters; Derivative Contracts.  The benefit of the Security Documents and of
the provisions of this Agreement relating to any collateral securing the
Indebtedness shall also extend to and be available to any Bank or any Affiliate
of a Bank that is counterparty to any Derivative Contract with Borrower,
Guarantors or any Subsidiaries thereof (including any Derivative Contract
between such Persons in existence prior to the Effective Date) on a pro rata basis in respect of any
obligations of Borrower, Guarantors or any Subsidiaries thereof which arise
under any such Derivative Contract; provided that the applicable
counterparty must have provided Administrative Agent written notice of the
existence thereof and such transaction must not otherwise be prohibited under
this Agreement at the time it was entered into and provided further
that if such Bank or Affiliate ceases to be a Bank (a) its
Derivative Contract obligations shall be secured pari passu with the Banks’
Obligations but only to the extent such counterparty’s obligations arise
from transactions entered into at the time such counterparty was a Bank
hereunder or an Affiliate of a Bank hereunder, and (b) such
counterparty shall have no voting rights under any Loan Documents as a
result of the existence of obligations owed to it under any such
Derivative Contract.    For the
avoidance of doubt, a Person ceases to be a Bank hereunder if (a) pursuant
to an assignment, such Person ceases to have any Commitment, Loans and LC
Exposure hereunder or (b) the Commitments of all of the Banks hereunder
have been terminated and all principal, interest and other amounts outstanding
under this Agreement have been paid in full in cash (whether as a result of
repayment at maturity, prepayment in connection with the refinancing of this
Agreement or otherwise)

 

11.13      USA Patriot Act Notice.  Each Bank hereby notifies Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify
and record information that identifies Borrower, which information includes the
name and address of Borrower and other information that will allow such Bank to
identify Borrower, insofar as it is needed to comply with the Act, in
accordance with the Act.

 

11.14      Notification
of Addresses, Lending Offices, Etc  Each Bank shall notify
Administrative Agent in writing of any changes in the address to which notices
to the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as Administrative Agent shall reasonably
request.

 

60

 

11.15      Counterparts.
This Agreement may be executed in any number of separate counterparts, each
of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same instrument
and, any signed counterpart shall be deemed delivered by the party signing it
if sent to the other parties hereto by electronic facsimile transmission.

 

11.16      Severability.
The illegality or unenforceability of any provision of this Agreement or
any instrument or agreement required hereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions of this
Agreement or any instrument or agreement required hereunder.

 

11.17      No
Third Parties Benefited. This Agreement is made and entered into for
the sole protection and legal benefit of Borrower, the Banks, the Issuing Bank,
Administrative Agent and the Agent-Related Persons and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.

 

11.18      GOVERNING
LAW. THIS AGREEMENT, THE NOTES, THE SECURITY DOCUMENTS AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT REQUIRED BY FEDERAL
LAWS OF THE UNITED STATES OF AMERICA THAT MAY APPLY; AND ADMINISTRATIVE
AGENT, THE ISSUING BANK AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.

 

(a)           BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
IT AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW. SUCH SERVICE TO
BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ADMINISTRATIVE AGENT, THE ISSUING BANK OR ANY BANK TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

 

(b)           ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE DALLAS OR TARRANT COUNTY COURTS OF THE
STATE OF TEXAS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF TEXAS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER CONSENTS, FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS
TO THE EXTENT PERMITTED BY LAW. BORROWER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY
DOCUMENT RELATED HERETO. BORROWER WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, AND CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
LEGAL ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS FOR NOTICES SET FORTH
HEREIN, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF 

 

61

 

ADMINISTRATIVE AGENT, THE ISSUING BANK OR ANY BANK TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

 

(c)           TO
THE EXTENT PERMITTED BY LAW, BORROWER, THE BANKS, THE ISSUING BANK AND
ADMINISTRATIVE AGENT EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. BORROWER, THE BANKS, THE ISSUING BANK AND ADMINISTRATIVE AGENT
EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

11.19      ARBITRATION.

 

(a)           Arbitration. Upon the demand of any
party, any dispute shall be resolved by binding arbitration (except as set
forth in (e) below) in accordance with the terms of this Agreement. A “dispute” shall mean any
action, dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly to any
of the Loan Documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or other
remedies pursuant to any of the Loan Documents. Any party may by summary
proceedings bring an action in court to compel arbitration of a dispute. Any
party who fails or refuses to submit to arbitration following a lawful demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any dispute.

 

(b)           Governing Rules. Arbitration
proceedings shall be administered by the American Arbitration Association (“AAA”) or such other administrator as
the parties shall mutually agree upon in accordance with the AAA commercial
arbitration rules. All disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in Texas
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a lender of the protections afforded
to it under 12 U.S.C. 91 or any similar applicable state law.

 

62

 

(c)           No Waiver; Provisional Remedies, Self-Help and
Foreclosure. No provision hereof shall limit the right of any
party to exercise self-help remedies such as set-off, foreclosure against or
sale of any real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation injunctive
relief, sequestration, attachment, garnishment or the appointment of a
receiver, from a court of competent jurisdiction before, after or during the
pendency of any arbitration or other proceeding. The exercise of any such
remedy shall not waive the right of any party to compel arbitration hereunder.

 

(d)           Arbitrator Qualifications and Powers; Awards.
Arbitrators must be active members of the Texas State Bar with expertise in
the substantive laws applicable to the subject matter of the dispute.
Arbitrators are empowered to resolve disputes by summary rulings in response to
motions filed prior to the final arbitration hearing. Arbitrators (i) shall
resolve all disputes in accordance with the substantive law of the state of
Texas, (ii) may grant any remedy or relief that a court of the state of
Texas could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power
to award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could pursuant
to the Federal Rules of Civil Procedure, the Texas Rules of Civil
Procedure or other applicable law. Any dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.

 

(e)           Judicial Review. Notwithstanding
anything herein to the contrary, in any arbitration in which the amount in
controversy exceeds $25,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such arbitrations
(i) the arbitrators shall not have the power to make any award which is
not supported by substantial evidence or which is based on legal error, (ii) an
award shall not be binding upon the parties unless the findings of fact are
supported by substantial evidence and the conclusions of law are not erroneous
under the substantive law of the state of Texas, and (iii) the parties
shall have in addition to the grounds referred to in the Federal Arbitration
Act for vacating, modifying or correcting an award the right to judicial review
of (a) whether the findings of fact rendered by the arbitrators are
supported by substantial evidence, and (b) whether the conclusions of law
are erroneous under the substantive law of the state of Texas. Judgment
confirming an award in such a proceeding may be entered only if a court
determines the award is supported by substantial evidence and not based on
legal error under the substantive law of the state of Texas.

 

(f)            Miscellaneous. To the maximum
extent practicable, the AAA, the arbitrators and the parties shall take all
action required to conclude any arbitration proceeding within 180 days of the
filing of the dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the ordinary
course of its business, by applicable law or regulation, or to the extent
necessary to exercise any judicial review rights set forth herein. If more than
one agreement for arbitration by or between the parties potentially applies to
a dispute, the arbitration provision most directly related to the Loan
Documents or the subject matter of the dispute shall control. This arbitration
provision shall survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.

 

11.20      Restatement
of Prior Credit Agreement.  The
parties hereto agree that, on the Closing Date, after all conditions precedent
set forth in Article V have been
satisfied or waived: (i) the 

 

63

 

Indebtedness under this Agreement represents, among other things, the
restatement, renewal, amendment, extension, and modification of the Indebtedness under the Prior Credit
Agreement; (ii) this Agreement is intended to, and does hereby, restate,
renew, extend, amend, modify, supersede, and replace the Prior Credit Agreement
in its entirety; (iii) the Notes executed pursuant to this Agreement
amend, renew, extend, modify, replace, restate, are substitutes for, and
supersede in their entirety (but are not in extinguishment or novation of) the
promissory notes issued pursuant to the Prior Credit Agreement, which existing
promissory notes shall be returned to Administrative Agent promptly after the
Closing Date, marked “renewed and replaced”;
(iv) the Loans, Letters of Credit, Derivative Contracts and all other
Obligations outstanding under the Prior Credit Agreement shall continue to
constitute Loans, Letters of Credit and other Obligations under this Agreement;
(v) the Security Documents executed pursuant to this Agreement amend,
renew, extend, modify, replace, restate, substitute for, and supersede in their
entirety (but do not extinguish or impair the collateral security created or
evidenced by) the Security Documents executed and delivered pursuant to the
Prior Credit Agreement; (vi) the Guarantees executed pursuant to this
Agreement amend, renew, extend, modify, replace, restate, substitute for, and
supersede in their entirety (but in no way release, diminish, impair, reduce, or otherwise affect the
respective obligations of the Guarantors under the Prior Credit Agreement)
the Guarantees executed and delivered pursuant to the Prior Credit Agreement;
and (vii) the entering into and performance of their respective
obligations under the Loan Documents and the transactions evidenced hereby do
not constitute a novation nor shall they be deemed to have terminated,
extinguished, or discharged the Indebtedness under the Prior Credit Agreement,
the Security Documents, the Guarantees, or the other Loan Documents (or the
collateral security therefor), all of which Indebtedness and Collateral shall
continue under and be governed by this Agreement and the other Loan Documents,
except as expressly provided otherwise herein.

 

11.21      Entire
Agreement. This Agreement, together with the other Loan Documents,
embodies the entire agreement and understanding among Borrower, the Banks, the
Issuing Bank and Administrative Agent, and supersedes all prior or
contemporaneous agreements and any other understandings of such Persons, verbal
or written, relating to the subject matter hereof and thereof including without
limitation the Prior Credit Agreement.

 

11.22      NO
ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER
WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

 

64

 

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above written.

 

 

	
  Address for Notice:
  

  210 West 6th Street, Suite 500 

  Fort Worth, Texas 76102

  	
  STROUD ENERGY, LTD.,
a Texas limited partnership, as Borrower 

  
	
  Attn: Chief Executive Officer

  	
  By:

  	
  Stroud
  Energy Management GP, LLC., 

  
	
  Phone: (817) 882-8000

  Fax: (817) 882-8811

  Email: pat.noyes@stroudenergy.com

  	
   

  	
  a Texas limited liability company, 

  its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patrick
  J. Noyes

  
	
   

  	
   

  	
   

  	
  Patrick J. Noyes

  President

  

 

S-1

 

	
   

  	
  – GUARANTORS
  –

  
	
   

  	
   

  	
   

  
	
  Address for Notice:

  	
  STROUD ENERGY, INC., a Delaware corporation

  
	
  210 West 6th Street, Suite 500

  	
   

  	
   

  
	
  Forth Worth, Texas 76102

  	
   

  	
   

  
	
  Attn: Chief Executive Officer

  	
  By:

  	
   

  	
  /s/ Patrick J. Noyes

  	
   

  
	
  Phone: (817) 882-8000

  	
   

  	
  Patrick J.
  Noyes

  
	
  Fax: (817) 882-8811

  	
   

  	
  President

  
	
  Email: pat.noyes@stroudenergy.com

  	
   

  	
   

  
	
   

  	
  STROUD ENERGY GP, LLC, a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patrick J. Noyes

  	
   

  
	
   

  	
   

  	
  Patrick J.
  Noyes

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  STROUD ENERGY LP, LLC, a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Thomas M. Strauss

  	
   

  
	
   

  	
   

  	
  Thomas M.
  Strauss, CPA

  
	
   

  	
   

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  STROUD OIL PROPERTIES, LP, a Delaware

  limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Stroud Energy GP, LLC, a Delaware
  limited

  
	
   

  	
  liability company, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patrick J. Noyes

  	
   

  
	
   

  	
   

  	
  Patrick J.
  Noyes

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  STROUD ENERGY MANAGEMENT GP, LLC., a

  
	
   

  	
  Texas limited liability company

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Patrick J. Noyes

  	
   

  
	
   

  	
   

  	
  Patrick J.
  Noyes

  
	
   

  	
   

  	
  President

  

 

[SIGNATURES
CONTINUE ON THE FOLLOWING PAGE.]

 

S-2

 

	
   

  	
  –
  ADMINISTRATIVE AGENT, LEAD

  ARRANGER AND ISSUING BANK –

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for Notice:

  	
  WELLS FARGO BANK, NATIONAL 

  
	
  1445 Ross Avenue, Suite 2360

  	
  ASSOCIATION, a
  national banking association

  
	
  MAC: T5303-233

  	
   

  	
   

  
	
  Dallas, Texas 75202

  	
   

  	
   

  
	
  Attn: Jarrod Bourgeois

  	
  By:

  	
   

  	
  /s/ M. Jarrod Bourgeois

  	
   

  
	
  Telephone: (214) 721-8212

  	
   

  	
  M. Jarrod
  Bourgeois

  
	
  Facsimile: (214) 721-8215

  	
   

  	
  Assistant
  Vice President

  
	
  E-mail: bourgemj@wellsfargo.com

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  – THE BANKS –

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address for Notice:

  	
  WELLS FARGO BANK, NATIONAL 

  
	
  1445 Ross Avenue, Suite 2360

  	
  ASSOCIATION, a
  national banking association,

  
	
  MAC: T5303-233

  	
   

  	
   

  
	
  Dallas, Texas 75202

  	
   

  	
   

  
	
  Attn: Jarrod Bourgeois

  	
  By:

  	
   

  	
  /s/ M. Jarrod Bourgeois

  	
   

  
	
  Telephone: (214) 721-8212

  	
   

  	
  M. Jarrod
  Bourgeois

  
	
  Facsimile: (214) 721-8215

  	
   

  	
  Assistant
  Vice President

  
	
  E-mail: bourgemj@wellsfargo.com

  	
   

  	
   

  
						

 

S-3

 

	
   

  	
  – THE BANKS –

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address for Notices:

  	
  By:

  	
   

  	
  /s/ J. Scott Fowler

  
	
   

  	
   

  	
  J. Scott Fowler

  
	
  1717 Main Street, 4th Floor

  	
   

  	
  Vice President

  
	
  Dallas, TX 75201

  	
   

  
	
  Attn: J. Scott Fowler

  	
   

  
	
  Phone: (214) 290-2162

  	
   

  
	
  Fax: (214) 290-2332

  	
   

  
	
  Email: scott.fowler@chase.com

  	
   

  
				

 

S-4

 

	
   

  	
  – THE BANKS –

  
	
   

  	
   

  
	
   

  	
  BNP PARIBAS

  
	
   

  	
   

  
	
   

  	
   

  
	
  Address for Notices:

  	
  By:

  	
  /s/ Russell Otts

  
	
   

  	
   

  	
  Russell Otts

  
	
  1200 Smith Street, Suite 3100

  	
   

  	
  Vice President

  
	
  Houston, Texas 77002

  	
   

  	
   

  
	
  Attn: Russell Otts

  	
   

  	
   

  
	
  Phone: (713) 982-1172

  	
   

  	
   

  
	
  Fax: (713) 659-6915

  	
  By:

  	
  /s/ Brian Malone

  
	
  Email: russell.otts@americas.bnpparibas.com

  	
   

  	
  Brian Malone

  
	
   

  	
   

  	
  Managing
  Director

  

 

S-5

 

SCHEDULE 2.01

 

COMMITMENTS

AND PRO
RATA SHARES

 

	
   

  	
   

  	
  Initial

  	
   

  	
  Maximum

  	
   

  	
   

  	
   

  
	
  Bank

  	
   

  	
  Borrowing Base

  	
   

  	
  Loan Amount

  	
   

  	
  Pro Rata Share

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo Bank, National Association

  	
   

  	
  $

  	
  30,000,000

  	
   

  	
  $

  	
  85,714,285.72

  	
   

  	
  42.857142857

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BNP Paribas

  	
   

  	
  $

  	
  20,000,000

  	
   

  	
  $

  	
  57,142,857.14

  	
   

  	
  28.571428571

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase Bank, N.A.

  	
   

  	
  $

  	
  20,000,000

  	
   

  	
  $

  	
  57,142,857.14

  	
   

  	
  28.571428571

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  70,000,000

  	
   

  	
  $

  	
  200,000,000

  	
   

  	
   

  	
   

  

 

 

SCHEDULE 4.01

 

SECURITY
DOCUMENTS

 

1.             The following Mortgages and amendments and
supplements thereto executed by Borrower in favor of Administrative Agent for
the benefit of the Banks:

 

a.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of June 19,
2003, which has been filed for record in the Real Property Records of Brazos
County, Texas as document number 00818797 at Volume 5387, Page 223.

 

b.             First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Brazos County, Texas as document number 00824899 at
Volume 5510, Page 107.

 

c.             Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed in the Real
Property Records of Brazos County, Texas as document number 900201 at Volume
6853, Page 116.

 

d.             Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Brazos
County, Texas.

 

e.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of June 19,
2003, which has been filed for record in the Real Property Records of Burleson
County, Texas as document number 00002590 at Volume 603, Page 754.

 

f.              First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Burleson County, Texas as document number 00003252 at
Volume 607, Page 178.

 

g.             Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed for record in
the Real Property Records of Burleson County, Texas as document number 00003474
at Volume 607, Page 178.

 

h.             Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Burleson
County, Texas.

 

i.              Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Denton
County, Texas as document number 2005-96014.

 

4.01 - 1

 

j.              First Amendment to Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Denton
County, Texas.

 

k.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of June 19,
2003, which has been filed for record in the Real Property Records of Fayette
County, Texas as document number 03-3892 at Volume 1220, Page 399.

 

l.              First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Fayette County, Texas as document number 03-5038 at
Volume 1226, Page 777.

 

m.            Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed for record in
the Real Property Records of Fayette County, Texas as document number 05-4326
at Volume 1320, Page 272.

 

n.             Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Fayette
County, Texas.

 

o.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of June 19,
2003, which has been filed for record in the Real Property Records of Grimes
County, Texas as document number 186011 at Volume 1046, Page 721.

 

p.             First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Grimes County, Texas as document number 186711 at
Volume 1050, Page 747.

 

q.             Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed for record in
the Real Property Records of Grimes County, Texas as document number 201268 at
Volume 1135, page 275.

 

r.              Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Grimes
County, Texas.

 

s.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Harrison
County, Texas as document number 5012760 at Volume 3155, Page 121.

 

t.              First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Harrison
County, Texas.

 

4.01 - 2

 

u.             Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Johnson
County, Texas as document number 027589 at Volume 3595, Page 0595.

 

v.             First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Johnson
County, Texas.

 

w.            Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of June 19, 2003, which has been filed for record in
the Real Property Records of Lee County, Texas as document number 2053 at
Volume 0920, Page 987.

 

x.             First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Lee County, Texas as document number 2703 at Volume
0924, Page 315.

 

y.             Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed for record in
the Real Property Records of Lee County, Texas as document number 2005-02520 at
Volume 967, page 1.

 

z.             Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Lee
County, Texas.

 

aa.           Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 2,
2003, which has been filed for record in the Real Property Records of Panola
County, Texas as document number 86101 at Volume 1189, Page 705.

 

ab.           First Amendment and Supplement to Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as July 27, 2005, which has been filed for record in the
Real Property Records of Panola County, Texas as document number 103289 at
Volume 1278, Page 762.

 

ac.           Second Amendment to Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Panola
County, Texas.

 

ad.           Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Tarrant
County, Texas as document number D205230176.

 

ae.           First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Tarrant
County, Texas.

 

af.            Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Parker
County, Texas as document number 565589 at Volume2354, Page 705.

 

4.01 - 3

 

ag.           First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Parker
County, Texas.

 

ah.           Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of July 27,
2005, which has been filed for record in the Real Property Records of Rusk
County, Texas as document number 16003 at Volume 2573, Page 705.

 

ai.            First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of even date herewith, to be recorded in the Real Property Records of Rusk
County, Texas.

 

aj.            Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement dated as of June 19,
2003, which has been filed for record in the Real Property Records of
Washington County, Texas as document number 4387 at Volume 1081, Page 596.

 

ak.           First Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 3, 2003, which has been filed for record in the
Real Property Records of Washington County, Texas as document number 5565 at
Volume 1088, Page 533.

 

al.            Second Amendment and Supplement of Mortgage,
Deed of Trust, Assignment of Production, Security Agreement and Financing
Statement dated as of July 27, 2005, which has been filed for record in
the Real Property Records of Washington County, Texas as document number 4956
at Volume 1171, Page 505.

 

am.          Third Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as of
even date herewith, to be recorded in the Real Property Records of Washington
County, Texas.

 

an.           Mortgage, Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production dated as of July 2, 2003,
which has been filed for record in the Real Property Records of Lincoln County,
Oklahoma at Book 1563, Page 103.

 

ao.           First Amendment of Mortgage, Deed of Trust,
Security Agreement, Financing Statement and Assignment of Production dated as
of July 27, 2005, which has been filed for record in the Real Property
Records of Lincoln County, Oklahoma as document number 077653500 at Book 1657, Page 246.

 

ap.           Second Amendment of Mortgage, Deed of Trust,
Security Agreement, Financing Statement and Assignment of Production dated as
of even date herewith, to be recorded in the Real Property Records of Lincoln
County, Oklahoma.

 

aq.           Mortgage, Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production dated as of July 2, 2003,
which has been filed for record in the Real Property Records of McIntosh
County, Oklahoma as document number 132733 at Book 639, Page 04.

 

ar.            First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of July 27, 2005, which has been filed for record in the 

 

4.01 - 4

 

Real
Property Records of McIntosh County, Oklahoma as document number               
at Book         , Page           .

 

as.           Second Amendment of Mortgage, Deed of Trust,
Security Agreement, Financing Statement and Assignment of Production dated as
of even date herewith, to be recorded in the Real Property Records of McIntosh
County, Oklahoma.

 

at.            Mortgage, Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production dated as of July 2, 2003,
which has been filed for record in the Real Property Records of Creek County,
Oklahoma as document number 03-11184 at Book 508, Page 1547.

 

au.           First Amendment of Mortgage, Deed of Trust,
Assignment of Production, Security Agreement and Financing Statement dated as
of July 27, 2005, which has been filed for record in the Real Property
Records of Creek County, Oklahoma as document number 05-12083 at Book 575, Page 1921.

 

av.           Second Amendment of
Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment
of Production dated as of even date herewith, to be recorded in the Real
Property Records of Creek County, Oklahoma.

 

2.             The following
Security Agreements to be executed as of the Closing in favor of Administrative
Agent for the benefit of the Banks:

 

a.             Security
Agreement by Borrower pledging the Intercompany Note.

 

b.             Security
Agreement by Parent pledging all of its ownership interest in SEGP and SELP.

 

c.             Security
Agreement by SEGP pledging all of its partnership interest in SOP.

 

d.             Security
Agreement by SELP pledging all of its partnership interest in SOP.

 

e.                                       Security
Agreement by SOP pledging all of its equity interest in SEM and all of its
partnership interest in Borrower.

 

f.              Security
Agreement by SEM pledging all of its partnership interest in Borrower.

 

3.             The following UCC-1
and UCC-3 Financing Statements previously filed or to be filed in connection
with this Agreement:

 

a.             UCC-1
Financing Statement for Borrower relating to the Mortgages filed with the
Secretary of State of Texas as file number 03-0032309494.

 

b.             UCC-3
Financing Statement for Borrower changing Debtors name filed with the Secretary
of State of Texas as file number 03-00369634.

 

c.             UCC-3  Financing Statement for Borrower relating to
the amendments to Mortgages filed with the Secretary of State of Texas as file
number 05-00241552.

 

d.             UCC-3
Financing Statement for Borrower relating to 2.a. above.

 

4.01 - 5

 

e.             UCC-1
Financing Statement for Parent relating to 2.b. above.

 

f.              UCC-1
Financing Statement for SEGP relating to 2.c. above.

 

g.             UCC-1 Financing Statement for SELP relating
to 2.d. above.

 

h.                                      UCC-1 Financing Statement for SOP relating to
2.e. above.

 

i.              UCC-1 Financing Statement for SEM relating to
2.f. above.

 

4.01 - 6

 

SCHEDULE 6.05

 

LITIGATION

 

 

None

 

6.05 - 1

 

SCHEDULE 6.14

 

MATERIAL
ADVERSE EFFECT

 

 

None

 

6.14 - 1

 

SCHEDULE 8.05

 

ADDITIONAL PERMITTED INDEBTEDNESS

 

None

 

8.05 - 1

 

EXHIBIT “A”

 

FORM OF
NOTE

 

PROMISSORY
NOTE

 

	
  September     ,
  2005

  	
  $

  

 

FOR VALUE RECEIVED, the undersigned, STROUD
ENERGY, LTD., a Texas limited partnership (“Maker”),
promises to pay to the order of
                                                        
(herein called “Payee”, which term shall
herein in every instance refer to any owner or holder of this Note) the sum of                       
DOLLARS ($                        ),
or so much thereof as may be advanced to Maker by Payee from time to time,
together with interest on the principal hereof outstanding until maturity, said
principal and interest being payable in lawful money of the United States of
America as more particularly provided in that certain Credit Agreement dated as
of even date herewith between Maker, the guarantors party thereto, Wells Fargo
Bank, National Association, as administrative agent (the “Administrative
Agent”) for the financial institutions from time to time party
thereto (the “Banks”) and the Banks, as
such may be amended or restated from time to time (the “Credit
Agreement”). As provided in the Credit Agreement, this Note is a
revolving line of credit note and prior to the Termination Date, Maker may
borrow, repay and reborrow under this Note subject to the terms and limitations
set forth in the Credit Agreement.

 

Maker may prepay this Note in whole or in
part as provided in the Credit Agreement without being required to pay any
penalty or premium for such privilege. All prepayments hereunder, whether
designated as payments of principal or interest, shall be applied in Payee’s
discretion to the principal or interest of this Note or to expenses provided
for herein, or any combination of the foregoing.

 

Maker and any and all sureties, guarantors
and endorsers of this Note and all other parties now or hereafter liable
hereon, severally waive grace, demand, presentment for payment, protest, notice
of any kind (including, but not limited to, notice of dishonor, notice of
protest, notice of intention to accelerate and notice of acceleration) and
diligence in collecting and bringing suit against any party hereto and agree (i) to
all extensions and partial payments, with or without notice, before or after
maturity, (ii) to any substitution, exchange or release of any security
now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be
necessary for Payee, in order to enforce payment of this Note, to first
institute or exhaust Payee’s remedies against Maker or any other party liable
therefor or against any security for this Note.

 

If any sum payable under this Note or under
the Credit Agreement is not paid when due (whether the same becomes due by
acceleration or otherwise) and this Note is placed in the hands of an attorney
for collection or enforcement of this Note or the Credit Agreement, or if this
Note is collected through any legal proceedings, including, but not limited to
suit, probate, insolvency or bankruptcy proceedings, Maker agrees to pay all
reasonable attorneys’ fees and all reasonable expenses of collection and costs
of court.

 

Regardless of any provision contained in this
Note or any other Loan Document executed or delivered in connection therewith,
Payee shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on this Note (whether termed interest herein or deemed
to be interest by judicial determination or operation of law), any amount in
excess of the Highest Lawful Rate (hereafter defined), and, in the event that
Payee ever receives, collects or applies as interest any such excess, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid 

 

A - 1

 

principal balance of this Note, and, if the principal balance of this
Note is paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the Highest Lawful Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (a) characterize any non-principal
payment (other than payments which are expressly designated
as interest payments hereunder) as an expense or fee rather than as interest, (b) exclude
voluntary pre-payments and the effect thereof, and (c) spread the total
amount of interest throughout the entire contemplated term of this Note so that
the interest rate is uniform throughout such term; provided that if this Note
is paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, if any, then Payee or any holder hereof shall
refund to Maker the amount of such excess, or credit the amount of such excess
against the aggregate unpaid principal balance of all advances made by Payee or
any holder hereof under this Note at the time in question. Texas Finance Code,
Chapter 346, which regulates certain revolving loan accounts and revolving
tri-party accounts, shall not apply to any revolving loan accounts created
under this Note or the other Loan Documents or maintained in connection
therewith.

 

Maker warrants that this Note is executed
solely for business or commercial purposes, other than agricultural purposes
and warrants that it is specifically exempted under Section 226.3(a) of
Regulation Z issued by the Board of Governors of the Federal Reserve System and
under Title I (Truth-in-Lending Act) and Title V (General Provisions) of the
Consumer Credit Protection Act, and that no disclosures are required to be
given under such regulations and federal laws in connection with the above
transaction.

 

Any check, draft, money order or other
instrument given in payment of all or any portion hereof may be accepted by
Payee and handled in collection in the customary manner, but the same shall not
constitute payment hereunder or diminish any rights of Payee except to the
extent that actual cash proceeds of such instrument are unconditionally
received by Payee.

 

Except to the extent required by federal law,
this Note shall be governed by and construed under the laws of the State of
Texas.

 

This Note is in renewal, extension and
modification but not discharge or novation of that certain Promissory Note
dated July 27, 2005, in the original principal amount of $                    
from Maker and others and payable to the order of Payee

 

This Note is issued pursuant to the Credit
Agreement and is entitiled to the benefits of the Credit Agreement as more
fully set forth therein. This Note is secured as provided in the Credit
Agreement.

 

	
   

  	
  STROUD ENERGY, LTD., a Texas
  limited

  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Stroud Energy Management GP,
  LLC, a

  Texas limited liability company, its general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   -
  MAKER –

  
							

 

A - 2

 

EXHIBIT “B”

 

FORM OF
NOTICE OF BORROWING

 

	
   

  	
   

  	
  Date: 
                                ,
  200  

  
	
   

  	
   

  	
   

  
	
  WELLS FARGO BANK, NATIONAL ASSOCIATION, as
  Administrative Agent (the “Administrative Agent”)
  for the Banks (as herein defined) from time to time party to the Credit
  Agreement dated as of September 23, 2005 as the same may be amended,
  modified or restated from time to time, the “Credit
  Agreement”)

  	
   

  	
   

  

 

Gentlemen:

 

STROUD ENERGY, LTD., a Texas limited
partnership (“Borrower”) hereby refers to
the Credit Agreement and hereby gives you notice irrevocably, pursuant to Section 2.02 of the Credit
Agreement, of the Borrowing(s) specified below:

 

	
  1.

  	
  Current Borrowing Base Amount

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Requested Loan or Letter of Credit Amount:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Loan advance or Letter of Credit issuance
  date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Requested Loan Type and applicable Dollar
  amount:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Rate Selection

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Base Rate Loan for

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  LIBOR Loan with Interest Period of.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  one month for

  	
   

  	
  $

  
	
   

  	
   

  	
  (ii)

  	
  two months for

  	
   

  	
  $

  
	
   

  	
   

  	
  (iii)

  	
  three months for

  	
   

  	
  $

  
	
   

  	
   

  	
  (iv)

  	
  six months for

  	
   

  	
  $

  

 

The Loan(s) herein
requested are to be received in immediately available funds on                                       
200       in the following account:

 

Bank Name:

ABA Number:

Account Title:

Account Number:

 

	
  5.

  	
  Requested Letter of Credit:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  Amount of Letter of Credit

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Beneficiary

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Issuer’s Letter of credit Application
  complete

  	
   

  	
  Yes / No

  

 

B - 1

 

The undersigned hereby certifies that the
following statements are true on the date hereof, and will be true on the date
of the proposed Loan(s)/Letters of Credit, before and after giving effect
thereto and to the application of the proceeds therefrom:

 

(a)           the
representations and warranties of the undersigned contained in Article VI  of the Credit
Agreement are true and correct in all material respects as though made on and
as of the date hereof and the date of the proposed Borrowing except to the
extent such representation or warranty was made with respect to a certain date
or period;

 

(b)           no
Default or Event of Default has occurred and is continuing, or would result
from such proposed Borrowing(s); and

 

(c)            the
Pricing Grid Certificate attached hereto is true and correct.

 

Borrower agrees that if prior to the time of
the making of the Loans or the issuance of the Letter of Credit requested
hereby any matter certified to by it will not be true and correct at such time
as if then made, it will immediately so notify Administrative Agent.

 

Capitalized terms used herein without
definition have the meanings assigned to them in the Credit Agreement.

 

	
   

  	
  STROUD ENERGY, LTD., a Texas
  limited

  partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Stroud Energy Management GP,
  LLC, a

  Texas limited liability company, its general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
							

 

B - 2

 

EXHIBIT “C”

 

FORM OF
NOTICE OF CONVERSION/CONTINUATION

 

	
   

  	
   

  	
  Date:

  
	
   

  	
   

  	
   

  
	
  WELLS FARGO BANK, NATIONAL ASSOCIATION, as
  Administrative Agent (the “Administrative Agent”)
  for the Banks (as herein defined) from time to time party to the Credit
  Agreement dated as of September 23, 2005 (as the same may be amended,
  modified or restated from time to time, the “Credit
  Agreement”)

  	
   

  	
   

  

 

Gentlemen:

 

STROUD ENERGY, LTD., a Texas limited partnership
(“Borrower”) hereby refers to the
Credit Agreement and hereby gives you notice irrevocably, pursuant to Section 2.02 of the Credit
Agreement, of the conversion or continuation of the Loan specified below:

 

	
  1.

  	
  Loan to be converted or continued:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (1)

  	
  Amount: $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  Loan
  Date:        200  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
  Existing Loan Type:

  	
  Check applicable blank

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Base Rate

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  LIBOR with an Interest Period of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  one month

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  two months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
  three months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iv)

  	
  six months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (4)

  	
  Date Loan
  matures:                                        ,
  200  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Proposed conversion or continuation
  date:                        ,
  200

  	
   

  	
   

  
	
   

  	
  (the “Continuation/Conversion
  Date”).

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Loan described in (1) above is to be
  converted or continued as follows:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (1)

  	
  Amount: $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  Loan
  Date:           200  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
  Requested Loan Type and applicable Dollar
  amount:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  Base Rate for $

  	
   

  	
   

  
								

 

C - 1

 

	
   

  	
   

  	
  (b)

  	
  LIBOR with an Interest Period of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  one month

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
  two months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
  three months

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iv)

  	
  six months

  	
   

  	
   

  

 

The undersigned hereby certifies that the
following statements are true on the date hereof, and will be true on the
Conversion/Continuation Date, before and after giving effect to the
Conversion/Continuation Date of the Loans as herein specified:

 

(a)           the
representations and warranties of the undersigned contained in Article VI  of the Credit Agreement
are true and correct in all material respects as though made on and as of the
date hereof and the Continuation/Conversion Date (except such representations
and warranties which expressly refer to an earlier date, which are true and
correct in all material respects as of such earlier date); and

 

(b)           no
Default or Event of Default has occurred and is continuing, or would result
from such Conversion/Continuation; and

 

(c)            the
Pricing Grid Certificate attached hereto is true and correct.

 

Borrower agrees that if prior to the time of
the conversion or continuation of the Loan requested hereby any matter
certified to by it will not be true and correct at such time as if then made,
it will immediately so notify Administrative Agent.

 

Capitalized terms used herein without
definition have the meanings assigned to them in the Credit Agreement.

 

	
   

  	
  STROUD ENERGY, LTD., a Texas
  limited

  partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Stroud Energy Management GP,
  LLC, a Texas limited liability company, its general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
							

 

C - 2

 

EXHIBIT “D”

 

FORM OF LETTER IN LIEU

 

 

 

 

Attn: Division Order Department

 

Re:          Letter
in Lieu of Transfer Order

 

Gentlemen:

 

Stroud Energy, Ltd. (“Stroud”), as Mortgagor, has executed the
mortgages and financing statements described on Exhibit A attached hereto
(collectively, the “Mortgage”)
for the benefit of Wells Fargo Bank, National Association, as Administrative
Agent for the benefit of the banks (“Administrative Agent”) granting a mortgage on
and pledging those certain properties (the “Pledged Properties”) described in the
Mortgage to secure certain obligations also described in the Mortgage. Enclosed
is a copy of the Mortgage covering the Pledged Properties.

 

Exhibit B attached hereto lists the properties which
are subject to the Mortgage for which you are accounting to Stroud and the
decimal interest in production heretofore paid to Stroud with respect to its
interest in each given property.

 

Pursuant to the assignment of production provision
in the Mortgage, Stroud transferred and assigned all of its interests in the
Pledged Properties to Administrative Agent for the ratable benefit of the
banks. Therefore, Stroud hereby authorizes and instructs you that all future
payments attributable to the Pledged Properties, which would otherwise be paid
to Stroud, should be made to:

 

	
   

  	
  if by wire transfer:

  
	
   

  	
   

  
	
   

  	
  Wells Fargo Bank, National Association

  
	
   

  	
  For the Account of Stroud Energy, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Account No.

  
	
   

  	
   

  
	
   

  	
  if by check, check made payable to:

  
	
   

  	
   

  

 

 

until
notified in writing by Administrative Agent to discontinue such payments. Also,
Stroud hereby requests that you change your records to reflect that
Administrative Agent is entitled to the proceeds of production attributable to
the Pledged Properties for the ratable benefit of the banks.

 

D - 1

 

In consideration of your acceptance of this
Letter-in-Lieu of Transfer Order, Administrative Agent and Stroud agree as
follows:

 

1.             Stroud has heretofore executed Transfer or Division
Orders to you covering each of the properties referred to in Exhibit B
attached to this letter. This letter is being executed by the undersigned in
lieu of execution of separate Transfer or Division Orders. With respect to
proceeds from the sale of oil, gas and other hydrocarbons as to which you
account hereunder, Administrative Agent agrees that it will be bound by the
terms, conditions, warranties and covenants of all such Transfer or Division
Orders heretofore executed by Stroud now in force, with the same effect as
though it had executed the originals thereof; provided, however, the aggregate
liability of Administrative Agent with respect to any warranty, representation,
covenant or indemnification contained therein or in this letter shall be
limited to an amount equal to the amounts disbursed by you to Administrative
Agent hereunder.

 

2.             Stroud hereby agrees that you are relieved of any
responsibility in connection with the application of the proceeds paid by you
to Administrative Agent as hereinabove specified and payment made by you to Administrative
Agent shall be binding and conclusive as between you and Stroud.

 

In the absence of a question about the enclosed
schedule, you are respectfully requested to make disbursement to Administrative
Agent as instructed herein and NOT TO SUSPEND OR DELAY any payments by virtue
of the assignment of production from Stroud to Administrative Agent. Should you
require additional documentation prior to implementing the manner of
disbursement requested herein, notwithstanding the warranties and indemnifications
contained hereinabove, please suspend disbursements to Stroud, pending
execution of such additional documentation as you may reasonably require.

 

In order that we may have a record evidencing your
acceptance of this Letter-in-Lieu of Transfer Order, we request that you
execute one copy of this letter in the space provided below and return the same
to Administrative Agent in the enclosed self-addressed envelope.

 

	
  Very truly yours,

  
	
   

  
	
  STROUD ENERGY, LTD., a
  Texas limited partnership

  
	
   

  	
   

  
	
  By:

  	
  Stroud Energy Management GP, LLC,

  
	
   

  	
  a Texas limited liability company, its
  general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

D - 2

 

	
  Wells Fargo Bank, National Association,

  
	
  As Administrative Agent

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Printed Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACCEPTED this
             day of
                        ,
  20      .

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Printed Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
							

 

D - 3

 

EXHIBIT A

 

[MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
PRODUCTION, SECURITY

AGREEMENT AND FINANCING STATEMENT]

 

1

 

EXHIBIT B

 

[PROPERTY LIST]

 

1

 

EXHIBIT E

 

FORM OF COMPLIANCE
CERTIFICATE

 

This Certificate is delivered pursuant to Section 7.02(b) of
that certain Credit Agreement dated as of                                   ,
2005 (as same may be amended, modified, renewed or restated from time to time
the “Credit Agreement”), between STROUD ENERGY, LTD., a Texas limited
partnership, (the “Borrower”), the guarantors
party thereto, Wells Fargo Bank, National Association, as administrative
agent for the Banks (the “Administrative
Agent”), and the financial institutions from time to time party thereto
(the “Banks”), which
Credit Agreement is in full force and effect on the date hereof. Terms that are
defined in the Credit Agreement are used herein with the meanings given them in
the Credit Agreement. Together herewith, Borrower is furnishing to
Administrative Agent Borrower’s financial statements (the “Financial Statements”) as
at                     ,
             (the “Reporting Date”).

 

Parent hereby represents, warrants, and acknowledges
to Administrative Agent and each of the Banks that the officer of Borrower
signing this instrument is the duly elected, qualified and acting officer as
indicated below such officer’s signature.

 

1.             Financial
Statements. Parent and Borrower hereby further represent, warrant and
acknowledge to the Administrative Agent and each of the Banks that:

 

(a) attached hereto as Schedule A
are the calculations showing Parent’s compliance as of the Reporting Date with
the requirements of Sections
8.10 through 8.12 of the Credit Agreement [and/or the Parent’s non-compliance
as of such date with the requirements of Sections 8.10 through 8.12 of the Credit
Agreement]; and

 

(b) on the Reporting
Date, Borrower was, and on the date hereof Borrower is, in full compliance with
the disclosure requirements of Section 7.03 of the Credit Agreement, and no
Default otherwise existed on the Reporting Date or otherwise exists on the date
of this Certificate [except for Default(s) under Section(s) of the Credit
Agreement, which [is/are] more fully described on a schedule attached
hereto].

 

2.             Environmental
Compliance. Borrower hereby further represents, warrants and acknowledges
to Administrative Agent and each of the Banks that:

 

(a) for the Fiscal Year
ending immediately prior to the date hereof, Borrower has complied and
continues to comply with Section 7.10
of the Credit Agreement; and

 

(b) to the knowledge of
the undersigned, the Borrower is, on the date hereof, in substantial compliance
with all applicable Environmental Laws, noncompliance with which could result
in a Material Adverse Effect.

 

Each officer of Parent and Borrower signing this
instrument hereby certifies that he or she has reviewed the Loan Documents and
the Financial Statements and has otherwise consulted with the financial and
operating officers of Parent as is in his or her opinion necessary to enable
him or her to express an informed opinion with respect to the above
representations, warranties and acknowledgments of Parent and Borrower, and, to
the best of their knowledge, such representations, warranties, and
acknowledgments are true, correct and complete.

 

E - 1

 

IN WITNESS WHEREOF, this instrument is executed as
of
                                      ,
200  .

 

	
   

  	
  STROUD ENERGY, LTD., a Texas limited

  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Stroud Energy Management GP, LLC, a

  Texas limited liability company, its general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  STROUD ENERGY, INC., a Delaware

  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
							

 

E - 2

 

SCHEDULE A

 

Financial
Covenant Calculations

as of                                           

 

1.             Minimum Tangible Net
Worth (Section 8.10 of the Credit Agreement)

 

	
   

  	
   

  	
  a. Actual:

  	
  (i)

  	
   

  	
  Shareholder’s Equity

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
   

  	
  less: Intangible Assets

  	
   

  	
  $

  	
  (

  	
  )

  
	
   

  	
   

  	
   

  	
  (iii)

  	
   

  	
  Tangible Net Worth

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (1.a(i) – 1.a(ii))

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b. Required:

  	
  (i)

  	
   

  	
  75% Tangible Net Worth on 9/30/05

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
   

  	
  plus 75% Consolidated Net Income

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  since 9/30/05

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
   

  	
  plus 100% capital contributions or

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  equity raised since 9/30/05

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (iv)

  	
   

  	
  Required Net Worth

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (1.b(i) + 1.b(ii) +1.b(iii))

  	
   

  	
  $

  	
   

  
										

 

2.             Current
Ratio (Section 8.11 of the Credit Agreement)

 

	
   

  	
   

  	
  a. Actual:

  	
  (i)

  	
   

  	
  Current Assets

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
   

  	
  Current Liabilities

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
   

  	
  ((i)/(ii))

  	
   

  	
  :1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b. Required:

  	
   

  	
   

  	
   

  	
   

  	
  1.00:1.00

  	
   

  

 

3.             Minimum Interest
Coverage Ratio (Section 8.12 of the Credit Agreement)

 

	
   

  	
   

  	
  a. Actual:

  	
  (i)

  	
   

  	
  EBITDA

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (ii)

  	
   

  	
  Interest Expense

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (iii)

  	
   

  	
  ((i)/(ii))

  	
   

  	
  :1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b. Required:

  	
   

  	
   

  	
   

  	
   

  	
  3.00:1.00

  	
   

  

 

 

	
   

  	
   

  	
  Certificate Prepared by:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  	
   

  	
   

  
										

 

A - 1

 

SCHEDULE B

 

FINANCIAL STATEMENTS

 

B - 1

 

EXHIBIT “F”

 

FORM OF ASSIGNMENT AND
ACCEPTANCE AGREEMENT

 

This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Agreement”)
dated as of                                               ,
200    , is made between                                                                           
(the “Assignor”) and (the “Assignee”).

 

R E C I T A L S

 

WHEREAS, Assignor is party to that certain Credit
Agreement, dated as of September 23, 2005 (as the same may be amended,
modified or restated from time to time, the “Credit Agreement”), among STROUD
ENERGY, LTD., a Texas limited partnership (“Borrower”), the guarantors party
thereto, the several financial institutions from time to time party thereto
(the “Banks”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as administrative
agent (the “Administrative Agent”) for the Banks from time to time party to the
Credit Agreement, (terms defined in the Credit Agreement are used herein with
the same meaning);

 

WHEREAS, as provided in the Credit Agreement, the
Banks have committed to extend credit to Borrower in an aggregate amount not to
exceed                       
DOLLARS ($                );
and

 

WHEREAS, Assignor wishes to assign to Assignee part
of the rights and obligations of Assignor under the Credit Agreement in respect
of its Commitment, together with a corresponding portion of each of its
outstanding Loans in a total amount equal to
                                           Dollars
(U.S. $                       )
(the “Assigned Amount”) on the terms listed on Annex I hereto and subject to
the conditions set forth herein and in the Credit Agreement, and Assignee
wishes to accept assignment of such rights and to assume such obligations from
Assignor on such terms and subject to such conditions;

 

NOW, THEREFORE, in consideration of the foregoing
and the mutual agreements contained herein, the parties hereto agree as
follows:

 

1.             Assignment
and Assumption.

 

(a)           Before
giving effect to this Agreement, Assignor’s (a) Commitment is $                              ,
(b) aggregate principal amount of its outstanding Loans is $                                  ,
(c) aggregate principal amount of its outstanding L/C Obligations is $                                  
and (d) Pro Rata Share is             %.  With effect on and after the Effective Date
(as defined in Section 4 hereof), Assignor hereby sells and assigns to Assignee,
and Assignee hereby purchases and assumes from Assignor, the Assigned Amount,
which shall be equal to              percent
(     %) (the “Assignee’s Percentage Share”) of all of
Assignor’s rights and obligations under the Credit Agreement, including,
without limitation, Assignee’s Percentage Share of Assignor’s (i) Commitment,
and (ii) outstanding Loans.  After
giving effect to this Agreement on the Effective Date, the Commitment,
outstanding Loans and Pro Rata Share of Assignor and Assignee, respectively,
are set forth as follows:  

 

F - 1

 

	
   

  	
   

  	
  Outstanding

  Loans

  	
   

  	
  Pro Rata

  Share

  	
   

  	
  Commitment

  	
   

  
	
  Assignor

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  	
  $

  	
   

  	
   

  
	
  Assignee

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  	
  $

  	
   

  	
   

  

 

The assignment set forth in this Section 1(a) shall
be without recourse to, or representation or warranty (except as expressly
provided in this Agreement) by, Assignor.

 

(b)           With
effect on and after the Effective Date, Assignee shall be a party to the Credit
Agreement, shall become a “Bank” for all purposes as therein defined and
contemplated, and shall succeed to all of the rights and be obligated to
perform all of the obligations of a Bank under the Credit Agreement with a
Commitment in the amount and with the Pro Rata Share set forth above for
Assignee.  Assignee agrees that it is
bound by the terms and conditions set forth in the Credit Agreement as if it
were an original signatory thereto, and that it will perform in accordance with
their terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Bank. 
It is the intent of the parties hereto that (i) the Commitment of
Assignor shall, as of the Effective Date, be reduced by Assignee’s Percentage
Share and (ii) Assignor shall relinquish its rights and be released from
its obligations under the Credit Agreement to the extent such obligations have
been assumed by Assignee.

 

2.             Payments.

 

(a)           As
consideration for the sale, assignment and transfer contemplated in Section 1
hereof, Assignee shall pay to Assignor on the Effective Date in immediately
available funds an amount equal to                                  
Dollars ($          ),
representing Assignee’s Percentage Share of the principal amount of all Loans
previously made, and currently owned, by Assignor under the Credit Agreement
and outstanding on the Effective Date.

 

(b)           Assignee
further agrees to pay to Administrative Agent a processing or transfer fee in
the amount of $                  .

 

(c)           To
the extent payment to be made by Assignee pursuant to Section 2(a) hereof
is not made when due, Assignor shall be entitled to recover such amount
together with interest thereon at the Federal Funds Rate per annum accruing
from the date such amounts were due.

 

3.             Reallocation
of Payments.  Any interest,
commissions, fees and other payments accrued to but excluding the Effective
Date with respect to Assignor’s Commitment Percentage of the Loans shall be for
the account of Assignor.  Any interest,
fees and other payments accrued on and after the Effective Date with respect to
the Assigned Amount shall be for the account of Assignee.  Each of Assignor and Assignee agree that it
will hold in trust for the other party any interest, commissions, fees and
other amounts which it may receive to which the other party is entitled
pursuant to the preceding sentence and pay to the other party any such amounts
which it may receive promptly upon receipt. 
Assignor’s and Assignee’s obligations to make the payments referred to
in this Section 3 are non-assignable.

 

F - 2

 

4.             Effective
Date; Notices; Notes.

 

(a)           The
effective date for this Agreement shall be                 
                              
(the “Effective Date”); provided that the following conditions precedent
have been satisfied on or before the Effective Date:

 

(iv)          this Agreement shall be executed and
delivered by Assignor and Assignee;

 

(ii)           the consent of Borrower and
Administrative Agent shall have been duly obtained in the form set forth on
Annex II hereof, and shall be in full force and effect as of the Effective
Date;

 

(iii)          Assignee shall pay to Assignor all
amounts due to Assignor under this Agreement; and

 

(iv)          the processing or transfer fee
referred to in Section 2(b) shall have been paid to Administrative
Agent.

 

(b)           Promptly
following the execution of this Agreement, Assignor shall deliver to
Administrative Agent for acceptance by Administrative Agent, the notices,
agreements or other documents as may be required under the Credit Agreement.

 

(c)           Promptly
following payment by Assignee of the consideration as provided in Section 2
hereof, Assignor shall deliver its promissory note(s) to Administrative Agent
and shall request that new notes be issued to Assignor and Assignee dated the
Effective Date to properly reflect the respective amounts of the Loans held by
each party.

 

[5.            Administrative
Agent [INCLUDE ONLY IF ASSIGNOR IS ADMINISTRATIVE AGENT].

 

(a)           Assignee
hereby appoints and authorizes Assignor to take such action as Administrative
Agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to Administrative Agent by the Banks pursuant to the terms of the
Credit Agreement.

 

(b)           Assignee
shall assume no duties or obligations held by Assignor in its capacity as
Administrative Agent under the Credit Agreement.]

 

6.             Representations
and Warranties.

 

(a)           Assignor
represents and warrants that (i) it is the legal and beneficial owner of
the interest being assigned by it hereunder and that such interest is free and
clear of any lien, security interest or other adverse claim; (ii) it is
duly organized and existing and it has the full power and authority to take,
and has taken, all action necessary to execute and deliver this Agreement and
any other documents required or permitted to be executed or delivered by it in
connection with this Agreement and to fulfill its obligations hereunder; (iii) no
notices to, or consents, authorizations or approvals of, any person are
required (other than any already given or obtained) for its due execution, delivery
and performance of this Agreement, and apart from any agreements or undertaking
or filings required by the Credit Agreement, no further action by, or notice
to, or filing with, any person is required of it for such execution, delivery
or performance; and (iv) this Agreement has been duly executed and
delivered by it 

 

F - 3

 

and
constitutes the legal, valid and binding obligations of Assignor, enforceable
against Assignor in accordance with the terms hereof, except subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors’ rights and to
general equitable principles.

 

(b)           Assignor
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto.  Assignor makes no representation or warranty
in connection with, and assumes no responsibility with respect to, the
solvency, financial condition or statements of Borrower or any guarantor or the
performance or observance by Borrower or any guarantor of any of its respective
obligations under the Credit Agreement or any other instrument or document
furnished in connection therewith.

 

(c)           Assignee
represents and warrants that (i) it is duly organized and existing and it
has full power and authority to take, and has taken, all action necessary to
execute and deliver this Agreement and any other documents required or
permitted to be executed or delivered by it in connection with this Agreement,
and to fulfill its obligations hereunder; (ii) no notices to, or consents,
authorizations or approvals of, any person are required (other than any already
given or obtained) for its due execution, delivery and performance of this
Agreement; and apart from any agreements or undertaking or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
person is required of it for such execution, delivery or performance; (iii) this
Agreement has been duly executed and delivered by it and constitutes the legal,
valid and binding obligations of Assignee, enforceable against Assignee in
accordance with the terms hereof, except subject, as to enforcement, to
bankruptcy, insolvency, moratorium, reorganization and other laws of general
application relating to or affecting creditors’ rights and to general equitable
principles; (iv) it is eligible under the Credit Agreement to be an
assignee in accordance with the terms hereof; and (v) that it has received
a copy of the Credit Agreement and the exhibits and schedules thereto, and has
received (or waived the requirement that it receive) copies of each of the
documents which were required to be delivered under the Credit Agreement as a
condition to the making of the Loans thereunder.

 

7.             Further
Assurances.  Assignor and Assignee
each hereby agree to execute and deliver such other instruments, and take such
other action, as either party may reasonably request in connection with the
transactions contemplated by this Agreement, including, without limitation, the
delivery of any notices or other documents or instruments to Borrower,
Administrative Agent or any guarantor which may be required in connection with
the assignment and assumption contemplated hereby.

 

8.             Indemnity.  Assignee agrees to indemnify and hold
harmless Assignor against any and all losses, costs, expenses (including,
without limitation, reasonable attorneys’ fees and the allocated costs and
expenses for in-house counsel) and liabilities incurred by Assignor in
connection with or arising in any manner from the non-performance by Assignee
of any obligation assumed by Assignee under this Agreement.

 

F - 4

 

9.             Miscellaneous.

 

(a)           Any
amendment or waiver of any provision of this Agreement shall be in writing
signed by the parties hereto.  No failure
or delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Agreement shall be without prejudice to any rights with
respect to any other or further breach hereof.

 

(b)           All
payments made hereunder shall be made without any set-off or counterclaim.

 

(c)           All
communications among the parties or notices in connection herewith shall be in
writing and mailed, hand-delivered or transmitted by facsimile as follows:  (i) if to Assignor or Assignee, at their
respective addresses or facsimile numbers set forth on the signature pages hereof
and (ii) if to Borrower, Administrative Agent or any guarantor, at their
respective addresses or facsimile numbers set forth in the Credit Agreement or
to such other address or facsimile number as shall be designated in a written
notice given in accordance with the Credit Agreement.  All such communications and notices shall be
effective upon receipt.  Assignee
specifies as Lending Office(s) the office(s) set forth beneath its name on the
signature pages hereof.

 

(d)           Assignor
and Assignee shall each pay its own costs and expenses incurred in connection
with the negotiation, preparation, execution and performance of this Agreement.

 

(e)           The
representations and warranties made herein shall survive the consummation of
the transactions contemplated hereby.

 

(f)            Subject
to the terms of the Credit Agreement, this Agreement shall be binding upon and
inure to the benefit of Assignor and Assignee and their respective successors
and assigns; provided, however, that no party shall assign its
rights hereunder without the prior written consent of the other party, Administrative
Agent and Borrower and any purported assignment, absent such consents, shall be
void.  The preceding sentence shall not
limit or enhance the right of Assignee to assign or participate all or part of
Assignee’s Percentage Share and the Assigned Amount and any outstanding Loans
attributable thereto in accordance with the Credit Agreement.

 

(g)           This
Agreement may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same instrument.

 

(h)           This
Agreement shall be governed by and construed in accordance with the law of the
State of Texas (without regard to principles of conflicts of law).  Assignor and Assignee each irrevocably
submits to the non-exclusive jurisdiction of any Texas state or federal court
sitting in the Southern District of Texas over any suit, action or proceeding
arising out of or relating to this Agreement or the Credit Agreement and
irrevocably agrees that all claims in respect of such action or proceeding may be
heard and determined in such Texas state or federal court.  Each party to this Agreement hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding.

 

(i)            This
Agreement and any agreement, document or instrument attached hereto or referred
to herein integrate all the terms and conditions mentioned herein or incidental
hereto, and together with the Credit Agreement constitutes the entire agreement
and understanding between the parties hereto and supersedes any and all prior
agreements and understandings related to the subject 

 

F - 5

 

matter
hereof.  In the event of any conflict
between the terms, conditions and provisions of this Agreement and the Credit
Agreement, the terms, conditions and provisions of the Credit Agreement shall
prevail.

 

(j)            In
the event of any inconsistency between the provisions of this Agreement and
Annex I hereto, this Agreement shall control. 
Headings are for reference only and are to be ignored in interpreting
this Agreement.

 

(k)           The
illegality or unenforceability of any provision of this Agreement or any
instrument or agreement required hereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions of this
Agreement or any instrument or agreement required hereunder.

 

IN WITNESS WHEREOF, Assignor and Assignee have
caused this Agreement to be executed and delivered by their duly authorized officers
as of the date first above written.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

F - 6

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Facsimile No.:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  - ASSIGNOR —

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Facsimile No.:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Lending Office:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Facsimile No.:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  - ASSIGNEE -

  
													

 

F - 7

 

ANNEX I

 

TO

 

ASSIGNMENT AND ACCEPTANCE
AGREEMENT

 

1.             Company:

 

2.             Date of Credit Agreement:                        ,
2005

 

3.             Assignor:

 

4.             Assignee:

 

5.             Date of Assignment Agreement:

 

6.             Effective Date:

 

7.             Fees paid by Assignee to Assignor:

 

8.             Interest paid by Assignee to Assignor:

 

(i)            Base
Rate Loan

 

(ii)           LIBOR
Rate Loan

 

9.             Payment Instructions:

 

Assignor:

 

Assignee:

 

10.           Assignee’s Notice

 

Instructions:

 

11.           Other Information:

 

1

 

ANNEX II

 

TO

 

FORM OF NOTICE OF ASSIGNMENT
AND ACCEPTANCE

 

             ,
2003

 

Wells Fargo Bank, National Association

Administrative Agent

Attn:                                           

1445 Ross Avenue, Suite 2360

MAC T5303-233

Dallas, Texas 75202

 

Gentlemen:

 

We refer to the Credit Agreement dated as of September 23,
2005, (the “Credit Agreement”) among
STROUD ENERGY, LTD., a Texas limited partnership (“Borrower”),
the guarantors party thereto, the several financial institutions from time to
time party thereto (the “Banks”),
and WELLS FARGO BANK, NATIONAL ASSOCIATION, as administrative agent (the “Administrative Agent”) for the Banks
from time to time party to the Credit Agreement.  Terms defined in the Credit Agreement are
used herein as therein defined.

 

1.             We
hereby give you notice of, and request the consent of Borrower and
Administrative Agent to, the assignment by                       
(the “Assignor”) to                                               
(the “Assignee”) of       %
of the right, title and interest of Assignor in and to the Credit Agreement
(including without limitation the right, title and interest of Assignor in and
to the Commitment of Assignor and all outstanding Loans made by Assignor).  Before giving effect to such assignment
Assignor’s (a) Commitment is $                    ,
(b) Pro Rata Share is                   %
and (c) aggregate principal amount of its outstanding Loans is $          .  After giving effect to such assignment,
Assignor’s and Assignee’s respective Loans, Commitment and Pro Rata Share are
as follows:

 

	
   

  	
   

  	
  Outstanding

  Loans

  	
   

  	
  Pro Rata

  Share

  	
   

  	
  Commitment

  	
   

  
	
  Assignor

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  	
  $

  	
   

  	
   

  
	
  Assignee

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  	
  $

  	
   

  	
   

  

 

2.             Assignee
agrees that upon receiving the consent of Borrower and Administrative Agent to
such assignment and from and after the effective date of the Assignment,
Assignee will be bound by the terms of the Credit Agreement, with respect to
the interest in the Credit Agreement 

 

F - 1

 

assigned
to it as specified above, as fully and to the same extent as if Assignee were
the Bank originally holding such interest in the Credit Agreement.

 

3.             The
following administrative details apply to Assignee:

 

(A)          Lending
Office:

 

Assignee:

Address:                

 

 

Attention:

Telephone:           (   )

Facsimile:            (   )

 

(B)           Notice
Address:

 

Assignee:

Address:                

 

 

Attention:

Telephone:           (   )

Facsimile:            (   )

 

 

(C)           Payment
Instructions:

 

Account No.:

At:

 

 

Reference:

Attention:

 

4.             Without
limiting the generality of Paragraph 2
hereinabove, the tax forms to be delivered by Assignee pursuant to Section 3.01 of the Credit
Agreement, if any, will be promptly provided in compliance therewith.

 

F - 2

 

IN WITNESS WHEREOF, Assignor and Assignee have
caused this Assignment and Acceptance to be executed by their respective duly
authorized officials, officers or agents as of the date first above mentioned.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [Name of Assignor]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

F - 3

 

	
   

  	
  [Name of Assignee]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

 

	
  WELLS FARGO BANK, NATIONAL ASSOCIATION,

  
	
  as Administrative Agent, hereby grants its consent

  
	
  to the foregoing assignment:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

F - 4

 

EXHIBIT G

 

PRICING GRID CERTIFICATE

 

The
undersigned authorized officer of Stroud Energy Management GP, LLC, as general
partner of Stroud Energy, Ltd. (“Borrower”), delivers
this Certificate pursuant to that certain Credit Agreement dated as of September 23,
2005 (as same may be amended, modified, renewed or restated from time to time,
the “Credit Agreement”), between Borrower, the
guarantors party thereto, Wells Fargo Bank, National Association, as
administrative agent for the Banks (the “Administrative Agent”), and the
financial institutions from time to time party thereto (the “Banks”).

 

	
   

  	
   

  	
   

  	
   

  	
  Outstanding
  Amounts

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Base Rate Loans

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LIBOR Loans:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Tranche 1

  	
   

  	
  $

  	
   

  
	
  3.

  	
   

  	
  Tranche 2

  	
   

  	
  $

  	
   

  
	
  4.

  	
   

  	
  L/C Obligations

  	
   

  	
  $

  	
   

  
	
  5.

  	
   

  	
  Effective Amount (Sum of
  Lines 1 through 4)

  	
   

  	
  $

  	
   

  
	
  6.

  	
   

  	
  Current Borrowing Base

  	
   

  	
  $

  	
   

  
	
  7.

  	
   

  	
  Percentage Effective
  Amount/Current Borrowing Base

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  (Line 5/Line 6)

  	
   

  	
   

  	
   

  

 

Capitalized
terms used herein without definition have the meanings assigned to them in the
Credit Agreement.

 

EXECUTED
AND DELIVERED as of this      day of                           ,
200  .

 

	
   

  	
  STROUD ENERGY MANAGEMENT GP,

  LLC, a Texas limited liability
  company

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

G - 1Exhibit 10.2

 

INDEMNITY
AGREEMENT

 

This
Agreement made and entered into as of this      day of
                     ,
2005, by and between Stroud Energy, Inc., a Delaware corporation (the “Company”),
and                     
(“Indemnitee”), who is currently serving the Company in the capacity of a
director and/or officer thereof;

 

W
I T N E S S E T H:

 

WHEREAS,
the Company and Indemnitee recognize that the interpretation of ambiguous
statutes, regulations and court opinions and of the Certificate of Incorporation
and Bylaws of the Company, and the vagaries of public policy, are too uncertain
to provide the directors and officers of the Company with adequate or reliable
advance knowledge or guidance with respect to the legal risks and potential
liabilities to which they become personally exposed as a result of performing
their duties in good faith for the Company; and

 

WHEREAS,
the Company and the Indemnitee are aware that highly experienced and capable
persons are often reluctant to serve as directors or officers of a corporation
unless they are protected to the fullest extent permitted by law by
comprehensive insurance and indemnification, especially since the legal risks
and potential liabilities, and the very threat thereof, associated with
lawsuits filed against the officers and directors of a corporation, and the
resultant substantial time, expense, harassment, ridicule, abuse and anxiety
spent and endured in defending against such lawsuits, whether or not
meritorious, bear no reasonable or logical relationship to the amount of
compensation received by the directors or officers from the corporation; and

 

WHEREAS,
Section 145 of the General Corporation Law of the State of Delaware and
the Certificate of Incorporation of the Company, which set forth certain provisions
relating to the mandatory and permissive indemnification of, and advancement of
expenses to, officers and directors (among others) of a Delaware corporation by
such corporation, are specifically not exclusive of other rights to which those
indemnified thereunder may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise; and

 

WHEREAS,
after due consideration and investigation of the terms and provisions of this
Agreement and the various other options available to the Company and the
Indemnitee in lieu thereof, the Board of Directors of the Company has
determined that the following Agreement is not only reasonable and prudent but
necessary to promote and ensure the best interests of the Company and its stockholders;
and

 

WHEREAS,
the Company desires to have Indemnitee serve or continue to serve as an officer
and/or director of the Company, free from undue concern for unpredictable,
inappropriate or unreasonable legal risks and personal liabilities by reason of
his acting in good faith in the performance of his duty to the Company; and
Indemnitee desires to serve, or to continue to serve (provided that he is
furnished the indemnity provided for hereinafter), in either or both of such
capacities;

 

 

NOW,
THEREFORE, in consideration of the premises and the mutual agreements herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Indemnitee,
intending to be legally bound, do hereby agree as follows:

 

1.             Agreement
to Serve.  Indemnitee
agrees to serve or continue to serve as director and/or officer of the Company
and as Indemnitee and the Company may agree, as a director, officer, trustee,
general partner, managing member, fiduciary, employee or agent of another Enterprise,
for so long as he is duly elected or appointed and qualified in accordance with
the provisions of the General Corporation Law of the State of Delaware and the
Certificate of Incorporation and Bylaws of the Company or until such time as he
tenders his resignation.  The Company
acknowledges that the Indemnitee is relying on this Agreement in so serving.

 

2.             Definitions.  As used in this Agreement:

 

(a)           “Change in Control” means a
change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
(or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the “Act”), whether or
not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if (i) any “person” (as such term is used in Sections 13(d) and
14(d) of the Act) other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Act), directly or indirectly,
of securities of the Company representing 15% or more of the combined voting
power of the Company’s then outstanding securities without the prior approval
of at least two-thirds of the members of the Board of Directors of the Company
in office immediately prior to such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation,
sale of assets, plan of liquidation or other reorganization not approved by at
least two-thirds of the members of the Board of Directors of the Company then
in office, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period
of two consecutive years, other than as a result of an event described in
clause (ii) of this subsection (a), individuals who at the beginning
of such period constituted the Board of Directors of the Company (including for
this purpose any new director whose election or nomination for election by the
Company’s stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.

 

(b)           “Disinterested Director” means a
director of the Company who is not and was not a party to the Proceeding in
respect of which indemnification is sought by Indemnitee.

 

 

(c)           “Enterprise” shall mean any
other corporation, limited liability company, partnership, joint venture,
trust, employee benefit plan, organization or other enterprise of which Indemnitee
is or was serving at the request of the Company as a director, officer,
trustee, general partner, managing member, fiduciary, employee or agent.

 

(d)           The term “Expenses” includes,
without limitation, all reasonable attorneys’ fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in, or otherwise involved
in, a Proceeding.  Should any payments by
the Company under this Agreement be determined to be subject to any federal,
state or local income or excise tax, Expenses will also include such amounts as
are necessary to place Indemnitee in the same after-tax position, after giving
effect to all applicable taxes, Indemnitee would have been in had such tax not
have been determined to apply to those payments.  Expenses also shall include (i) Expenses
incurred in connection with any appeal resulting from any Proceeding,
including, without limitation, the premium, security for, and other costs
relating to any cost bond, supersedeas bond, or other appeal bond or its
equivalent and (ii) Expenses incurred by Indemnitee in connection with the
interpretation, enforcement or defense of Indemnitee’s rights under this
Agreement, by litigation or otherwise.

 

(e)           “Independent Counsel” means a
law firm, or a member of a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past five years has been,
retained to represent:  (i) the
Company or Indemnitee in any matter material to either such party (other than
with respect to matters concerning the Indemnitee under this Agreement, or of
other indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder.  Notwithstanding the
foregoing, the term “Independent Counsel” shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees
and expenses of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.

 

(f)            “Proceeding” shall mean any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that could lead
to such an action, suit or proceeding irrespective of the initiator
thereof.  The final disposition of a
Proceeding shall be as determined by a settlement or the judgment of a court or
other investigative or administrative body. 
The Board of Directors shall not make a determination as to the final
disposition of a Proceeding.

 

(g)           References to “fines” shall
include any (i) excise taxes assessed with respect to any employee benefit
plan and (ii) penalties; references to “serving at the

 

 

request
of the Company” shall include any service as a director, officer, trustee,
general partner, managing member, fiduciary, employee or agent which imposes
duties on, or involves services by, such director, officer, trustee, general
partner, managing member, fiduciary, employee or agent with respect to an Enterprise;
and a person who acts in good faith and in a manner he reasonably believed to
be in the interest of the Enterprise shall be deemed to have acted in a manner “not
opposed to the best interests of the Company” as referred to in this Agreement.

 

3.             Indemnity
in Third Party Proceedings.  The Company shall indemnify Indemnitee in
accordance with the provisions of this Section 3 if Indemnitee is a party
to or is threatened to be made a party to or is otherwise involved in any
Proceeding (other than a Proceeding by or in the right of the Company to
procure a judgment in its favor) by reason of the fact that Indemnitee is or was
a director and/or officer of the Company, or was serving at the request of the
Company as a director, officer, trustee, general partner, managing member,
fiduciary, employee or agent of an Enterprise, against all Expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Indemnitee (or on his behalf) in connection with such Proceeding or any claim,
issue or matter therein, provided it is determined pursuant to Section 8
of this Agreement or by the court having jurisdiction in the matter, that
Indemnitee acted in good faith and in a manner that he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.  The termination of any
Proceeding or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, adversely affect the right of Indemnitee to indemnification
or create a presumption that Indemnitee did not act in good faith and in a
manner that he reasonably believed to be in or not opposed to the best
interests of the Company, or, with respect to any criminal Proceeding, had
reasonable cause to believe that his conduct was unlawful.  Indemnitee shall have the right to employ
Indemnitee’s own legal counsel in any Proceeding for which indemnification is
available under this Section 3.

 

4.             Indemnity
in Proceedings By or In the Right of the Company.  The Company shall indemnify Indemnitee in
accordance with the provisions of this Section 4 if Indemnitee is a party
to or is threatened to be made a party to or otherwise involved in any
Proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that Indemnitee is or was a director and/or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, trustee, general partner, managing member, fiduciary, employee or
agent of an Enterprise, against all Expenses actually and reasonably incurred
by Indemnitee (or on his behalf) in connection with such Proceeding provided it
is determined pursuant to Section 8 of this Agreement or by the court
having jurisdiction in the matter, that Indemnitee acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best
interests of the Company, except that no indemnification shall be made under
this Section 4 in respect of any claim, issue or matter as to which Indemnitee
shall have been adjudged to be liable to the Company unless and only to the
extent that the Delaware Court of Chancery or the court in which such
Proceeding was brought or is pending, shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnity for such
Expenses as the Delaware Court of Chancery or such other court shall deem
proper.  Indemnitee shall have the right
to employ Indemnitee’s own legal counsel in any Proceeding for which
indemnification is available under this Section 4.

 

 

5.             Indemnification
for Expenses of a Witness.  Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of the fact that
Indemnitee is or was a director and/or officer of the Company, or is or was serving
at the request of the Company as a director, officer, trustee, general partner,
managing member, fiduciary, employee or agent of an Enterprise, a witness in
any Proceeding to which Indemnitee is not a party, he shall be indemnified
against all Expenses actually and reasonably incurred by Indemnitee (or on his
behalf) in connection therewith.

 

6.             Indemnification
for Expenses of Successful Party.  Notwithstanding any other provision of this
Agreement to the contrary, to the extent that Indemnitee has been successful on
the merits or otherwise in defense of any Proceeding referred to in Sections 3
and/or 4 of this Agreement, or in defense of any claim, issue or matter
therein, including dismissal with or without prejudice, Indemnitee shall be
indemnified against all Expenses actually and reasonably incurred by Indemnitee
(or on his behalf) in connection therewith. 
If Indemnitee is not wholly successful in any Proceeding referred to in
Sections 3 and/or 4 of this Agreement, but is successful on the merits or
otherwise (including dismissal with or without prejudice) as to one or more,
but less than all claims, issues or matters therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by Indemnitee (or on his behalf) in connection with each
successfully resolved claim, issue or matter. 
For purposes of this Section 6, and without limitation, the
termination of any claim, issue or matter in any Proceeding referred to in
Sections 3 and/or 4 of this Agreement by dismissal, with or without prejudice,
shall be deemed to be a successful result as to such claim, issue or matter.

 

7.             Advances
of Expenses. 
To the fullest extent permitted by applicable law, the Expenses incurred
by Indemnitee pursuant to Sections 3 and/or 4 of this Agreement in connection
with any Proceeding or any claim, issue or matter therein shall be paid by the
Company currently and in advance of the final disposition of such Proceeding or
any claim, issue or matter therein no later than 10 days after receipt by the
Company of a request for an Expense advancement with appropriate
documentation.  The undersigned
Indemnitee hereby undertakes to repay the advanced Expenses to the Company to
the extent that it is ultimately determined pursuant to Section 8, or, in
the event the Indemnitee elects to pursue other remedies pursuant to Section 10,
that the undersigned Indemnitee is not entitled to be indemnified therefor by
the Company.  This agreement of
Indemnitee to repay is unsecured and interest free.

 

8.             Procedure
for Determination of Entitlement to Indemnification.

 

(a)           To obtain indemnification under
this Agreement, Indemnitee shall submit to the Company a written request.

 

(b)           Upon written request by
Indemnitee for indemnification pursuant to Section 8(a) hereof, a
determination, if required by applicable law, with respect to Indemnitee’s
entitlement thereto shall be made in the specific case:  (i) if a Change in Control shall have
occurred, the Disinterested Directors shall direct Independent Counsel to make
such determination in a written opinion to the Board of Directors of the
Company, a copy of which shall be delivered to Indemnitee; or (ii) if a
Change in Control

 

 

shall
not have occurred, (A) by a majority vote of the Disinterested Directors,
even though less than a quorum of the Board of Directors of the Company, or (B) by
a committee of the Disinterested Directors designated by a majority vote of
Disinterested Directors, even though less than a quorum, or (C) if there
are no Disinterested Directors or, if the Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board of Directors of the Company,
a copy of which shall be delivered to Indemnitee; and, if it is so determined
that Indemnitee is entitled to indemnification, payment to Indemnitee shall be
made within 10 days after such determination. 
Any costs or expenses (including attorneys’ fees and disbursements)
incurred by Indemnitee in cooperating with the person, persons or entity making
the determination discussed in this Section 8(b) with respect to
Indemnitee’s entitlement to indemnification, shall be borne by the Company
(irrespective of the determination as to Indemnitee’s entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.

 

(c)           In the event the determination
of entitlement to indemnification is to be made by Independent Counsel pursuant
to Section 8(b) hereof, the Independent Counsel shall be selected as
provided in this Section 8(c).  If a
Change in Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors of the Company, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected.  If a Change in
Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the Board
of Directors of the Company, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected.  In either event, Indemnitee or the Company,
as the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of “Independent Counsel” as defined in
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion.  Absent
a proper and timely objection, the person so selected shall act as Independent
Counsel.  If such written objection is so
made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit.  If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 8(b) hereof,
no Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition the Delaware Court of Chancery or other
court of competent jurisdiction for resolution of any objection which shall
have been made by the Company or Indemnitee to the other’s selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom all objections are so resolved
or the person so appointed shall act as Independent Counsel under Section 8(a) hereof.

 

(d)           Indemnitee will be deemed a
party to a Proceeding for all purposes hereof if Indemnitee is named as a
defendant or respondent in a complaint or petition for relief

 

 

in
that Proceeding, regardless of whether Indemnitee is ever served with process
or makes an appearance in that Proceeding.

 

9.             Presumptions
and Effect of Certain Provisions.

 

(a)           In making a determination with
respect to entitlement to indemnification hereunder, the person or persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement,
and the Company shall have the burden of proof in overcoming such presumption
by clear and convincing evidence. 
Neither the failure of the Company (including its Board of Directors or
independent legal counsel) to have made a determination prior to the
commencement of such action pursuant to this Agreement that indemnification is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct, nor an actual determination by the Company (including its Board of
Directors or independent legal counsel) that Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)           If the person, persons or entity
empowered or selected under Section 8 of this Agreement to determine
whether Indemnitee is entitled to indemnification shall not have made a
determination within 30 days after receipt by the Company therefor, the
requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee’s statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 30-day period may be extended for a reasonable time, not to exceed an
additional 15 days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation and/or
information relating thereto.

 

(c)           For purposes of any
determination of whether Indemnitee acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal Proceeding, Indemnitee had no
reasonable cause to believe his conduct was unlawful (collectively, “Good Faith”),
Indemnitee shall be deemed to have acted in Good Faith if Indemnitee’s action
is based on the records or books of account of the Company and any other Enterprise
of which Indemnitee is or was serving at the request of the Company as a director,
officer, trustee, general partner, managing member, fiduciary, employee or
agent or information, opinions, reports or statements, including financial
statements and other financial information, concerning the Company and any
other Enterprise of which Indemnitee is or was serving at the request of the
Company as a director, officer, trustee, general partner, managing member,
fiduciary, employee or agent or any other person which were prepared or
supplied to Indemnitee by: (i) one or more officers or employees of the Company
and any Enterprise of which Indemnitee is or was serving at the request of the
Company as a director, officer, trustee, general partner, managing member,
fiduciary,

 

 

employee
or agent; (ii) appraisers, engineers, investment bankers, legal counsel or
other persons as to matters Indemnitee reasonably believed were within the
professional or expert competence of those persons; and (iii) any
committee of the Board of Directors or equivalent managing body of the Company
and any other Enterprise of which Indemnitee is or was serving at the request
of the Company as a director, officer, trustee, general partner, managing
member, fiduciary, employee or agent of which Indemnitee is or was, at the
relevant time, not a member.  The
provisions of this Section 9(c) shall not be deemed to be exclusive
or to limit in any way the other circumstances in which the Indemnitee may be
deemed to have met the applicable standard of conduct set forth in this
Agreement.

 

(d)           The knowledge and/or actions, or
failure to act, of any director, officer, agent or employee of the Company and
any other Enterprise of which Indemnitee is or was serving at the request of
the Company as a director, officer, trustee, general partner, managing member,
fiduciary, employee or agent shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement.

 

10.          Remedies
of Indemnitee.

 

(a)           In the event that (i) a
determination is made pursuant to Section 8(b) of this Agreement that
Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement
of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no
determination of entitlement to indemnification shall have been made pursuant
to Section 8(b) of this Agreement within the time period provided in Section 9(b) after
receipt by the Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 5, Section 6, the
last sentence of Section 8(b), or the last sentence of Section 2(d) of
this Agreement within 10 days after receipt by the Company of a written request
therefor, or (v) payment of indemnification pursuant to Section 3 or Section 4
of this Agreement is not made within 10 days after a determination has been
made that Indemnitee is entitled to indemnification, Indemnitee shall be
entitled to an adjudication by the Delaware Court of Chancery of his
entitlement to such indemnification or advancement of Expenses and appeals
therefrom, concluding in a final and unappealable judgment by the Delaware
Supreme Court.  The Board of Directors
shall not make a determination as to the final disposition of such
adjudication.  The Company shall not
oppose Indemnitee’s right to seek any such adjudication.

 

(b)           In the event that a
determination shall have been made pursuant to Section 8(b) of this
Agreement that Indemnitee is not entitled to indemnification, any judicial
proceeding commenced pursuant to this Section 10 shall be conducted in all
respects as a de novo trial on the merits and Indemnitee shall not be
prejudiced by reason of that adverse determination.

 

(c)           If a determination shall have
been made pursuant to Section 8(b) of this Agreement that Indemnitee
is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding commenced pursuant to this Section 10,
absent (i) a misstatement by Indemnitee of a material fact, or an omission
of a material fact necessary to make Indemnitee’s statement not materially
misleading, in connection

 

 

with
the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.

 

(d)           In the event that Indemnitee,
pursuant to this Section 10, seeks a judicial adjudication of his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 2(d) of this Agreement) actually and reasonably
incurred by him in such judicial adjudication regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification.

 

(e)           The Company shall be precluded
from asserting in any judicial proceeding commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court that the Company is bound
by all the provisions of this Agreement.

 

11.          Indemnification
and Advancement of Expenses Under this Agreement Not Exclusive; Survival of
Rights.  The
rights of indemnification and to receive advancement of Expenses as provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation or Bylaws of
the Company, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or
otherwise.  No amendment, alteration or
repeal of this Agreement or of any provision hereof shall limit or restrict any
right of Indemnitee under this Agreement in respect of any action taken or
omitted by such Indemnitee prior to such amendment, alteration or repeal.  To the extent that a change in the General
Corporation Law of the State of Delaware, whether by statute or judicial
decision, permits greater indemnification or advancement of Expenses than would
be afforded currently under the Certificate of Incorporation of the Company and
this Agreement, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right
and remedy shall be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or
otherwise.  The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other right or remedy.

 

12.          Partial
Indemnification. 
If Indemnitee is entitled under any provision of this Agreement to
indemnification or to receive advancement by the Company for a portion of the
Expenses, judgments, fines, penalties or amounts paid in settlement actually
and reasonably incurred by Indemnitee (or on his behalf) in connection with
such Proceeding, or any claim, issue or matter therein, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion thereof to which Indemnitee is entitled.

 

13.          Rights
Continued.  The
rights of indemnification and to receive advancement of Expenses as provided by
this Agreement shall continue as to Indemnitee even though Indemnitee may have
ceased to be a director or officer of the Company and shall inure to the
benefit of Indemnitee’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

 

 

14.          No
Construction as an Employment Agreement or Any Other Commitment.  Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ or as an officer of the Company or any of its subsidiaries, if
Indemnitee currently serves as an officer of the Company, or to be renominated
or reelected as a director of the Company, if Indemnitee currently serves as a
director of the Company.

 

15.          Liability
Insurance.  To
the extent the Company maintains an insurance policy or policies providing liability
insurance for directors, officers, trustees, general partners, managing
members, fiduciaries, employees or agents of the Company or any other Enterprise
which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms, to
the maximum extent of the coverage available for any director, officer, trustee,
general partner, managing member, fiduciary, employee or agent under such
policy or policies.

 

16.          No
Duplication of Payments.  The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable under this
Agreement if, and to the extent that, Indemnitee has otherwise actually
received such payment under any contract, agreement or insurance policy, the
Certificate of Incorporation or Bylaws of the Company, or otherwise.

 

17.          Subrogation.  In the event of payment
under this Agreement, the Company shall be subrogated to the extent of such
payment to all the rights of recovery of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
rights, including without limitation the execution of such documents as may be
necessary to enable the Company effectively to bring suit to enforce such
rights.

 

18.          Exceptions.  Notwithstanding any other
provision in this Agreement, the Company shall not be obligated pursuant to the
terms of this Agreement, to (i) indemnify or advance Expenses to
Indemnitee with respect to any claim, issue or matter therein, brought or made
by Indemnitee by way of cross-claim, counter claim or the like, or (ii) indemnify
Indemnitee with respect to any Proceeding in which final judgment is rendered
against Indemnitee for an accounting of profits made from the purchase and sale
or the sale and purchase by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Act.

 

19.          Notices.  Any notice or other
communication required or permitted to be given or made to the Company or
Indemnitee pursuant to this Agreement shall be given if made in writing and
deposited in the United States mail, with postage thereon prepaid, addressed to
the person to whom such notice or communication is directed at the address of
such person on the records of the Company, and such notice or communication
shall be deemed given or made at the time when the same shall be so deposited
in the United States mail.  Any such
notice or communication to the Company shall be addressed to the Secretary of
the Company.

 

20.          Contractual
Rights.  The
right to be indemnified or to receive advancement of Expenses under this
Agreement (i) is a contract right based upon good and valuable

 

 

consideration,
pursuant to which Indemnitee may sue, (ii) is and is intended to be
retroactive and shall be available as to events occurring prior to the date of
this Agreement and (iii) shall continue after any rescission or
restrictive modification of this Agreement as to events occurring prior
thereto.

 

21.          Severability.  If any provision or provisions
of this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby;  to the fullest extent possible, the
provisions of this Agreement shall be construed so as to give effect to the
intent manifested by the provisions held invalid, illegal or unenforceable; and
those provision or provisions held to be invalid, illegal or unenforceable for
any reason whatsoever shall be deemed reformed to the extent necessary to
conform to applicable law and to give the maximum effect to the intent of the
parties hereto.

 

22.          Successors;
Binding Agreement. 
The Company shall require and cause any successor (whether direct or
indirect) by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by written
agreement in form and substance reasonably satisfactory to Indemnitee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place.  As used in
this Agreement, “Company” shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid that executes and
delivers the agreement provided for in this Section 22 or that otherwise
becomes bound by the terms and provisions of this Agreement by operation of
law.  This Agreement shall be binding
upon the Company and its successors and assigns (including, without limitation,
any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business or assets of the Company)
and will inure to the benefit of Indemnitee (and Indemnitee’s spouse, if
Indemnitee resides in Texas or another community property state), heirs,
executors and administrators.

 

23.          Counterparts,
Modification, Headings, Gender.

 

(a)           This Agreement may be executed
in counterparts, each of which shall constitute one and the same instrument,
and either party hereto may execute this Agreement by signing any such
counterpart.

 

(b)           No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Indemnitee and an appropriate
officer of the Company.  No waiver by any
party at any time of any breach by any other party of, or compliance with, any
condition or provision of this Agreement to be performed by any other party shall
be deemed a waiver of similar or dissimilar provisions or conditions at the
same time or at any prior or subsequent time.

 

(c)           Section headings are not to
be considered part of this Agreement, are solely for convenience of reference,
and shall not affect the meaning or interpretation of this Agreement or any
provision set forth herein.

 

 

(d)           Pronouns in masculine, feminine
and neuter genders shall be construed to include any other gender, and words in
the singular form shall be construed to include the plural and vice versa,
unless the context otherwise requires.

 

24.          Exclusive
Jurisdiction; Governing Law.  The Company and Indemnitee agree that all
disputes in any way relating to or arising under this Agreement, including,
without limitation, any action for advancement of Expenses or indemnification,
shall be litigated, if at all, exclusively in the Delaware Court of Chancery,
and if necessary, the corresponding appellate courts.  This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws. 
The Company and Indemnitee (i) expressly submit themselves to the
personal jurisdiction of the Delaware Court of Chancery for purposes of any
action or proceeding arising out of or in connection with this Agreement, (ii) irrevocably
appoint, to the extent such party is not a resident of the State of Delaware,
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801
as its agent in the State of Delaware as such party’s agent for acceptance of
legal process in connection with any such action or proceeding against such
party with the same legal force and validity as if served upon such party
personally within the State of Delaware, (iii) waive any objection to the
laying of venue of any such action or proceeding in the Delaware Court of
Chancery, and (iv) waive, and agree not to plead or to make, any claim
that any such action or proceeding brought in the Delaware Court of Chancery
has been brought in an improper or otherwise inconvenient forum.

 

25.          Duration
of Agreement. 
This Agreement shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as a director
and/or officer of the Company or director, officer, trustee, general partner,
managing member, fiduciary, employee or agent of any other Enterprise which
Indemnitee served at the request of the Company; or (b) one year after the
final, nonappealable termination of any Proceeding then pending in respect of
which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
of this Agreement relating thereto.

 

26.          Contribution.  If it is established, under Section 8
or otherwise, that Indemnitee has the right to be indemnified under this
Agreement in respect of any claim, but that right is unenforceable by reason of
applicable law or public policy, then, to the fullest extent applicable law
permits, the Company, in lieu of indemnifying or causing the indemnification of
Indemnitee under this Agreement, will contribute to the amount Indemnitee has
incurred, whether for judgments, fines, penalties, excise taxes, amounts paid
or to be paid in settlement or for Expenses reasonably incurred, in connection
with that Proceeding, in such proportion as is deemed fair and reasonable in
light of all the circumstances of that Proceeding in order to reflect:

 

(a)           the relative benefits Indemnitee
and the Company have received as a result of the event(s) or transactions(s)
giving rise to that Proceeding; or

 

(b)           the relative fault of Indemnitee
and of the Company and its other functionaries in connection with those
event(s) or transaction(s).

 

 

IN WITNESS WHEREOF, the Company
and Indemnitee have executed this Agreement as of the date and year first above
written.

 

	
   

  	
  STROUD ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  INDEMNITEE

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