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  TABLE OF CONTENTS

 

 
 

  Exhibit 10.2    
    

 
 

  ASSET TRANSFER AGREEMENT
  
    by and between    
    

 
 

  PERMIAN BASIN WELL SERVICES, LLC
  (TRANSFEROR)
  
    and
  
    RESACA EXPLOITATION, INC.
  (TRANSFEREE)    
    

 

 

  TABLE OF CONTENTS    
    

 

 

 

						
	  ARTICLE 1—DEFINITIONS
	 	H-1
	  ARTICLE 2—AGREEMENT TO CONVEY
	 	H-3
	  ARTICLE 3—TRANSFER PRICE AND PAYMENT
	 	H-4
	 	 3.1
	 	 Transfer Price
	 	H-4
	 	 3.2
	 	 Allocation of Transfer Price
	 	H-4
	  ARTICLE 4—TRANSFEROR'S REPRESENTATIONS AND WARRANTIES
	 	H-5
	  ARTICLE 5—TRANSFEREE'S REPRESENTATIONS AND WARRANTIES
	 	H-7
	  ARTICLE 6—ACCESS TO INFORMATION AND INSPECTIONS
	 	H-8
	 	 6.1
	 	 Title Files
	 	H-8
	 	 6.2
	 	 Personal Property Files
	 	H-8
	 	 6.3
	 	 Inspections
	 	H-9
	  ARTICLE 7—TITLE
	 	H-9
	 	 7.1
	 	 Title to Assets
	 	H-9
	 	 7.2
	 	 Conveyance
	 	H-9
	  ARTICLE 8—TRANSFER OF SHARES TO TORCH E&P
	 	H-9
	  ARTICLE 9—CLOSING
	 	H-10
	 	 9.1
	 	 Closing
	 	H-10
	 	 9.2
	 	 Transferor's Closing Obligations
	 	H-10
	 	 9.3
	 	 Transferee's Closing Obligations
	 	H-10
	  ARTICLE 10—ASSUMPTION AND INDEMNITY
	 	H-10
	 	 10.1
	 	 Transferor's Indemnity Obligation
	 	H-10
	 	 10.2
	 	 Transferee's Indemnity Obligation
	 	H-10
	 	 10.3
	 	 Extent of Indemnification
	 	H-10
	 	 10.4
	 	 Indemnity Procedures
	 	H-11
	  ARTICLE 11—MISCELLANEOUS
	 	H-11
	 	 11.1
	 	 Public Announcements
	 	H-11
	 	 11.2
	 	 Filing and Recording of Assignments, etc.
	 	H-12
	 	 11.3
	 	 Further Assurances and Records
	 	H-12
	 	 11.4
	 	 Notices
	 	H-12
	 	 11.5
	 	 Incidental Expenses
	 	H-13
	 	 11.6
	 	 Waiver
	 	H-13
	 	 11.7
	 	 Binding Effect
	 	H-13
	 	 11.8
	 	 Taxes
	 	H-13
	 	 11.9
	 	 Governing Law
	 	H-14
	 	 11.10
	 	 Entire Agreement
	 	H-14
	 	 11.11
	 	 Severability
	 	H-14
	 	 11.12
	 	 Exhibits
	 	H-14
	 	 11.13
	 	 Survival
	 	H-14
	 	 11.14
	 	 Counterparts
	 	H-14
	 	 11.15
	 	 Subrogation
	 	H-15
	 	 11.16
	 	 No Third-Party Beneficiaries
	 	H-15

 

 H-i

 
 

  EXHIBITS    
    

 

 

				
	 	Exhibit "A"	 	Personal Property
	 	Exhibit "B"	 	Real Property
	 	Exhibit "C"	 	Allocated Values
	 	Exhibit "D"	 	Warranty Deed
	 	Exhibit "E"	 	Bill of Sale

 

 H-ii

 

 

 
 

  ASSET TRANSFER AGREEMENT    
    

        This Asset Transfer Agreement (the "Agreement") is entered into on this the
6th day of July, 2009, by and between Permian Basin Well Services, LLC, a Texas limited liability company ("Permian Basin"), and
Resaca Exploitation, Inc., a Texas corporation ("Resaca"). Permian Basin is sometimes hereinafter referred to as  "Transferor" and Resaca is sometimes
hereinafter referred to as "Transferee." Permian Basin and Resaca
are sometimes together referred to herein individually as a "Party" or collectively as "Parties."

 
 

  R E C I T A L S    
    

        WHEREAS, Permian Basin owns certain real property, mobile workover rigs and related assets more fully described on the exhibits
attached hereto; and 

        WHEREAS,
Permian Basin desires to transfer and Resaca desires to acquire Permian Basin's real property, mobile workover rigs and related assets on the terms and conditions hereinafter
provided; 

        NOW,
THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency are hereby
acknowledged, Permian Basin and Resaca do hereby agree as follows: 

 
 

  ARTICLE 1—DEFINITIONS    
    

        As used in this Agreement, certain defined and capitalized terms shall have the meaning as set forth in this  Article 1 or provided
elsewhere in this Agreement. 

        1.1   "Act" shall be as defined in  Article 4(l). 

        1.2   "Agreement" shall mean this Asset Transfer Agreement between the Parties
first set forth above. 

        1.3   "Allocated Value" shall mean the dollar amount allocated to the Assets as
set forth on Exhibit "C."

        1.4   "Assets" shall mean all of Permian Basin's legal and beneficial right,
title and interest in and to the Personal Property and Real Property (except as may constitute Excluded Assets) as described herein. 

        1.5   "Assumed Obligations" shall mean with respect to the Assets, all
liabilities, duties, and obligations that arise out of the ownership, operation or use of the Assets after the Effective Time. The Assumed Obligations shall expressly  not include the Retained
Obligations, including the Huerta Litigation, or any other liabilities or obligations of Permian Basin described in
Section 2.2. 

        1.6   "Bill of Sale" shall be as defined in  Section 7.2(b). 

        1.7   "Claims" means any and all claims, demands, suits, causes of action,
losses, damages, liabilities, fines, penalties and costs (including attorneys' fees and costs of litigation). 

        1.8   "Closing" shall be as defined in  Section 9.1. 

        1.9   "Closing Date" shall be as defined in  Section 9.1. 

        1.10 "Common Stock" means common stock, par value $0.01, per share, of
Resaca. 

        1.11 "Effective Time" shall mean 7:00 a.m., Central Standard Time, on
the first day of July, 2009. 

        1.12 "Environmental Obligations" shall mean all liabilities, obligations,
expenses (including, without limitation, all attorneys' fees), fines, penalties, costs, claims, suits or damages (including natural resource damages) of any nature, associated with the Assets, and
attributable to or resulting from: 

H-1

 

(a) pollution
or contamination of soil, surface water, groundwater or air, on, in, by, from or under the Assets or lands in the vicinity thereof, and any other contamination of or adverse
effect upon the environment; (b) clean-up responses, remedial, control or compliance costs, including the required cleanup or remediation of spills, pits, lakes, ponds, or lagoons,
including any subsurface or surface pollution caused by such spills, pits, lakes, ponds, or lagoons; (c) noncompliance with applicable land use, permitting, surface disturbance, licensing or
notification requirements, including those in a surface or mineral lease, whether an express or implied obligation; (d) violation of any federal, state or local environmental law or land use
law; and (e); any and all indemnity obligations of Transferor with respect to the above, along with any and all Claims against Transferor for indemnity with respect to the foregoing. 

        1.13 "Equitable Limitations" shall be as defined in  Article 4(c). 

        1.14 "Exchange Act" shall be as defined in  Article 4(x). 

        1.15 "Excluded Assets" shall mean the following: 

        (a)   all
corporate, financial, and tax records of Permian Basin, and those records subject to attorney/client privilege; however, Transferee shall be entitled to receive
copies of any tax records which directly relate to any Assumed Obligations, or which are necessary for Resaca's ownership, administration, or operation of the Assets; 

        (b)   all
Claims and causes of action of Permian Basin arising from acts, omissions or events, or damage to or destruction of the Assets, occurring prior to the Effective
Time; 

        (c)   all
rights, titles, claims and interests of Permian Basin relating to the Assets prior to the Effective Time (i) under any policy or agreement of insurance or
indemnity; (ii) under any bond; or (iii) to any insurance or condemnation proceeds or awards; and 

        (d)   all
of Permian Basin's intellectual property, including, but not limited to, proprietary computer software, patents, trade secrets, copyrights, names, marks and logos. 

        1.16 "Huerta Litigation" means (i) the lawsuit styled  Maryuri Castilla, individually and as representative of the Estate of Erineo
G. Huerta, deceased and as next friend of Bridgette Huerta, a minor child, Beronica Lujan as next
friend of Alexandra M. Huerta, a minor child, Zoila Galindo as next friend of Priscila Huerta, a minor child, Eugenia C. Rodriguez as next friend of Erika Huerta and Clarissa Huerta, minor children,
and Antonio Huerta and Marina Huerta vs. Permian Basin Well Services LLC, Permian Basin Well Services, LP and Torch Energy Services, Inc. Defendants, Cause
No. 5881 in the District Court, 109th Judicial District, Crane County, Texas; and (ii) any Claims related to the lawsuit listed in subsection (i) or the
events which are the subject or basis of the lawsuit listed in subsection (i). 

        1.17 "Indemnity Claim Notice" shall be as defined in  Section 10.4. 

        1.18 "Lock-in Agreement" means that certain Lock-in
and Orderly Marketing Deed, dated July 16, 2008, by and among Resaca, Seymour Pierce Limited, Royal Bank of Canada Europe Limited and Torch E&P. 

        1.19 "Notice Period" shall be as defined in  Section 10.4. 

        1.20 "Permian Basin" shall be as defined in the opening paragraph of this
Agreement. 

        1.21 "Personal Property" shall mean all legal and beneficial right, title and
interest of Permian in and to the following, insofar as the same do not constitute Excluded Assets: 

        (a)   the
workover rigs, reverse units/tank, power swivels, vehicles (trucks, trailers, construction equipment), shop equipment, and related equipment, all of which is more
fully described in Exhibit "A," including without limitation, fishing tools, machinery, spare parts, tools, fire equipment, supplies, other ancillary
tools and equipment, and all other equipment and tangible personal property that as of 

H-2

 

the
date of this Agreement relate to or are used in connection with the workover rigs, reverse units/tank, power swivels, vehicles, (trucks, trailers and construction equipment), shop equipment, and
related equipment identified on Exhibit "A"; and 

        (b)   originals
of all books and files relating to the workover rigs, reverse units/tank, power swivels, vehicles, (trucks, trailers and construction equipment), shop
equipment, and related equipment including, without limitation, all instruction, maintenance and repair manuals, maintenance and repair logs, mileage records or logs, all warranties from the various
manufacturers of the component parts of the workover rigs, reverse units/tank, power swivels, vehicles (trucks, trailers and construction equipment), shop equipment, and related equipment. 

        1.22 "Party" and  "Parties" shall be as defined in
the opening paragraph of this Agreement. 

        1.23 "Real Property" shall mean all legal and beneficial right, title and
interest of Permian Basin in and to the following, insofar as the same do not constitute Excluded Assets: 

        (a)   All
real property, land, buildings, structures, fixtures, stations, facilities, improvements, easements, rights-of-way, and other rights and
interests in and to real property and appurtenances owned by Transferor as more described in Exhibit "B". 

        1.24 "Resaca" shall be as defined in the opening paragraph of this Agreement. 

        1.25 "Retained Obligations" shall mean: 

        (a)   Claims
of any nature or kind including, without limitation, personal injury or wrongful death relating to or arising from the Assets occurring prior to the Effective
Time; 

        (b)   all
Environmental Obligations whether attributed to, or arising from, events occurring before the Effective Time; 

        (c)   except
as otherwise provided in this Agreement, all other liabilities, duties, and obligations that arise out of the ownership, operation or use of the Assets prior to
the Effective Time; and 

        (d)   the
Huerta Litigation. 

        1.26 "SEC" shall be as defined in  Article 4(l). 

        1.27 "Shares" shall be as defined in  Section 3.1. 

        1.28 "Torch E&P" means Torch E & P Company, a Delaware corporation. 

        1.29 "Torch Share Transfer" shall be as defined in  Article 8. 

        1.30 "Transferee" shall be as defined in the opening paragraph of this
Agreement. 

        1.31 "Transferor" shall be as defined in the opening paragraph of this
Agreement. 

        1.32 "Transfer Price" shall be as defined in  Section 3.1. 

        1.33 "Warranty Deed'' shall be as defined in  Section 7.2(a). 

 
 

  ARTICLE 2—AGREEMENT TO CONVEY    
    

        2.1   Purchase of Assets and Assumption of Assumed Obligations.

        Subject
to the terms and conditions of this Agreement, Permian Basin agrees to assign, transfer and convey to Resaca and Resaca agrees to acquire and pay for the Assets and to assume the
Assumed Obligations. 

H-3

 

        2.2   Retained Obligations. 

        Except
for the Assumed Obligations, Resaca does not assume and is not in any way liable or responsible for any liabilities or obligations of Permian Basin or its affiliates; it being
expressly acknowledged that it is the intention of the Parties hereto that the Retained Obligations and any other liabilities that Permian Basin has as of the date hereof or may have in the future,
whether fixed or contingent, whether known or unknown, and not expressly described in the definition of Assumed Obligations shall remain the liabilities of Permian Basin. 

        2.3   Shareholder Approval.

        The
obligation of Resaca to acquire and pay for the Assets is expressly subject to and condition upon Resaca obtaining shareholder approval of the transactions contemplated herein at its
next annual shareholders meeting which shall occur after the Closing. In the event that Resaca's shareholders do not approve the transactions contemplated herein, Resaca shall promptly
re-convey the Assets to Permian Basin free and clear of any and all liens and encumbrances and Resaca shall reasonably compensate Permian Basin for the use of the Assets during the time
period in which Resaca has ownership thereof. The compensation to be paid to Permian Basin shall be an amount mutually agreeable between the Parties, but in no event shall such compensation be greater
than the industry accepted price for any such services during the time period in which Resaca has use of the Assets. Simultaneous with the re-conveyance of the Assets to Permian Basin by
Resaca, Permian Basin shall transfer and deliver to Resaca all of the Shares free and clear of any and all liens and encumbrances. 

 
 

  ARTICLE 3—TRANSFER PRICE AND PAYMENT    
    

        3.1  Transfer Price.

        In
consideration for the transfer, assignment and conveyance of the Assets to Resaca, subject to the terms and conditions hereof, Resaca agrees to tender and deliver to Permian Basin, in
the manner hereinafter provided, a number of shares of Common Stock, which is equal to the aggregate value of the Assets, which the Parties agree is equal to One Million Six Hundred Four Thousand Nine
Hundred Ninety-Five Dollars and 00/100 ($1,604,995) minus $11,275.00 for state, local and federal property and ad valorem taxes associated
with the Real Property (the "Transfer Price"). Resaca will issue and deliver to Permian Basin at Closing 3,320,250 shares of Common Stock (the
"Shares"), which number was determined by dividing the Transfer Price by the July 6, 2007 closing stock price on the
AIM market of the London Stock Exchange for Common Stock of .295 British pounds and an assumed exchange rate of 1.627 for a price per United States dollar of 48 cents per share. 

        3.2  Allocation of Transfer Price. 

        Concurrent
with the execution of this Agreement, Transferor and Transferee will agree upon an allocation of the Transfer Price among the Assets, in compliance with the principles of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder. Such allocation of value shall be attached to and incorporated in this Agreement as Exhibit
"C." After Transferor and Transferee have agreed on the Allocated Values for the Assets, Transferor will be deemed to have accepted such Allocated Values for purposes of this
Agreement and the transactions contemplated hereby, but otherwise makes no representation or warranty as to the accuracy of such values. Transferor and Transferee agree (i) that the Allocated
Values shall be used by Transferor and Transferee as the basis for reporting asset values and other items for purposes of all federal, state, and local tax returns, including without limitation
Internal Revenue Service Form 8594 and (ii) that neither they nor their affiliates will take positions inconsistent with the Allocated Values in notices to government authorities or in
audit or other proceedings with respect to taxes. 

H-4

 
 
 

  ARTICLE 4—TRANSFEROR'S REPRESENTATIONS AND WARRANTIES    
    

        Permian Basin represents and warrants to Resaca as of the date hereof, and the Closing Date that: 

        (a)   Permian
Basin is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Texas. 

        (b)   Permian
Basin has full power and authority to carry on its business as presently conducted, to enter into this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement has been, and the performance of this Agreement and the transactions contemplated hereby shall be, at the time required to be performed
hereunder, duly and validly authorized by all requisite action on the part of Permian Basin. 

        (c)   This
Agreement has been duly executed and delivered on behalf of Permian Basin, and constitutes the legal, valid and binding obligation of Permian Basin enforceable in
accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization or moratorium statues, or other similar laws affecting the rights of creditors generally or
equitable principles (collectively, "Equitable Limitations"). At the Closing, all documents and instruments required hereunder to be executed and
delivered by Permian Basin shall be duly executed and delivered and shall constitute the legal, valid and binding obligations of Permian Basin enforceable in accordance with their terms, except as
enforceability may be limited by Equitable Limitations. 

        (d)   The
execution and delivery of this Agreement by Permian Basin does not, and the consummation of the transactions contemplated by this Agreement shall not,
(a) violate or be in conflict with, or require the consent of any person or entity under, any provisions of Permian Basin's organizational or governing documents, (b) conflict with,
result in a breach of, constitute a default (or an event that with the lapse of time or notice, or both would constitute a default) under any agreement or instrument to which Permian Basin is a party
or by which any of the Assets owned by Permian Basin is bound, (c) violate any provision of or require any consent, authorization, or approval under any judgment, decree, judicial or
administrative order, award, write, injunction, statute, rule or regulation applicable to Permian Basin, or (d) result in the creation of any lien, charge or encumbrance of any of the Assets
owned by Permian Basin. 

        (e)   Permian
Basin has good and marketable title to the Assets free and clear of any and all liens, Claims, and encumbrances of any nature and kind. 

        (f)    Transferor
has caused the Assets to be operated and maintained in a good and workmanlike manner consistent with good oilfield practices, has maintained insurance in
force with respect to the Assets, has paid or caused to be paid all costs and expenses in connection therewith. 

        (g)   There
are no underground storage tanks of any nature or kind located on any of the Real Property. 

        (h)   The
Personal Property is in good repair, working order and operating condition. 

        (i)    There
are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to the actual knowledge of Transferor threatened against
Transferor; 

        (j)    The
execution, delivery and performance of this Agreement, and the transaction contemplated hereunder has been duly and validly authorized by all requisite authorizing
action, corporate, partnership or otherwise, on the part of Transferor; 

        (k)   Transferor
has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in connection with this Agreement and the transaction
provided herein. 

        (l)    Transferor
understands that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"),
and may not be sold except pursuant to an effective registration 

H-5

 

statement
or pursuant to a duly available exemption from such registration requirements. Transferor acknowledges that the Shares have not been registered with the Securities and Exchange Commission
(the "SEC"), nor with the blue sky authority of any state, and Transferor must bear the economic risk of the Shares indefinitely unless such securities
are subsequently registered under the Act and the appropriate state blue sky laws or an exemption from such registration is available. Transferor understands that neither the SEC nor the securities
administrator of any state has made any finding or determination relating to the fairness of an investment in the Shares and that no such government agency has or will recommend or endorse
Transferor's purchase of the Shares. 

        (m)  Except
for the Torch Share Transfer, an affiliate of Transferor, Transferor is acquiring the Shares for its own account for investment and not with a view to dividing
the Shares with others or with a view to or in connection with an offering or any distribution, and that Transferor has no present intention of selling or otherwise disposing of the Shares. Except for
Torch Share Transfer, it is the present intention of Transferor to receive and hold the Shares for its own account. Any sale or exchange offer of any of the Shares will not be made in any manner that
will violate the Act or any applicable blue sky law. Except for the Torch Share Transfer, Transferor has no contract, understanding, agreement, or arrangement with any person or entity to sell or
transfer to any such persons or entities, or to anyone, or to have any such person or entity sell for Transferor any of the Shares and Transferor is not engaged, and does not plan to engage, within
the foreseeable future, in any discussion with any person or entity relating to the sale or transfer of the Shares. Except for the Torch Share Transfer, Transferor is not aware of any occurrence,
event, or circumstance upon the happening of which it intends to transfer or sell the Shares, or any part thereof, and Transferor does not have any present intention to sell the Shares, or any part
thereof, after the lapse of any particular period of time. 

        (n)   Transferor
acknowledges that it has been furnished all information that it has requested to the extent that it considers necessary and advisable in connection with the
acquisition of the Shares. Transferor understands that any financial projections provided by Resaca are based on estimates and assumptions that are inherently uncertain and, though based on
assumptions Resaca believes to be reasonable, are subject to significant business, economic and competitive factors and contingencies, all of which are difficult to predict and most of which are
beyond the control of Resaca. There can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. 

        (o)   Transferor
has had an opportunity to ask questions and to receive answers from Resaca regarding the business, properties, and financial condition of Resaca and to obtain
additional information (to the extent Resaca possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to
Transferor or to which Transferor had access. 

        (p)   Transferor
has adequate means of providing for its current needs and contingencies, is able to bear the substantial economic risks of the Shares for an indefinite period
of time, has no need for liquidity in such investment and, at the present time, could afford a complete loss of such investment. Transferor has such knowledge and experience in financial, tax, and
business matters so as to enable it to utilize the information made available to it in connection with the sale of the Shares to it by Resaca in order to evaluate the merits and risks of an investment
in the Shares and to make an informed investment decision with respect thereto. 

        (q)   Transferor
is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Act. 

        (r)   The
address of Transferor's principal office is 1331 Lamar, Suite 1450, Houston, Texas 77010. 

        (s)   Transferor
is not acquiring the Shares as a result of, or subsequent to, any advertisement, article, notice, or other communication published in any newspaper, magazine,
or similar media or 

H-6

 

broadcast
over television or radio or presented at any seminar or meeting, or any solicitation of a subscription by a person or entity not previously known to it in connection with investments in
securities generally. 

        (t)    Transferor
is not relying on Resaca with respect to the tax and other economic considerations of it relating to its acquisition of the Shares. In regard to such
considerations, Transferor has relied on the advice of, or has consulted with, only its own advisors. 

        (u)   Transferor
will not sell or otherwise transfer any of the Shares without registration under the Act or an exemption therefrom and fully understands and agree that
Transferor must bear the economic risk of its purchase for an indefinite period of time because, among other reasons, the Shares have not been registered under the Act or under the securities laws of
any state and, therefore, cannot be resold, pledged, assigned, or otherwise disposed of unless the Shares are subsequently registered under the Act and under the applicable securities laws of such
states or unless an exemption from such registration is available. Transferor acknowledges that if any transfer of the Shares is to be made in reliance on an exemption under the Act, the issuer of the
Shares may require an opinion of counsel satisfactory to it that such transfer may be made pursuant to an exemption under the Act. 

        (v)   To
the best knowledge of Transferor, the sale and purchase of the Shares hereunder does not violate any law or regulation applicable to Transferor. 

        (w)  Transferor
acknowledges that, so long as appropriate, a legend similar to the following may appear on the certificate representing the Shares: "THE SECURITIRES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER T HE SECURTIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURTIES UNDER SAID ACT OR (II) AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." 

        (x)   Transferor
is purchasing the Shares in good faith and not as part of a plan or scheme to evade the prohibitions of Section 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in compliance with the requirements of Rule 10b5-1 promulgated under the Exchange Act, and at
a time when Transferor is not aware of or in possession of material nonpublic information about the Shares or Resaca. Transferor is not aware of any "material nonpublic information" about the Shares
or Resaca, as such term is defined under Rule 10b5-1 and the judicial opinions construing Rule 10b5-1. Transferor has consulted with legal counsel and other
advisors in connection with the decision of Transferor to purchase the Shares and has confirmed that its purchase of the Shares meets the criteria set forth in Rule 10b5-1.
Transferor has not received or relied on any representation by Resaca regarding its compliance with Rule 10b5-1. Transferor understands and agrees that, if Transferor is an
affiliate or control person for purposes of the Act or the Exchange Act, then the purchase of the Shares shall be made in accordance with Rule 10b-18 promulgated under the Exchange
Act. 

 
 

  ARTICLE 5—TRANSFEREE'S REPRESENTATIONS AND WARRANTIES    
    

        Resaca represents and warrants to Transferor as of the date hereof, and the Closing Date that: 

        (a)   Resaca
is a corporation duly organized, validly existing, and in good standing under the laws of the state of Texas; 

        (b)   Resaca
has full power and authority to carry on its business as presently conducted, to enter into this Agreement and to perform its obligations under this Agreement.
The execution and delivery of this Agreement has been, and the performance of this Agreement and the transactions contemplated hereby shall be, at the time required to be performed hereunder, duly and
validly authorized by all requisite action on the part of Resaca. 

H-7

 

        (c)   This
Agreement has been duly executed and delivered on behalf of Resaca, and constitutes the legal, valid and binding obligation of Resaca enforceable in accordance with
its terms, except as enforceability may be limited by Equitable Limitations. At the Closing, all documents and instruments required hereunder to be executed and delivered by Resaca shall be duly
executed and delivered and shall constitute the legal, valid and binding obligations of Resaca enforceable in accordance with their terms, except as enforceability may be limited by Equitable
Limitations. 

        (d)   The
execution and delivery of this Agreement by Resaca does not, and the consummation of the transactions contemplated by this Agreement shall not, (a) violate or
be in conflict with, or require the consent of any person or entity under, any provisions of Resaca's organizational or governing documents, (b) conflict with, result in a breach of, constitute
a default (or an event that with the lapse of time or notice, or both would constitute a default) under any agreement or instrument to which Resaca is a party or by which any of the Assets owned by
Resaca is bound, (c) violate any provision of or require any consent, authorization, or approval under any judgment, decree, judicial or administrative order, award, write, injunction, statute,
rule or regulation applicable to Resaca, or (d) result in the creation of any lien, charge or encumbrance of any of the Assets owned by Resaca. 

        (e)   There
are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to the actual knowledge of Transferee threatened against
Transferee; 

        (f)    Resaca
has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in connection with this Agreement and the transaction
provided herein; 

        (g)   The
Shares to be issued and delivered to Transferor (i) have been duly authorized, (ii) at the time of their issuance, will be validly issued, fully paid,
nonassessable, and were not issued in violation of any preemptive rights, and (iii) at the time of their issuance, were issued in compliance with the registration or qualification provisions of
the Act and any applicable state securities laws or pursuant to valid exemptions therefrom. The Shares will, upon delivery thereof, be free and clear of all liens, charges, pledges, encumbrances,
equities and claims whatsoever, other than (x) those created by Transferee, (y) as set forth herein or in the Lock-in Agreement or (y) restrictions on transfer set
forth in state and federal securities laws. 

 
 

  ARTICLE 6—ACCESS TO INFORMATION AND INSPECTIONS    
    

        6.1  Title Files.

        Prior
to the execution of this Agreement, Transferor has permitted Transferee and its representatives, at reasonable times during normal business hours, the opportunity to examine and
copy, in Transferor's offices at their actual location, all abstracts of title, title opinions, title files, title commitments, title insurance policies, title curative, and other title materials
pertaining to the Real Property. No warranty of any kind is made by Transferor as to the information so supplied, and Transferee agrees that any conclusions drawn therefrom are the result of its own
independent review and judgment. 

        6.2  Personal Property Files.

        Prior
to the execution of this Agreement, Transferor has permitted Transferee and its representatives, at reasonable times during normal business hours, the opportunity to examine and
copy, in Transferor's offices at their actual location, all title files, regulatory information, inspections and reports, maintenance records, mileage logs/records and other information, files, books,
records, and data pertaining to the Personal Property. No warranty of any kind is made by Transferor as to the information so supplied, and Transferee agrees that any conclusions drawn therefrom are
the result of its own independent review and judgment. 

H-8

 

        6.3  Inspections.

        Prior
to the execution of this Agreement, Transferor has permitted Transferee and its representatives, at reasonable times and at their sole risk, cost and expense, to conduct reasonable
inspections of the Assets for all purposes. 

 
 

  ARTICLE 7—TITLE    
    

        7.1  Title to Assets.

        Transferor
has good and marketable title to the Assets, free and clear of any and all liens, claims or encumbrances of any kind or character as of the Closing. 

        7.2  Conveyance.

        (a)   Transferor
shall convey the Real Property to the Transferee as provided in the warranty deed, substantially in the form attached hereto as  Exhibit "D" (the "Warranty
Deed"). In addition to the general warranty set forth in the Warranty
Deed, the Warranty Deed shall be made with full substitute and subrogation to Transferee in and to the covenants and warranties by others heretofore given or made to Transferor with respect to the
Real Property. 

        (b)   Transferor
shall convey the Personal Property to the Transferee as provided in the bill of sale, substantially in the form attached hereto as  Exhibit "E" (the "Bill of
Sale"). The Bill of Sale shall be made without warranty of title,
either express, implied, statutory or otherwise, except that Transferor shall warrant title to the Personal Property against all claims, liens, burdens and encumbrances arising by, through or under
Transferor, but not otherwise. 

        (c)   THE
PERSONAL PROPERTY, AND THE IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE REAL PROPERTY ARE SOLD HEREUNDER "AS IS, WHERE IS, AND WITH ALL FAULTS"
AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, ARE GIVEN BY OR ON
BEHALF OF TRANSFEROR. IT IS UNDERSTOOD AND AGREED THAT PRIOR TO CLOSING TRANSFEREE SHALL HAVE INSPECTED THE PERSONAL PROPERTY FOR ALL PURPOSES AND HAS SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, AND THAT TRANSFEREE ACCEPTS SAME IN ITS "AS IS, WHERE IS AND WITH ALL FAULTS" CONDITION. TRANSFEREE HEREBY WAIVES ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, OR CONFORMITY TO SAMPLES. 

 
 

  ARTICLE 8—TRANSFER OF SHARES TO TORCH E&P    
    

        The Parties acknowledge that Permian Basin intends to transfer all of the Shares to Torch E&P, an affiliate of Permian Basin, following
the Closing (the "Torch Share Transfer"). Until the Torch Share Transfer is complete, Permian Basin agrees that it shall be bound by all of the terms
and conditions of the Lock-in Agreement as if it were Torch E&P and a signatory thereto and Permian Basin will not effect any Disposal (as defined in the Lock-in Agreement) of
its interest in all or any Shares except in accordance with the terms and conditions of the Lock-in Agreement. 

H-9

 
 
 

  ARTICLE 9—CLOSING    
    

        9.1  Closing.

        The
closing of the transactions contemplated herein (the "Closing") shall be held at the offices of Transferee, located at 1331 Lamar,
Suite 1450, Houston, Texas 77010, on the date hereof or at such later date or place as the Parties may agree in writing (herein called "Closing
Date"). Time is of the essence and the Closing Date shall not be extended unless by written agreement of the Parties. The Closing may, with the consent of the Parties, take
place by delivering an exchange of documents by facsimile transmission or electronic mail with originals to follow by overnight mail service or courier. 

        9.2  Transferor's Closing Obligations.

        At
the Closing, except to the extent comprising the Excluded Assets, Transferor shall deliver to Transferee the following: 

        (a)   the
Warranty Deed, the Bill of Sale and such other documents as may be reasonably necessary to convey all of Transferor's interest in the Assets to Transferee in
accordance with the provisions hereof, executed and notarized by Transferor; 

        (b)   all
necessary and appropriate title transfer documentation (including original vehicle title certificates) for all vehicles, (trucks, trailers and construction
equipment) identified in Exhibit "A"; 

        (c)   originals
of all records and files relating to the Assets; and 

        (d)   exclusive
possession of the Assets. 

        9.3  Transferee's Closing Obligations.

        At
the Closing, Transferee shall deliver to Transferor the following: 

        (a)   the
Shares; and 

        (b)   the
Bill of Sale. 

 
 

  ARTICLE 10—ASSUMPTION AND INDEMNITY    
    

        10.1  Transferor's Indemnity Obligation.

        If Closing shall occur, then effective from and after the Closing Date (unless otherwise provided for herein), Transferor hereby agrees to defend, indemnify and
hold Transferee harmless from and against any and all Claims arising out of, resulting from or relating to: (a) any breach by Transferor of Transferor's representations, warranties or covenants
set forth in this Agreement; and (b) fees, commissions or other remuneration of brokers or finders acting on behalf of Transferor in connection with the transactions contemplated by this
Agreement.

        10.2  Transferee's Indemnity Obligation.

        If Closing shall occur, from and after the Closing Date (unless otherwise provided for herein), Transferee hereby agrees to defend, indemnify and hold Transferor
harmless from and against any and all Claims arising out of, resulting from, or relating to: (a) any breach by Transferee of Transferee's representations, warranties or covenants set forth in
this Agreement; and (b) fees, commissions or other remuneration of brokers or finders acting on behalf of Transferee in connection with the transactions contemplated by this
Agreement.

        10.3  Extent of Indemnification.

        Without limiting or enlarging the scope of the indemnification, disclaimer and assumption obligations set forth in this Agreement, to the fullest extent permitted
by Law, an Indemnitee shall be entitled to indemnification hereunder in accordance with the terms hereof, regardless of whether the  

H-10

 

 indemnifiable loss giving rise to any such indemnification obligation is the result of the sole, active, passive, concurrent or comparative negligence, strict liability or other legal fault or
violation of any Law of or by any such Indemnitee. Transferee and Transferor acknowledge that this statement complies with the express negligence rule and is conspicuous.

        10.4  Indemnity Procedures.

        From
and after Closing, any demand for indemnity hereunder shall be made by written notice, together with a written description of any Claims asserted stating the nature and basis of
such Claim and, if ascertainable, the amount thereof ("Indemnity Claim Notice"). The Party upon whom notice is served shall have a period of twenty
(20) days after receipt of such notice within which to respond thereto or, in the case of an underlying demand which requires a shorter time for response, then within such shorter period as
specified in such notice (the "Notice Period"). If the Party upon whom notice is served denies liability or fails to provide the defense for any Claim,
the other Party may defend or compromise the Claim as it deems appropriate. If the Party upon whom notice is served accepts liability and responsibility for the defense of any Claim, it shall so
notify the other Party as soon as is practicable prior to the expiration of the Notice Period and undertake the defense or compromise of such Claim with counsel selected by the Party accepting such
liability. If the Party on whom notice is served undertakes the defense or compromise of such Claim, the other Party shall be entitled, at its own expense, to participate in such defense. No
compromise or settlement of any Claim shall be made without reasonable notice to the other Party, and without the prior written approval of the other Party, which approval shall not be unreasonably
withheld or delayed. No such approval shall be withheld if such compromise or settlement includes a general and complete release of the other Party, its successors, assigns, Affiliates and their
respective Representatives in respect of the matter, with prejudice, and with no express or written admission of liability on the part of the other Party, its Affiliates and their respective
Representatives, and is without cost or liability and has no constraints on the future conduct of its or their respective businesses. Purchaser and Transferor acknowledge that their obligations to
indemnify, defend and hold the other Party and its Affiliates harmless under this Agreement include obligations to pay the attorneys' fees and court and arbitral costs incurred by the other Party and
its Affiliates in defending said Claims, regardless of the merits of said Claims, where the Party to whom notice is served hereunder denies liability or fails to provide the defense for any said
Claim. Transferor and Transferee shall have the right at all times to participate, at their sole cost, in the preparation for any defense, hearing or trial related to the indemnities set forth in this
Agreement, as well as the right to appear on their own behalf or to retain separate counsel to represent them at any such hearing or trial. 

 
 

  ARTICLE 11—MISCELLANEOUS    
    

        11.1  Public Announcements.

        The
Parties hereto agree that prior to Closing, each may publicly disclose the principal terms of this Agreement following its execution, provided that prior to making any public
announcement or statement with respect to the transaction contemplated by this Agreement, the Party desiring to make such public announcement or statement shall consult with the other Party hereto and
exercise its best efforts to (i) agree upon the text of a joint public announcement or statement to be made by both of
such Parties; or (ii) obtain written approval of the other Party hereto to the text of a public announcement or statement to be made solely by Transferor or Transferee, as the case may be.
Nothing contained in this paragraph shall be construed to require either Party to obtain approval of the other Party hereto to disclose information with respect to the transaction contemplated by this
Agreement to any state or federal governmental authority or agency to the extent (i) required by applicable law or by any applicable rules, regulations or orders of any governmental authority
or agency having jurisdiction; or (ii) necessary to comply with disclosure requirements of the London Stock Exchange or other recognized exchange or over the counter, and applicable securities
laws. 

H-11

 

        11.2  Filing and Recording of Assignments, etc.

        Transferee
shall be solely responsible for all filings and the prompt recording of assignments and other documents related to the transfer of the Assets as contemplated hereunder and for
all fees connected therewith, and Transferee shall furnish certified copies of all such filed and/or recorded documents to Transferor. Transferor shall not be responsible for any loss to Transferee
because of Transferee's failure to file or record documents correctly or promptly. 

        11.3  Further Assurances and Records.

        After
the Closing, each of the Parties will execute, acknowledge and deliver to the other such further instruments, and take such other action, as may be reasonably requested in order to
more effectively assure to said Party all of the respective properties, rights, titles, interests, estates, and privileges intended to be assigned, delivered or inuring to the benefit of such Party in
consummation of the transactions contemplated hereby. 

        11.4  Notices.

        Except
as otherwise expressly provided herein, all communications required or permitted under this Agreement shall be in writing and may be given by personal delivery, facsimile, US mail
(postage prepaid), or commercial delivery service, and any communication hereunder shall be deemed to have been duly given and received when actually delivered to the address of the Parties to be
notified as set forth below and addressed as follows: 

        If
to Transferor, as follows: 

Permian
Basin Well Services, LLC

1331 Lamar, Suite 1450

Houston, Texas 77010

Fax: (713) 655-1711

Attention: Dennis Hammond 

With
a copy to: 

Permian
Basin Well Services, LLC

1331 Lamar, Suite 1450

Houston, Texas 77010

Fax: (713) 655-1711

Attention: General Counsel 

If
to Transferee, as follows: 

Resaca
Exploitation, Inc.

1331 Lamar, Suite 1450

Houston, Texas 77010

Fax: (713) 655-1711

Attention: John J. Lendrum, III 

With
a copy to: 

Resaca
Exploitation, Inc.

1331 Lamar, Suite 1450

Houston, Texas 77010

Attention: General Counsel 

H-12

 

and 

Haynes
and Boone, LLP

One Houston Center

1221 McKinney, Suite 2100

Houston, Texas 77010

Fax: (713) 236-5540

Attention: Bryce D. Linsenmayer, Esq. 

Provided,
however, that any notice required or permitted under this Agreement will be effective if given verbally within the time provided, so long as such verbal notice is followed by written notice
thereof in the manner provided herein within twenty-four (24) hours following the end of such time period. Any Party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made. 

        11.5  Incidental Expenses.

        Transferee
shall bear and pay (i) all state or local government sales, transfer, gross proceeds, or similar taxes incident to or caused by the transfer of the Assets to
Transferee, (ii) all documentary, transfer and other state and local government taxes incident to the transfer of the Assets to Transferee; and (iii) all filing, recording or
registration fees for any assignment or conveyance delivered hereunder. Each Party shall bear its own respective expenses incurred in connection with the negotiation and Closing of this transaction,
including its own consultants' fees, attorneys' fees, accountants' fees, and other similar costs and expenses. 

        11.6  Waiver

        Any
of the terms, provisions, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by the Party waiving compliance. Except as
otherwise expressly provided in this Agreement, the failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term, provision, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be
deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, provision, covenant, representation
or warranty. 

        11.7  Binding Effect.

        All
the terms, provisions, covenants, obligations, indemnities, representations, warranties and conditions of this Agreement shall inure to the benefit of, and be binding upon, and shall
be enforceable by, the Parties hereto and their respective successors and assigns. 

        11.8  Taxes.

        (a)   Transferor
and Transferee agree that this transaction may be subject to the reporting requirement of Section 1060 of the Internal Revenue Code of 1986, as
amended, and that, therefore, IRS Form 8594, Asset Acquisition Statement, will be filed for this transaction. The Parties will confer and cooperate in the preparation and filing of their
respective forms to reflect a consistent reporting of the agreed upon allocation. 

        (b)   Transferor
shall be responsible for all state, local and federal property, ad valorem, excise, and severance taxes attributable to or arising from the ownership or
operation of the Assets prior to the Effective Time. Transferee shall be responsible for all property and severance taxes attributable to or arising from the ownership or operation of the Assets after
the Effective Time. Any Party which pays such taxes for the other Party shall be entitled to prompt reimbursement upon evidence of such 

H-13

 

payment.
Each Party shall be responsible for its own federal and state income taxes, if any, as may result from this transaction. The Parties acknowledge and agree that the Transfer Price has been
adjusted to reflect the proper allocation between the Parties of all state, local and federal property and ad valorem taxes on the Real Property for 2009 and neither Party shall be entitled to
reimbursement from the other for such taxes. 

        (c)   If
this transaction is determined to result in state sales or transfer taxes, Transferee shall be solely responsible for any and all such taxes due on the Assets
acquired by Transferee by virtue of this transaction. If Transferee is assessed such taxes, Transferee shall promptly remit same to the taxing authority. If Transferor is assessed such taxes,
Transferee shall reimburse Transferor for any such taxes paid by Transferor to the taxing authority. 

        11.9  Governing Law.

        THIS
AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH
DETERMINATIONS. JURISDICTION AND VENUE WITH RESPECT TO ANY DISPUTES ARISING HEREUNDER SHALL BE PROPER ONLY IN HARRIS COUNTY, TEXAS. 

        11.10  Entire Agreement.

        This
Agreement embodies the entire agreement between the Parties and replaces and supersedes all prior agreements, arrangements and understandings related to the subject matter hereof,
whether written or oral. No other agreement, statement, or promise made by any Party, or to any employee, officer or agent of any Party which is not contained in this Agreement shall be binding or
valid. This Agreement may be supplemented, altered, amended, modified or revoked by a writing only, signed by the Parties hereto. The headings herein are for convenience only and shall have no
significance in the interpretation hereof. The Parties stipulate and agree that this Agreement shall be deemed and considered for all purposes, as prepared through the joint efforts of the Parties,
and shall not be construed against one Party or the other as a result of the preparation, submittal or other event of negotiation, drafting or execution thereof. It is understood and agreed that there
shall be no third-party beneficiary of this Agreement, and the provisions hereof do not impart enforceable rights in anyone who is not a direct, initial Party hereto. 

        11.11  Severability.

        If
any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, that provision will be deemed modified to the extent necessary to make it
valid and enforceable, and if it cannot be so modified, it shall be deemed deleted and the remainder of the Agreement shall continue and remain in full force and effect. 

        11.12  Exhibits.

        All
Exhibits attached to this Agreement, and the terms of those Exhibits which are referred to in this Agreement, are made a part hereof and incorporated herein by reference. 

        11.13  Survival.

        Unless
otherwise specifically provided in this Agreement, all of the representations, warranties, indemnities, covenants and agreements of or by the Parties hereto shall survive the
execution and delivery of the Warranty Deed and Bill of Sale. 

        11.14  Counterparts.

        This
Agreement may be executed in any number of counterparts, and each and every counterpart shall be deemed for all purposes one (1) agreement. 

H-14

 

        11.15  Subrogation.

        To
the fullest extent allowed by law and the applicable agreements with third parties, Transferor grants Transferee a right of subrogation in all claims or rights Transferor may have
against third parties to the extent they relate to the Assumed Obligations. 

        11.16  No Third-Party Beneficiaries.

        Nothing
in this Agreement shall entitle any Person other than Transferee and Transferor to any Claims, remedy or right of any kind, except as to those rights expressly provided to
Transferor Indemnitees and Transferee Indemnitees (provided, however, any claim for indemnity hereunder on behalf of a Transferor Indemnitee or a Transferee Indemnitee must be made and administered by
a Party to this Agreement). 

[Signature page to follow]

H-15

 

        IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. 

 

 

					
	

 	
 	

 	
 	

 
	 	 	 TRANSFEROR:
	

 	
 	
 PERMIAN BASIN WELL SERVICES, LLC
	

 	
 	
By:	
 	
/s/ MARY LOU FRY

 
	 	 	Name:	 	Mary Lou Fry

 
	 	 	Title:	 	Vice President and Secretary

 
	

 	
 	
 TRANSFEREE:
	

 	
 	
 RESACA EXPLOITATION, INC.
	

 	
 	
By:	
 	
/s/ DENNIS HAMMOND

 
	 	 	Name:	 	Dennis Hammond

 
	 	 	Title:	 	President and Chief Operating Officer

 

 

 Signature Page Asset Transfer Agreement  

H-16

 

 
 

  TORCH E & P COMPANY
  
    AGREEMENT AND ACKNOWLEDGEMENT    
    

        The undersigned, Torch E&P, acknowledges and agrees as follows: 

        (a)   Torch
E&P has reviewed the Agreement and understands the terms and conditions thereof. 

        (b)   Permian
Basin, an affiliate of Torch E&P, shall transfer the Shares to Torch E&P following the Closing and Torch E&P shall acquire the Shares from Permian Basin. 

        (c)   The
obligation of Resaca to acquire and pay for the Assets is expressly subject to and conditioned upon Resaca obtaining shareholder approval of the transactions
contemplated in the Agreement at its next annual shareholders meeting which shall occur after the Closing. In the event that Resaca's shareholders do not approve the transactions contemplated in the
Agreement and Permian Basin has already transferred the Shares to Torch E&P, simultaneous with the re-conveyance of the Assets to Permian Basin by Resaca, Torch E&P shall transfer and
deliver to Resaca all of the Shares free and clear of any and all liens and encumbrances. 

        (d)   Following
the completion of the Torch Share Transfer, the Shares shall be subject to the terms and conditions of the Lock-in Agreement. 

        All
capitalized terms not defined above shall have the meanings set forth in the Agreement. 

 

 

					
	

 	
 	

 	
 	

 
	 	 	 TORCH E & P COMPANY
	

 	
 	
By:	
 	
/s/ MARY LOU FRY

 
	 	 	Name:	 	Mary Lou Fry

 
	 	 	Title:	 	 Vice President and Secretary

 

 

 Torch E&P Company Agreement and Acknowledgement  

H-17

 

 
 

  EXHIBIT "A"    
    

        Attached to and made a part of that certain Asset Transfer Agreement by and between Permian Basin Well Services, Inc., as
Transferor, and Resaca Exploitation, Inc., as Transferee, dated and effective as of the 1st day of July, 2009 

 
 

  Personal Property    
    

	I.
	WORKOVER RIGS

	A.
	Well Service Rig No. 101

1983
CARDWELL Double Drum Back-In Well Service Rig w/LEE Drawworks, S/N-N/A, 1" Tubing Line, 9/16" Sandline, PARKERSBURG 15" Double Hydromatic Brake, PEMCO 96'H
180,000# Static Hook Load Telescoping Mast, Hydraulically Raised & Scoped, Single Raising Ram, Rod Basket, Tubing Board, Anti-Fall Device, Mounted on
4-Axle Carrier p/b DETROIT Series 60 Diesel Engine, ALLISON 5860 Transmission, (4) Hydraulic Leveling Jacks, Hydraulic Utility Winch, Folding Walkways w/Stairs, Fuel,
Air & Hydraulic Tanks, Adjustable Work Platform, 425/65R22.5 Front & 11.00R24.5 Rear Tires, Budd Wheels, Lic. # 28P-463.  

Well Service Tools for Well Service Rig No. 101

	1.
	McKISSICK
24-NT-6 3-Sheave Tubing Block w/Duplex Hook

	2.
	13/4" × Approximately
84"L Elevator Links

	3.
	BJ
BTS Power Tongs w/Backup

	4.
	TB
Mark IV 3/4" to 1" Rod Tongs w/Heads & Backup

	5.
	CAVINS
TC-101 Tubing Slips

	6.
	GUIBERSON
Oil Saver

	7.
	BV &
AOT 23/8" & 27/8" 100-Ton Center Latch Tubing Elevators

	8.
	BJ
R-40 Rod Hook

	9.
	(6)
O'BANNON Rod Elevators

	10.
	(3)
Rod Wrenches

	11.
	PETE'S
Pad-Type Weight Indicator

	12.
	Assorted
Spare Parts, Rod Fishing Tools, Fire Extinguishers. Hand Tools, Rod & Tubing Subs, Misc. Fittings

	13.
	2007
PACE AMERICAN 7'6"W × 14'L Tandem Axle Well Service Trailer, VIN-47ZUB14217X048979 w/Lockers, Bench Storage, Lic.
# O3Z-CYB

 

	B.
	Well Service Rig No 103

HOPPER
GXXTA Double Drum Back-In Well Service Rig, S/N-228, LEBUS Grooved f/1" Tubing Line, 9/16" Sand Line, PARKERSBURG 15" Double Hydromatic Brake, p/b DETROIT
Series 60 Diesel Engine, ALLISON 4460 Transmission, WILSON 96H 180,000# Telescoping Mast, Hydraulically Raised & Scoped, Single Raising Ram, Rod Basket, Tubing Board,
Anti-Fall Device, Mounted on HOPPER 5-Axle Carrier, w/(4) Hydraulic Leveling Jacks, Hydraulic Utility Winch, Folding Walkways w/Stairs, Fuel, Air & Hydraulic Tanks,
Adjustable Work Platform, 385/65R22.5 Front & 11R22.5 Rear Tires, Lic. # 69M-882 

Well Service Tools for Well Service Rig No. 103

	1.
	MCKISSICK
100-Ton Tubing Block w/(3) Sheaves f/1" Line 

H-18

 

	2.
	(2)
13/4" × 96" Elevator Links

	3.
	BJ
Hydraulic Tubing Tongs, w/Backup

	4.
	BJ
Hydraulic Rod Tongs

	5.
	CAVINS
Type C Air Tubing Slips

	6.
	GUIBERSON-Type
Oil Saver

	7.
	BV
23/8" & 27/8" Center-Latch Tubing Elevators

	8.
	40-Ton
Rod I look

	9.
	DOUBLE
E Rod Stripper

	10.
	(4)
Rod Elevators

	11.
	PETE'S
Weight Indicator

	12.
	Assorted
Spare Parts, Rod Fishing Tools, Fire Extinguishers. Hand Tools, Rod & Tubing Subs, Misc. Fittings

	13.
	2006
PACE AMERICAN 7'6" W × 14'L Crew Trailer, VIN-47ZUB14227X048747, w/Lockers, Bench, LPG Heater w/Bottle,
Lic. # 87Z-DST

 

	C.
	Well Service Rig No. 104

1972
HOOPER GXXTA Double Drum Back-In Well Service Rig, S/N-N/A, 1" Tubing Line, 9/16" Sandline, PARKERSBURG 15" Double Hydraulic Brake, PEMCO 99'H 180,000#
Telescoping Mast, Hydraulically Raised & Scoped, Single Rising Ram, Rod Basket, Tubing Board, Anti-Fall Device, Mounted on 4-Axle carrier p/b DETROIT 60 Series Diesel
Engine, ALLISON 4460 Transmission, (4) Hydraulic Leveling Jacks, Hydraulic Utility Winch, Folding Walkways s/Stairs, Fuel, Air & Hydraulic Tanks, Adjustable Work Platform, 385/65R22.5
Front & 11R22.5 Rent: tires, Budd Wheels, Lic. # 28P-468. 

Well Service Tools

	1.
	McKISSICK
24-NT-6 100-Ton 3-Sheave Tubing Block w/Duplex Hook

	2.
	13/4" × 96L"
Elevators Links

	3.
	CARTER
TOOLS Model RS Tubing Tong w/Backup

	4.
	BJ
Mark IV Rod Tongs w/Backup

	5.
	CAVINS
TC-101 Tubing Slips

	6.
	GUIBERSON-Type
Oil Saver

	7.
	BV
23/8" & 27/8" 100-Ton Center Latch Tubing Elevators

	8.
	BJ
R-40 Rod Hook

	9.
	DOUBLE
E Rod Stripper

	10.
	(4)
O'BANNON Rod Elevators

	11.
	(4)
Rod Wrenches

	12.
	PETE'S
Pad-Type Weight Indicator

	13.
	Assorted
Spare Parts, Rod Fishing Tools, Fire Extinguishers, Hand Tools, Rod & Tubing Subs, Misc. Fittings

	14.
	2006
PACE AMERICAN 7'6"W × 14'L Crew Trailer, VIN-47ZUB142X6X045576 w/Lockers, Bench Storage, 265x1s Tires,
Lic. #92Y-XVR. 

H-19

 
	II.
	REVERSE UNITS/TANK

	1.
	GARDNER-DENVER
PE-5 RJM Triplex Pump, S/N-653366, p/b DETROIT 6V-71 Diesel Engine w/EATON-FULLER Manual Transmission,
Mounted on Shopbuilt Single Axle Lowboy Trailer w/4'H × 8'W × 12'L Reverse Circulating Tank, 2" Manifold w/(4) Plug Valves, Type D Pressure
Gauge, 10.00x20 Tires, Budd Wheels, Lic #693-M36, Unit # 402

	2.
	GARDNER-DENVER
PE-5 Triplex Pump, S/N-4622224, p/b CUMMINS M-11 V-6 Diesel Engine w/ALLISON 524 Transmission,
8'W × 5'11 × 3'H × 17'L 2-Level Reverse Circulating Tank, 2" Manifold w/(4) Plug Valves, Type D
Pressure Gauge, Mounted on 8'W × 40'L Tandem Axle Lowboy Trailer, 10.00Rx15 tires, Budd Wheels, Lic #694-M36, Unit # 401

	3.
	7'6"W × 4'H × 20'L
Mud Tank, Skidded

 

	III.
	POWER SWIVELS

	1.
	BOWEN
S-2.5 Power Swivel, S/N-N/A, on 2006 PARKER Tandem Axle Gooseneck Trailer, VIN-13ZGN142061004094, w/Hydraulic Power
Unit p/b DETROIT 6V-92T Diesel Engine w/Electric Starter, Radiator, Gauges, Operator's Control Panel, Hose Reels, Hoses, Fuel & Hydraulic Tanks, Tubing Stripper, Lic.
#70Y-XVP

	2.
	BOWEN
S-2.5 Power Swivel, S/N-N/A, on Tandem Axle Gooseneck Trailer, VIN-N/A, w/Hydraulic Power Unit p/b DETROIT
6V-92 Diesel Engine w/Electric Starter, Radiator, Gauges, Operator's Control Panel, Hose Reels, Hoses, Fuel & Hydraulic Tanks, Tubing Stripper, Lic #69M-885

 

	IV.
	VEHICLES

	A.
	Trucks

	1.
	2006
CHEVROLET 2500HD Crew Cab Pickup, VIN-1GCHC23U56F140328, p/b Gas Engine, Automatic Transmission, Auxiliary Fuel Tanks w/Pump, Grille Guard,
Lic #94MXC3 (Unit #302)

	2.
	2006
FORD F-250 XL Crew Cab Pickup, VIN-1FTSW20596EC94556, p/b Gas Engine, Auxiliary Fuel Tank w/Pump, Grille Guard, 76,773 Miles on
Odometer, Lic #53Z-PY4 (Unit #305)

	3.
	2006
FORD F-250 XL Extended Cab Pickup, VIN-1FTSX20586EO61676, p/b Gas Engine, Automatic Transmission, Auxiliary Fuel Tank w/Pump,
Grille Guard, Lic #77L-MT7 (Unit #206)

	4.
	2006
CHEVROLET 2500HD 4x4 Crew Cab Pickup, VIN-1GCHK23U36F201050, p/b Gas Engine, Automatic Transmission, Lic #09Z-KB3 (Unit #202)

	5.
	2007
FORD F-150 XLT Super Crew Pickup, VIN-1FTRW12W57FA19132, 114,000 Miles on Odometer, Lic. # 57Z-RB4 (Unit #200)

	B.
	Trailers

	1.
	Shopbuilt
38'L Tandem Axle Pipe-Frame Collar Trailer, Lic #83Z-NJJ, OA(G)

	2.
	2006
DISCOUNT TRAILER 14'L Tandem Axle Utility Trailer, VIN-D9FS142261131128, Lic #29Y-TPB, OA(G) Appearance

	3.
	Tandem
Axle Utility Trailer w/CASTER 2 × 3 Centrifugal Pump p/b DEUTZ 3-Cylinder Diesel Engine, CURTIS Air Compressor
p/b Gas Engine 

H-20

 

	C.
	Construction Equipment

	1.
	GALION
550 Articulated Motor Grader, S/N-N/A, p/b Diesel Engine, 4676 Hours on Meter w/Moldboard, Scarifer, 17.5x25 Tires OA(F)

 

	V.
	RELATED EQUIPMENT

	1.
	(6)
31/8"OD × 28'L to 30'L Drill Collars (G)

	2.
	(6)
33/8"OD × 28'L to 30'L Drill Collars (F)

	3.
	558'
(18 Joints) 27/8" EUE Range 2 Tubing

	4.
	(2)
42"H × 28'L Triangular Pipe Racks

	5.
	(2)
42"H × Approximately 14'L Triangular Pipe Racks

	6.
	15"
DR Hydromatic Brake (Rebuilt)

	7.
	15"
DR Hydromatic Brake (Salvage)

	8.
	31/2"
EUE Tubing Elevator

	9.
	Line
Scale Weight Indicator

	10.
	McKISSICK
75-Ton Tubing Block (Refurbished)

	11.
	Spare
BJ Tubing longs

	12.
	Spare
BJ Rod Tongs

	13.
	SPICER
Dropbox

	14.
	23/8"
Tubing Elevator

	15.
	BV
23/8" Tubing Elevator

	16.
	GUIBERSON
Air Slips

 

	VI.
	SHOP EQUIPMENT

	1.
	POLAR-COOL
Shop Cooler

	2.
	DURAPRESS
Force 25DA H-Frame Press, S/N-72869, Hydraulic Cylinder

	3.
	CENTRAL
MACHINERY Floor Model Drill Press, S/N-05202Q0009

	4.
	DAYTON
8" Dual-Arbor Bench Grinder w/Pedestal

	5.
	(2)
LINCOLN E300 Welders

	6.
	MILLER
Millermatic 251 Welder w/Wire Feeder

	7.
	MAKITA
Chop Saw

	8.
	4' × 8'
Steel Shop Table w/WILTON Vise

	9.
	CHICAGO
ELECTRIC Battery Charger

	10.
	Oil-Fired
Electric Shop Heater

	11.
	HUSKY
PRO 60-Gallon Vertical Shop Air Compressor

	12.
	HOIST-A-FRAME
w/JET L-90 11/2-Ton Chain Hoist 

H-21

 

 
 

  EXHIBIT "B"    
    

        Attached to and made a part of that certain Asset Transfer Agreement by and between Permian Basin Well Services, Inc., as
Transferor, and Resaca Exploitation, Inc., as Transferee, dated and effective as of the 1st day of July, 2009 

 
 

  Real Property    
    

The
East Five (5) acres of a 10 Acre Tract of land in the South part of Section 32, Block 42, T-2-S, T & P Ry. Company Survey, Ector County, Texas,
described by metes and bounds as follows, to-wit: 

BEGINNING
at a.1/2" iron pipe in the South boundary of Section 32, Block 42, T-2-S, T & P Ry. Company Survey, Ector County, Texas for the Southeast
corner of a 10-Acre tract and this tract, from which point a 4" galvanized iron pipe in the East boundary of State Farm Road 2227 and at the Southeast corner of Section 32, bears
N75°18'E, 2732.55 feet; 

THENCE
N15°23'W, with the East boundary of 10-Acre tract, 982.6 feet to a 1/2" iron pipe for the Northeast corner of 10-Acre tract and this tract; 

THENCE
S74°47'W, with the North boundary of 10-Acre, tract, 222.0 feet to a 60 d nail for the Northwest corner of this tract, from which point a 5.5" iron rod at the Northwest
corner of said 10-Acre tract bears S74°17'W, 222.0 feet; 

THENCE
S15°22-1/2' E, 980.6 feet to an iron bolt in the South boundary of 10-Acre tract for the Southwest corner of this tract, from which point a 60 d nail at the
Southwest corner of 10-Acre tract bears S75°18'W, 222.15 feet; 

THENCE
N75°18'E, with South boundary of 10-Acre tract, 222.15 feet to the PLACE OF BEGINNING, containing 5.0 acres of land, and being the East 5.0 acres of said
10-acre tract. 

H-22Exhibit 10.3

 

Execution Copy

 

 

 

 

 

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

 

 

RESACA EXPLOITATION, INC.,

as the Borrower,

 

CIT CAPITAL USA INC.,

as the Administrative Agent,

 

and

 

CERTAIN FINANCIAL
INSTITUTIONS,

as Lenders

 

 

 

 

$50,000,000 Senior Secured
Revolving Credit Facility

 

June 26, 2009

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I - Definitions
  and References

  	
   

  
	
  Section 1.1.

  	
  Defined Terms

  	
  1

  
	
  Section 1.2.

  	
  Types of Loans and
  Borrowings

  	
  19

  
	
  Section 1.3.

  	
  Exhibits and Schedules;
  Additional Definitions

  	
  19

  
	
  Section 1.4.

  	
  Amendment of Defined
  Instruments

  	
  19

  
	
  Section 1.5.

  	
  References and Titles

  	
  19

  
	
  Section 1.6.

  	
  Calculations and
  Determinations

  	
  20

  
	
  Section 1.7.

  	
  Joint Preparation;
  Construction of Indemnities and Releases

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II - The Credits

  	
   

  
	
  Section 2.1.

  	
  Commitments

  	
  20

  
	
  Section 2.2.

  	
  Loans and Borrowings

  	
  21

  
	
  Section 2.3.

  	
  Requests for Borrowings

  	
  22

  
	
  Section 2.4.

  	
  Interest Elections;
  Conversions

  	
  23

  
	
  Section 2.5.

  	
  Funding of Borrowings

  	
  24

  
	
  Section 2.6.

  	
  Termination and Reduction
  of Aggregate Maximum Credit Amounts

  	
  25

  
	
  Section 2.7.

  	
  Borrowing Base

  	
  26

  
	
  Section 2.8.

  	
  Redetermination Concurrent
  with Transfer

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III - Payments of Principal and Interest; Prepayments; Fees

  	
   

  
	
  Section 3.1.

  	
  Repayment of Loans

  	
  28

  
	
  Section 3.2.

  	
  Interest

  	
  28

  
	
  Section 3.3.

  	
  Alternate Rate of Interest

  	
  29

  
	
  Section 3.4.

  	
  Prepayments

  	
  29

  
	
  Section 3.5.

  	
  Fees

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV - Payments; Pro Rata Treatment; Sharing of Set-offs

  	
   

  
	
  Section 4.1.

  	
  Payments Generally; Pro
  Rata Treatment; Sharing of Set-offs

  	
  32

  
	
  Section 4.2.

  	
  Presumption of Payment by
  the Borrower

  	
  33

  
	
  Section 4.3.

  	
  Certain Deductions by the
  Administrative Agent

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V - Increased Costs; Break Funding Payments; Taxes; Illegality

  	
   

  
	
  Section 5.1.

  	
  Increased Costs

  	
  33

  
	
  Section 5.2.

  	
  Break Funding Payments

  	
  34

  
	
  Section 5.3.

  	
  Reimbursable Taxes

  	
  34

  
	
  Section 5.4.

  	
  Mitigation Obligations;
  Replacement of Lenders

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI - Conditions Precedent to Lending

  	
   

  
	
  Section 6.1.

  	
  Documents to be Delivered

  	
  36

  
	
  Section 6.2.

  	
  Additional Conditions
  Precedent

  	
  38

  

 

i

 

	
  ARTICLE
  VII - Representations and Warranties

  	
   

  
	
  Section 7.1.

  	
  No Default

  	
  39

  
	
  Section 7.2.

  	
  Organization and Good
  Standing

  	
  39

  
	
  Section 7.3.

  	
  Authorization

  	
  39

  
	
  Section 7.4.

  	
  No Conflicts or Consents

  	
  40

  
	
  Section 7.5.

  	
  Enforceable Obligations

  	
  40

  
	
  Section 7.6.

  	
  Initial Financial
  Statements

  	
  40

  
	
  Section 7.7.

  	
  Other Obligations and
  Restrictions

  	
  40

  
	
  Section 7.8.

  	
  Full Disclosure

  	
  40

  
	
  Section 7.9.

  	
  Litigation

  	
  41

  
	
  Section 7.10.

  	
  Labor Disputes and Acts of
  God

  	
  41

  
	
  Section 7.11.

  	
  ERISA Plans and Liabilities

  	
  41

  
	
  Section 7.12.

  	
  Environmental and Other
  Laws

  	
  41

  
	
  Section 7.13.

  	
  Names and Places of
  Business

  	
  42

  
	
  Section 7.14.

  	
  Subsidiaries

  	
  42

  
	
  Section 7.15.

  	
  Government Regulation

  	
  42

  
	
  Section 7.16.

  	
  Insider

  	
  42

  
	
  Section 7.17.

  	
  Solvency

  	
  43

  
	
  Section 7.18.

  	
  Title to Properties;
  Licenses; Insurance

  	
  43

  
	
  Section 7.19.

  	
  Regulation U

  	
  43

  
	
  Section 7.20.

  	
  Leases and Contracts;
  Performance of Obligations

  	
  43

  
	
  Section 7.21.

  	
  Sale
  of Production

  	
  44

  
	
  Section 7.22.

  	
  Operation of Oil and Gas
  Properties

  	
  45

  
	
  Section 7.23.

  	
  Ad Valorem and Severance
  Taxes

  	
  45

  
	
  Section 7.24.

  	
  Material Agreements

  	
  46

  
	
  Section 7.25.

  	
  Existing Accounts Payable

  	
  46

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII - Affirmative Covenants of the Borrower

  	
   

  
	
  Section 8.1.

  	
  Payment and Performance

  	
  46

  
	
  Section 8.2.

  	
  Books, Financial
  Statements and Reports

  	
  46

  
	
  Section 8.3.

  	
  Other Information and
  Inspections

  	
  49

  
	
  Section 8.4.

  	
  Notice of Material Events
  and Change of Address

  	
  49

  
	
  Section 8.5.

  	
  Maintenance of Properties

  	
  50

  
	
  Section 8.6.

  	
  Maintenance of Existence
  and Qualifications

  	
  50

  
	
  Section 8.7.

  	
  Payment of Trade
  Liabilities, Taxes, etc.

  	
  50

  
	
  Section 8.8.

  	
  Insurance

  	
  50

  
	
  Section 8.9.

  	
  Performance on the
  Borrower’s Behalf

  	
  51

  
	
  Section 8.10.

  	
  Interest

  	
  52

  
	
  Section 8.11.

  	
  Compliance with Agreements
  and Law

  	
  52

  
	
  Section 8.12.

  	
  Environmental Matters;
  Environmental Reviews

  	
  52

  
	
  Section 8.13.

  	
  Evidence of Compliance

  	
  53

  
	
  Section 8.14.

  	
  Right of Offset with
  Respect to Bank Accounts

  	
  53

  
	
  Section 8.15.

  	
  Guaranties of the
  Borrower’s Subsidiaries

  	
  53

  
	
  Section 8.16.

  	
  Agreement to Deliver
  Security Documents; Title Information

  	
  54

  
	
  Section 8.17.

  	
  Production Proceeds

  	
  55

  
	
  Section 8.18.

  	
  Operating Account and
  Account Control Agreement

  	
  55

  
	
  Section 8.19.

  	
  Mortgaged Property
  Covenants

  	
  56

  

 

ii

 

	
  Section 8.20.

  	
  Development of Properties

  	
  56

  
	
  Section 8.21.

  	
  Required Hedge Contracts

  	
  57

  
	
  Section 8.22.

  	
  Use of Proceeds

  	
  57

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX - Negative Covenants of the Borrower

  	
   

  
	
  Section 9.1.

  	
  Indebtedness

  	
  58

  
	
  Section 9.2.

  	
  Limitation on Liens

  	
  58

  
	
  Section 9.3.

  	
  Hedge Contracts

  	
  58

  
	
  Section 9.4.

  	
  Limitation on Mergers,
  Issuances of Securities

  	
  59

  
	
  Section 9.5.

  	
  Limitation on Sales of
  Property

  	
  59

  
	
  Section 9.6.

  	
  Limitation on Dividends
  and Redemptions

  	
  60

  
	
  Section 9.7.

  	
  Limitation on Investments
  and New Businesses

  	
  60

  
	
  Section 9.8.

  	
  Limitation on Credit
  Extensions

  	
  60

  
	
  Section 9.9.

  	
  Transactions with Affiliates

  	
  60

  
	
  Section 9.10.

  	
  Prohibited Contracts

  	
  60

  
	
  Section 9.11.

  	
  Financial Covenants

  	
  61

  
	
  Section 9.12.

  	
  No Subsidiaries

  	
  62

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X - Events of Default and Remedies

  	
   

  
	
  Section 10.1.

  	
  Events of Default

  	
  62

  
	
  Section 10.2.

  	
  Remedies

  	
  65

  
	
  Section 10.3.

  	
  Application of Proceeds
  after Acceleration

  	
  65

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI - Administrative Agent

  	
   

  
	
  Section 11.1.

  	
  Appointment and Authority

  	
  65

  
	
  Section 11.2.

  	
  Exculpation, the
  Administrative Agent’s Reliance, Etc.

  	
  66

  
	
  Section 11.3.

  	
  Credit Decisions

  	
  66

  
	
  Section 11.4.

  	
  Indemnification

  	
  67

  
	
  Section 11.5.

  	
  Rights as Lender

  	
  67

  
	
  Section 11.6.

  	
  Sharing of Set-Offs and
  Other Payments

  	
  67

  
	
  Section 11.7.

  	
  Investments

  	
  68

  
	
  Section 11.8.

  	
  Benefit of Article XI

  	
  68

  
	
  Section 11.9.

  	
  Resignation

  	
  68

  
	
  Section 11.10.

  	
  Notice of Default

  	
  69

  
	
  Section 11.11.

  	
  Subagents

  	
  69

  
	
  Section 11.12.

  	
  Administrative Agent
  May File Proofs of Claim

  	
  69

  
	
  Section 11.13.

  	
  Authority of
  Administrative Agent to Release Collateral and Liens

  	
  70

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XII - Miscellaneous

  	
   

  
	
  Section 12.1.

  	
  Waivers and Amendments;
  Acknowledgments

  	
  70

  
	
  Section 12.2.

  	
  Survival of Agreements;
  Cumulative Nature

  	
  72

  
	
  Section 12.3.

  	
  Notices

  	
  72

  
	
  Section 12.4.

  	
  Payment of Expenses;
  Indemnity

  	
  73

  
	
  Section 12.5.

  	
  Joint and Several
  Liability; Parties in Interest; Assignments

  	
  74

  
	
  Section 12.6.

  	
  Confidentiality

  	
  76

  
	
  Section 12.7.

  	
  Governing Law; Submission
  to Process

  	
  77

  
	
  Section 12.8.

  	
  Limitation on Interest

  	
  77

  

 

iii

 

	
  Section 12.9.

  	
  Tax Matters;
  Administrative Services

  	
  78

  
	
  Section 12.10.

  	
  Termination; Limited
  Survival

  	
  78

  
	
  Section 12.11.

  	
  Severability

  	
  78

  
	
  Section 12.12.

  	
  Counterparts; Fax

  	
  78

  
	
  Section 12.13.

  	
  Waiver of Jury Trial,
  Punitive Damages, etc.

  	
  79

  
	
  Section 12.14.

  	
  USA
  Patriot Act Notice

  	
  79

  

 

SCHEDULES
AND EXHIBITS:

 

	
  Schedule 1

  	
  -

  	
  Disclosure Schedule

  	
   

  
	
  Schedule 2

  	
  -

  	
  Security Schedule

  	
   

  
	
  Schedule 3

  	
  -

  	
  Insurance Schedule

  	
   

  
	
  Schedule 4

  	
  -

  	
  Lenders Schedule

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Promissory Note

  	
   

  
	
  Exhibit B-1

  	
  -

  	
  Borrowing Notice

  	
   

  
	
  Exhibit B-2

  	
  -

  	
  Interest Election Request

  	
   

  
	
  Exhibit C

  	
  -

  	
  Certificate Accompanying
  Financial Statements

  	
   

  
	
  Exhibit D

  	
  -

  	
  Opinion of Haynes &
  Boone LLP, Counsel for Borrower

  	
   

  
	
  Exhibit E

  	
  -

  	
  Assignment and Acceptance Agreement

  	
   

  

 

iv

 

SECOND AMENDED AND RESTATED
CREDIT AGREEMENT

 

THIS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT is made as of June 26, 2009,
by and among Resaca Exploitation, Inc. a Texas corporation (the “Borrower”),
CIT Capital USA Inc., as administrative agent (the “Administrative Agent”),
and the Lenders referred to below.

 

W I T N E S S E T H:

 

A.                                   The Borrower,
NGP Capital Resources Company, as Administrative Agent (the “Prior
Administrative Agent”), and other financial institutions named and defined
therein as lenders and agents entered into that certain Credit Agreement dated May 1,
2006, as amended by Limited Consent and Waiver and Amendment dated May 7,
2006, a First Amendment to Credit Agreement dated May 31, 2007, a Second
Amendment to Credit Agreement dated August 1, 2007, a Third Amendment to
Credit Agreement dated October 12, 2007, a Limited Consent and Waiver and
Amendment dated January 15, 2008, and a Fourth Amendment to Credit
Agreement dated June 11, 2008.

 

B.                                     The Borrower,
the Prior Administrative Agent and other financial institutions named and
defined therein as lenders and agents amended and restated such Credit
Agreement and entered into, with other financial institutions named and defined
therein as lenders and agents, that certain Amended and Restated Credit
Agreement dated as of July 11, 2008 pursuant to which such lenders
provided certain loans to the Borrower (as heretofore amended, modified or
supplemented, the “Existing Credit Agreement”).

 

C.                                     The Borrower
has requested the Lenders, and the Lenders have agreed, to amend and restate
the Existing Credit Agreement, subject to the terms and conditions of this
Agreement.

 

D.                                    In
consideration of the mutual covenants and agreements contained herein in
consideration of the loans which may hereafter be made by Lenders to the
Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:

 

ARTICLE
I - Definitions and References

 

Section 1.1.                                   Defined Terms.  As used in this Agreement, each of the
following terms has the meaning given to such term in this Section 1.1
or in the sections and subsections referred to below:

 

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

 

“Adjusted
LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next
1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate; provided
that the Adjusted LIBO Rate shall be no less than 2.5% per annum at any time.

 

1

 

“Administrative
Agent” means CIT Capital USA Inc., as the Administrative Agent hereunder,
and its successors in such capacity.

 

“Affiliate”
means, as to any Person, each other Person that directly or indirectly (through
one or more intermediaries or otherwise) controls, is controlled by, or is
under common control with, such Person. 
A Person shall be deemed to be “controlled by” any other Person if such
other Person possesses, directly or indirectly, power

 

(a)                                  to vote 10% or
more of the securities or other equity interests (on a fully diluted basis)
having ordinary voting power for the election of directors, the managing
general partner or partners or the managing member or members; or

 

(b)                                 to direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.

 

“Agreement”
means this Second Amended and Restated Credit Agreement.

 

“Aggregate
Maximum Credit Amounts” at any time shall equal the sum of the Maximum
Credit Amounts, as the same may be reduced or terminated pursuant to Section 2.6.

 

“Alternate
Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the sum of the Federal Funds
Effective Rate in effect on such day plus one-half of one percent (0.5%) and (c) a
the Adjusted LIBO Rate for a one (1) month Interest Period on such day (or
if such day is not a Business Day, the immediately preceding Business Day) plus
one percent (1.0%); provided that,
for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based
on the rate appearing on the Bloomberg BBAM Screen (or on any successor or
substitute thereto or therefor selected by the Administrative Agent in
accordance with the definition of LIBO Rate herein) at approximately 11:00 a.m.
London time on such day.  Any change in
the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds
Effective Rate or the Adjusted LIBO Rate shall be effective from and including
the effective date of such change in the Prime Rate, the Federal Funds
Effective Rate or the Adjusted LIBO Rate, respectively.

 

“Applicable
Margin” means, for any day, (a) with respect to any Eurodollar Loan, a
rate per annum equal to 5.50% and (b) with respect to any ABR Loan, a rate
per annum equal to 4.50%.

 

“Approved
Capital and Operating Budget” means the Borrower’s plan, as approved by the
Administrative Agent pursuant to Section 8.2(k), for conducting
Approved Development Activities on the Oil and Gas Properties. The Approved
Capital and Operating Budget shall set forth by lease, block, tract, etc.,
field or platform, as appropriate, projected drilling costs, completion costs,
lease operating expenses, workover expenses (beyond those accounted for by the
Borrower as lease operating expenses) and all other expenses customarily
incurred within reasonable industry standards related to the operation and
development of the Oil and Gas Properties, the number and identification of
wells to be reworked, recompleted or drilled and other major items as the
Administrative Agent may reasonably request, in each quarter covered by such
Approved Capital and Operating Budget.

 

2

 

“Approved
Development Activities” means, subject to prudent industry standards,
drilling, geological and geophysical investigations and evaluations and related
activities on the Oil and Gas Properties, substantially in accordance with the
Approved Capital and Operating Budget (i) in order to bring into
production proven reserves and other reserves which are included in the
determination of the Borrowing Base, and (ii) in order to further explore
and/or develop the Hydrocarbons not otherwise included in the Borrowing Base,
in each case as approved by the Administrative Agent.

 

“Approved
Hedge Counterparty” has the meaning given to such term in the Intercreditor
Agreement.

 

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

 

“Borrower”
means Resaca Exploitation, Inc., a Texas corporation, f/k/a Resaca
Exploitation, L.P., a Delaware limited partnership.

 

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

 

“Borrowing Base” means at any time an amount equal to the amount
determined in accordance with Section 2.7, as the same may be
adjusted from time to time pursuant to Section 2.8, Section 8.16(c) or
Section 8.21.

 

“Borrowing
Base Deficiency” occurs if at any time the total Revolving Credit Exposures
exceed the Borrowing Base then in effect.

 

“Borrowing
Notice” means a written or telephonic request, or a written confirmation,
made by the Borrower which meets the requirements of Section 2.3.

 

“Business
Day” means a day, other than a Saturday or Sunday, on which the
Administrative Agent and commercial banks are open for business in Houston,
Texas.

 

“Capital
Expenditures” means, in respect of any Person, for any period, the
aggregate (without duplication) of all exploration and development expenditures
and costs that should be capitalized in accordance with GAAP and any other
expenditures that are capitalized on the balance sheet of such Person in
accordance with GAAP.

 

“Capital
Lease” means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.

 

“Capital
Lease Obligation” means, with respect to any Person and a Capital Lease,
the amount of the obligation of such Person as the lessee under such Capital
Lease which should, in accordance with GAAP, appear as a liability on the
balance sheet of such Person.

 

“Cash
Equivalents” means Investments in:

 

3

 

(a)                                  marketable
obligations, maturing within twelve months after acquisition thereof, issued or
unconditionally guaranteed by the United States of America or an
instrumentality or agency thereof and entitled to the full faith and credit of
the United States of America;

 

(b)                                 demand
deposits, and time deposits (including certificates of deposit) maturing within
twelve months from the date of deposit thereof, with any office of any Lender
or with a domestic office of any national or state bank or trust company which
is organized under the Laws of the United States of America or any state
therein, which has capital, surplus and undivided profits of at least
$500,000,000, and whose long term certificates of deposit are rated at least
Aa3 by Moody’s or AA- by S & P;

 

(c)                                  repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in subsection (a) above entered into
with any commercial bank meeting the specifications of subsection (b) above;

 

(d)                                 open market
commercial paper, maturing within 270 days after acquisition thereof, which are
rated at least P-1 by Moody’s or A-1 by S & P; and

 

(e)                                  money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in subsections (a) through (d) above.

 

“Change
of Control” means, in each case without the written consent of the Required
Lenders:

 

(a)                                  any “person” or
“group” (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, but excluding any employee benefit plan of
such person or its subsidiaries, and any person or entity acting in its
capacity as trustee, agent or other fiduciary or administrator of any such
plan, and any such group which includes a Lender or an Affiliate of a Lender)
becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934, except that a person or group shall be
deemed to have “beneficial ownership” of all securities that such person or
group has the right to acquire (such right, an “option right”), whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of 30% or more of the equity securities of the Borrower entitled
to vote for members of the board of directors or equivalent governing body of
the Borrower on a fully-diluted basis (and taking into account all such
securities that such person or group has the right to acquire pursuant to any
option right);

 

(b)                                 during any
period of 12 consecutive months, a majority of the members of the board of
directors or other equivalent governing body of the Borrower cease to be
composed of individuals (i) who were members of that board or equivalent
governing body on the first day of such period, (ii) whose election or
nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at
the time of such election or nomination at least a majority of that board or
equivalent governing body or (iii) whose election or nomination to that
board or other equivalent governing body was approved by individuals referred
to in clauses (i) and (ii) above constituting at the time of such
election or nomination at least a majority of that board or equivalent
governing body (excluding, in the case of both clause (ii) and
clause (iii), any individual whose initial nomination for, or
assumption of office 

 

4

 

as, a member of that board or equivalent governing body occurs as a
result of an actual or threatened solicitation of proxies or consents for the
election or removal of one or more directors by any person or group other than
a solicitation for the election of one or more directors by or on behalf of the
board of directors); or

 

(c)                                  any Person or
two or more Persons acting in concert (other than a Lender or an Affiliate of a
Lender) shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation thereof, will result in
its or their acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the Borrower, or
control over the equity securities of the Borrower entitled to vote for members
of the board of directors or equivalent governing body of the Borrower on a
fully-diluted basis (and taking into account all such securities that such
Person or group has the right to acquire pursuant to any option right)
representing 30% or more of the combined voting power of such securities.

 

“Change
in Law” means (a) the adoption of any law, rule or regulation
after the date of this Agreement by any Governmental Authority, (b) any
change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender (or, for purposes of Section 5.1(b)),
by any lending office of such Lender or by such Lender’s holding company, if
any) with any request, guideline or directive (whether or not having the force
of law) of any Governmental Authority made or issued after the date of this
Agreement.

 

“Closing
Date” means the date on which all of the conditions precedent set forth in Article VI
shall have been satisfied (or waived in accordance with Section 12.1(a)).

 

“Collateral”
means all property of any kind which is subject to a Lien in favor of Lenders
(or in favor of the CIT Capital USA Inc., as collateral agent for the benefit
of the Secured Creditors) or which, under the terms of any Security Document,
is purported to be subject to such a Lien.

 

“Commitment”
means, with respect to each Lender, the commitment of such Lender to make Loans
hereunder, as such commitment may be (a) modified from time to time
pursuant to Section 2.6 and (b) modified from time to time
pursuant to assignments by or to such Lender pursuant to Section 12.5.  The amount representing each Lender’s
Commitment shall at any time be the lesser of such Lender’s Maximum Credit
Amount and such Lender’s Percentage Share of the then effective Borrowing Base.

 

“Commitment
Period” means the period from and including the Closing Date to but
excluding the Maturity Date, or (a) such later date as requested by the
Borrower and approved by all Lenders or (b) such earlier date as may be
requested by the Borrower (or, if earlier, the day on which the obligation of
Lenders to make Loans hereunder has been terminated or the Notes first become
due and payable in full, whether by acceleration or otherwise).

 

“Consolidated”
refers to the consolidation of any Person, in accordance with GAAP, with its
properly consolidated subsidiaries. 
References herein to a Person’s Consolidated financial statements,
financial position, financial condition, liabilities, etc. refer to the
consolidated 

 

5

 

financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries, as
of the date thereof.

 

“Consolidated
EBITDA” means for any period, the aggregate Consolidated Net Income of the
Borrower for such period; plus each of the following (without
duplication) determined for the Borrower for such period: (a) any
provision for (or less any benefit from) income or franchise taxes included in
determining Consolidated Net Income; (b) Consolidated interest expense
deducted in determining Consolidated Net Income (c) depreciation,
depletion and amortization expense deducted in determining Consolidated Net
Income and any other non-cash charge, expense or loss (including, without
limitation, non-cash employee and director compensation) deducted in
determining Consolidated Net Income (excluding any such charge, expense or loss
incurred in the ordinary course of business that constitutes an accrual of or
reserve for cash charges for any future period), (d) all costs and
expenses in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Loan Documents and any amendments,
modifications or waivers of or consents related to the provisions hereof or
thereof, and (e) transaction costs, expenses and charges with respect to
acquisitions deducted from Consolidated Net Income pursuant to SFAS 141(R); provided that cash payments made during such period or in
any future period in respect of non-cash charges, expenses or losses, other
than any such excluded charge, expense or loss as described in the
parenthetical to this clause (c), shall be subtracted from
Consolidated Net Income in calculating Consolidated EBITDA for the period in
which such payments are made; and minus each of the following (without
duplication) determined for the Borrower for such period, to the extent
included in determining such Consolidated Net Income for such period: (i) interest
income; (ii) any extraordinary income or gains; and (iii) any other
non-cash income or gain (excluding any items that represent the reversal of any
accrual of, or cash reserve for, anticipated cash charges in any prior period
that are described in the parenthetical to clause (c) above).

 

“Consolidated
Funded Indebtedness” means as of any date, the sum of the following
(without duplication):  (a) all
Indebtedness which is classified as “long-term indebtedness” on Consolidated
balance sheet of the Borrower prepared as of such date in accordance with GAAP
and any current maturities and other principal amount in respect of such
Indebtedness due within one year but which was classified as “long-term
indebtedness” at the creation thereof, (b) Indebtedness for borrowed money
of the Borrower and its Consolidated Subsidiaries outstanding under a revolving
credit or similar agreement providing for borrowings (and renewals and
extensions thereof) over a period of more than one year, notwithstanding the
fact that any such borrowing is made within one year of the expiration of such
agreement, (c) all Indebtedness in respect of Capital Leases of the
Borrower and its Consolidated Subsidiaries, and (d) other Indebtedness of
the Borrower and its Consolidated Subsidiaries on which interest accrues.

 

“Consolidated
Net Income” means, for any period, the aggregate net income (or loss) of
the Borrower and its Consolidated Subsidiaries for such period determined in
accordance with GAAP.  Consolidated Net
Income shall not include (i) any gain or loss from the sale of assets
other than in the ordinary course of business, or (ii) any non-cash
income, gains, losses or charges resulting from the requirements of SFAS 133 or
143.

 

6

 

“Default”
means any Event of Default and any default, event or condition which would,
with the giving of any requisite notices and the passage of any requisite
periods of time, constitute an Event of Default.

 

“Default
Rate” means, in respect of the principal of any Loan or any other amount
payable by the Borrower under this Agreement or any other Loan Document, a rate
per annum during the period commencing on the date of occurrence of an Event of
Default until such amount is paid in full or all Events of Default are cured or
waived equal to the applicable interest rate plus three percent (3.0%) per
annum, but in no event to exceed the Highest Lawful Rate.

 

“Defaulting
Lender” means any Lender, as reasonably determined by the Administrative
Agent, that has (a) failed to fund any portion of its Loans within three (3) Business
Days of the date required to be funded by it hereunder, (b) notified the
Borrower, the Administrative Agent or any Lender in writing that it does not
intend to comply with any of its funding obligations under this Agreement or
has made a public statement to the effect that it does not intend to comply
with its funding obligations under this Agreement, (c) failed, within
three (3) Business Days after written request by the Administrative Agent,
to confirm that it will comply with the terms of this Agreement relating to its
obligations to fund prospective Loans; provided that any such Lender shall
cease to be a Defaulting Lender under this clause (c) upon receipt of such
confirmation by the Administrative Agent; (d) otherwise failed to pay over
to the Administrative Agent or any other Lender any other amount required to be
paid by it hereunder within three (3) Business Days of the date when due,
unless the subject of a good faith dispute, or (e) become the subject of a
bankruptcy or insolvency proceeding, or has had a receiver, conservator,
trustee or custodian appointed for it, or has taken any action in furtherance
of, or indicating its consent to, approval of or acquiescence in any such
proceeding or appointment or has a parent company that has become the subject
of a bankruptcy or insolvency proceeding, or has had a receiver, conservator,
trustee or custodian appointed for it, or has taken any action in furtherance
of, or indicating its consent to, approval of or acquiescence in any such
proceeding or appointment; provided that a Lender shall not be a
Defaulting Lender solely by virtue of the ownership or acquisition of any
Equity interest in such Lender or a parent company thereof by a Governmental
Authority or instrumentality thereof.

 

“Disclosure
Schedule” means Schedule 1 hereto, as it may be amended,
supplemented or otherwise modified from time to time by the Borrower with the
consent of Required Lenders.

 

“Distribution”
means (a) any dividend or other distribution made by a Restricted Person
on or in respect of any stock, partnership interest, or other equity interest
in such Restricted Person or any other Restricted Person (including any option
or warrant to buy such an equity interest), or (b) any payment made by a
Restricted Person to purchase, redeem, acquire or retire any stock, partnership
interest, or other equity interest in such Restricted Person or any other
Restricted Person (including any such option or warrant).

 

“Eligible
Transferee” means a Person which either (a) is a Lender or an
Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by
the Administrative Agent and, so long as no Default is continuing, by the
Borrower, which consents in each case will not be unreasonably withheld,
delayed or conditioned; provided that
no Person organized outside the 

 

7

 

United States may be an Eligible Transferee if the Borrower would be
required to pay withholding taxes on interest or principal owed to such Person.

 

“Engineering
Data” has the meaning assigned such term in Section 2.7(c)(i).

 

“Engineering
Report” means the Initial Engineering Report and each engineering report
delivered pursuant to Section 8.2(e) and Section 8.2(f).

 

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

 

“Equity”
means shares of capital stock or a partnership, profits, capital, member or
other equity interest, or options, warrants or any other rights to substitute
for or otherwise acquire the capital stock or a partnership, profits, capital,
member or other equity interest of any Person.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, and any successor statutes or statute, together with all rules and
regulations promulgated with respect thereto.

 

“ERISA
Affiliate” means each Restricted Person and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control  that,
together with such Restricted Person, are treated as a single employer under Section 414
of the Internal Revenue Code.

 

“ERISA
Plan” means any employee pension benefit plan subject to Title IV of ERISA
maintained by any ERISA Affiliate with respect to which any Restricted Person
has a fixed or contingent liability.

 

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

 

“Event
of Default” has the meaning given to such term in Section 10.1.

 

“Excess
Cash Flow” means, for any month, all cash proceeds received by Borrower
from its Oil and Gas Properties less (i) amounts attributable to royalty
or overriding royalty interests, other working interests, production payments
or other similar payments made or to be made to other interest owners from such
proceeds, (ii) amounts for debt service, (iii) Capital Expenditures,
lease operating expenses, severance and other production taxes, and general and
administrative expenses actually paid in such month, and (iv) reasonably
anticipated Capital Expenditures, lease operating expenses, severance and other
production taxes, and general and administrative expenses to be paid in the
immediately following month.

 

8

 

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

 

“Fee
Letter” means, collectively, (a) that certain Proposal Letter dated as
of June 10, 2009, by and between the Borrower and the Administrative Agent
and (b) that certain Fee Letter dated as of the Closing Date by and
between the Borrower and the Administrative Agent.

 

“Fiscal
Quarter” means a three-month period ending on September 30, December 31,
March 31 or June 30 of any year.

 

“Fiscal
Year” means a twelve-month period ending on June 30 of any year.

 

“GAAP”
means those generally accepted accounting principles and practices in the
United States of America in effect from time to time which are recognized as
such by the Financial Accounting Standards Board (or any generally recognized
successor).  If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to any
Restricted Person or with respect to any Restricted Person and its Consolidated
Subsidiaries may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to each Lender, and
Required Lenders and the Administrative Agent agree to such change insofar as
it affects the accounting of such Restricted Person and its Consolidated
Subsidiaries.

 

“Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

“Guarantor”
means any Person who has guaranteed some or all of the Obligations pursuant to
a guaranty listed on the Security Schedule or any other Person who has
guaranteed some or all of the Obligations and who has been accepted by the
Administrative Agent as a Guarantor or any Subsidiary of the Borrower which now
or hereafter executes and delivers a guaranty to the Administrative Agent
pursuant to Section 8.15.

 

“Guaranty
Agreement” means that certain Guaranty Agreement executed by the
Guarantors, if any, in form and substance reasonably acceptable to the
Administrative Agent unconditionally guarantying on a joint and several basis,
payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.

 

9

 

“Hazardous
Materials” means any substances regulated under any Environmental Law,
whether as pollutants, contaminants, or chemicals, or as industrial, toxic or
hazardous substances or wastes, or otherwise.

 

“Hedge
Contract” means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement.

 

“Highest
Lawful Rate” means, with respect to each Lender Party to whom Obligations
are owed, the maximum nonusurious rate of interest that such Lender Party is
permitted under applicable Law to contract for, take, charge, or receive with
respect to such Obligations.  All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately
for each Lender Party as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender Party at a rate
in excess of the Highest Lawful Rate applicable to such Lender Party.

 

“Hydrocarbons”
means crude oil, gas, other hydrocarbons, or other minerals.

 

“Indebtedness”
of any Person means Liabilities, contingent or otherwise, in any of the
following categories:

 

(a)                                  Liabilities for
borrowed money;

 

(b)                                 Liabilities constituting
an obligation to pay the deferred purchase price of property or services;

 

(c)                                  Liabilities
evidenced by a bond, debenture, note or similar instrument;

 

(d)                                 Liabilities
which (i) would under GAAP be shown on such Person’s balance sheet as a
liability, and (ii) are payable more than one year from the date of
creation or incurrence thereof (other than reserves for taxes and reserves for
contingent obligations);

 

(e)                                  Liabilities
arising under Hedge Contracts (on a net basis to the extent netting is provided
for in the applicable Hedge Contract);

 

(f)                                    Liabilities
constituting Capital Lease Obligations;

 

(g)                                 Liabilities
arising under conditional sales or other title retention agreements;

 

(h)                                 Liabilities
owing under direct or indirect guaranties of Liabilities of any other Person or
otherwise constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Liabilities of any
other Person (such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Liabilities, assets, goods,
securities or services), but excluding endorsements in the ordinary course of
business of negotiable instruments in the course of collection;

 

10

 

(i)                                     Liabilities
(for example, repurchase agreements, mandatorily redeemable preferred stock and
sale/leaseback agreements) consisting of an obligation to purchase or redeem
securities or other property, if such Liabilities arise out of or in connection
with the sale or issuance of the same or similar securities or property;

 

(j)                                     Liabilities
with respect to letters of credit or applications or reimbursement agreements
therefor;

 

(k)                                  Liabilities
with respect to banker’s acceptances;

 

(l)                                     Liabilities
with respect to payments received in consideration of oil, gas, or other
minerals yet to be acquired or produced at the time of payment (including
obligations under “take-or-pay” contracts to deliver gas in return for payments
already received and the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or indirectly
received payment); or

 

(m)                               Liabilities
with respect to other obligations to deliver goods or services in consideration
of advance payments therefor;

 

provided, however, that
the “Indebtedness” of any Person shall not include Liabilities (i) resulting
from the requirements of SFAS 143, or (ii) that were incurred by such
Person on ordinary trade terms to vendors, suppliers, or other Persons
providing goods and services for use by such Person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.

 

“Intercreditor
Agreement” means an Intercreditor and Collateral Agency Agreement among the
Borrower, the Guarantors, the Approved Hedge Counterparties named therein, the
Administrative Agent, Lenders, and CIT Capital USA Inc., as collateral agent,
in form and substance satisfactory to the Administrative Agent.

 

“Initial
Engineering Report” means the engineering report concerning certain Oil and
Gas Properties of Borrower as of July 1, 2008  and
prepared by Haas Petroleum Engineering Services, Inc.

 

“Initial
Financial Statements” means the audited annual Consolidated financial
statements of Borrower as of June 30, 2008, and the unaudited quarterly
Consolidated financial statements of Borrower as of March 31, 2009.

 

“Insurance
Schedule” means Schedule 3 attached hereto.

 

“Interest
Election Request” means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.4.

 

“Interest
Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December and (b) with respect to
any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months’ duration, each day

 

11

 

prior to the last day of such Interest Period that occurs at intervals
of three months’ duration after the first day of such Interest Period.

 

“Interest
Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, three or six months
thereafter, as the Borrower may elect; provided, that (a) if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (b) any
Interest Period pertaining to a Eurodollar Borrowing that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest
Period.  For purposes hereof, the date of
a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.

 

“Interim
Redetermination” has the meaning given to such term in Section 2.7(b).

 

“Internal
Revenue Code” means the United States Internal Revenue Code of 1986, as
amended from time to time and any successor statute or statutes, together with
all rules and regulations promulgated with respect thereto.

 

“Investment”
means any investment, made directly or indirectly, in any Person, whether by
purchase, acquisition of equity interests, indebtedness or other obligations or
securities or by extension of credit, loan, advance, capital contribution or
otherwise and whether made in cash, by the transfer of property, or by any
other means.

 

“Law”
means any applicable statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof, as the case may be.  Any reference to a Law includes any amendment
or modification to such Law, and all regulations, rulings, and other Laws
promulgated under such Law.

 

“Lender
Hedge Obligations” means all obligations arising from time to time under
Hedge Contracts entered into from time to time between the Borrower or any
Guarantor and a counterparty that is a Lender or an Affiliate of a Lender; provided that (a) if such counterparty ceases to be a
Lender hereunder or an Affiliate of a Lender hereunder, Lender Hedge
Obligations shall only include such obligations to the extent arising from
transactions entered into at the time such counterparty was a Lender hereunder
or an Affiliate of a Lender hereunder, and (b) for any of the forgoing to
be included within “Lender Hedge Obligations” hereunder, the applicable
counterparty must have provided the Administrative Agent written notice of the
existence thereof and such transaction must not otherwise be prohibited under
this Agreement.

 

“Lender
Parties” means the Administrative Agent and all Lenders.

 

12

 

“Lenders”
means each Lender signatory hereto, and the successors of each such party as a
Lender hereunder pursuant to Section 12.5.

 

“Lenders
Schedule” means Schedule 4 hereto.

 

“Liabilities”
means, as to any Person, all indebtedness, liabilities and obligations of such
Person, whether matured or unmatured, liquidated or unliquidated, primary or
secondary, direct or indirect, absolute, fixed or contingent, and whether or
not required to be considered pursuant to GAAP.

 

“LIBO
Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Bloomberg BBAM Screen (or on any successor or
substitute thereto or therefor or any successor or substitute service,
providing rate quotations comparable to those currently provided on Bloomberg
BBAM Screen, as determined by the Administrative Agent from time to time for
purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time for
any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for
such Interest Period shall be reasonably determined by the Administrative Agent
by reference to such other comparable publicly available service for displaying
the offered rate for dollar deposits in the London interbank market as may be
selected by the Administrative Agent and, in the absence of availability, such
other method to determine such Eurodollar rate as may be selected by the
Administrative Agent in its sole discretion.

 

“Lien”
means, with respect to any property or assets, any right or interest therein of
a creditor to secure Liabilities owed to it or any other arrangement with such
creditor which provides for the payment of such Liabilities out of such
property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including any lien, mortgage, security interest, pledge,
deposit, production payment, rights of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent thereto, tax lien,
mechanic’s or materialman’s lien, or any other charge or encumbrance for
security purposes, whether arising by Law or agreement or otherwise, but
excluding any right of offset which arises without agreement in the ordinary
course of business.  “Lien” also means
any filed financing statement, any registration of a pledge (such as with an
issuer of uncertificated securities), or any other arrangement or action which
would serve to perfect a Lien described in the preceding sentence, regardless
of whether such financing statement is filed, such registration is made, or
such arrangement or action is undertaken before or after such Lien exists.

 

“Loan
Documents” means this Agreement, the Notes, the Security Documents, the Fee
Letter and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive
of term sheets and commitment letters).

 

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

 

13

 

“Majority
Lenders” means, at any time while no Loans are outstanding, Lenders having
more than fifty percent (50%) of the Aggregate Maximum Credit Amounts; and at
any time while any Loans are outstanding, Lenders holding more than fifty
percent (50%) of the outstanding aggregate principal amount of the Loans; provided, that if there are less than three Lenders, all
Lenders shall be required to constitute the “Majority Lenders”.

 

“Material
Adverse Change” means a material and adverse change to (a) the
Borrower’s Consolidated financial condition, (b) the Borrower’s
Consolidated business, assets, operations, properties or prospects, considered
as a whole, (c) the Borrower’s ability to timely pay the Obligations, or (d) the
validity or enforceability of the material terms of any Loan Documents.

 

“Material
Agreement” has the meaning assigned such term in Section 7.24.

 

“Maturity
Date” means July 1, 2012.

 

“Maximum
Credit Amount” means, as to each Lender, the amount set forth opposite such
Lender’s name on the Lenders Schedule under the caption “Maximum Credit Amounts”,
as the same may be (a) reduced or terminated from time to time in
connection with a reduction or termination of the Aggregate Maximum Credit
Amounts pursuant to Section 2.6(b) or (b) modified from
time to time pursuant to any assignment permitted by Section 12.5.

 

“Moody’s”
means Moody’s Investors Service, Inc., or its successor.

 

“Mortgaged
Property” means any Property owned by the Borrower or any Guarantor which
is subject to the Liens existing and to exist under the terms of the Security
Documents.

 

“Note”
means the promissory notes of the Borrower described in Section 2.2(d) and
being substantially in the form of Exhibit A together with all amendments,
modifications, replacements, extensions, and rearrangements thereof.

 

“Obligations”
means all Liabilities from time to time owing by any Restricted Person to any
Lender Party under or pursuant to any of the Loan Documents.  “Obligation” means any part of the
Obligations.

 

“Oil
and Gas Properties” means all oil, gas and/or mineral leases, oil, gas or
mineral properties, mineral servitudes and/or mineral rights of any kind
(including mineral fee interests, lease interests, farmout interests,
overriding royalty and royalty interests, net profits interests, oil payment
interests, production payment interests and other types of mineral interests),
and all Hydrocarbons gathering, treating, storage, processing and handling
assets.

 

“Operating
Account” means (a) the deposit account #51895680 maintained at the
Borrower’s expense with Amegy Bank, National Association existing on the
Closing Date or (b) if the foregoing account is closed, a deposit account
opened with a bank reasonably acceptable to the Administrative Agent in
accordance with Section 8.18 maintained at the Borrower’s expense.

 

“Operating
Account Bank” means the bank where the Borrower maintains the Operating
Account.

 

14

 

“Percentage
Share” means, with respect to any Lender, the percentage of the Aggregate
Maximum Credit Amounts represented by such Lender’s Maximum Credit Amount as
such percentage is set forth on Lenders Schedule.

 

“Permitted
Investments” means:

 

(a)                                  Cash
Equivalents;

 

(b)                                 existing
Investments described in the Disclosure Schedule;

 

(c)                                  so long as no
Default has occurred, normal and prudent extensions of credit by Restricted
Persons to their customers for buying goods and services in the ordinary course
of business or to another Restricted Person in the ordinary course of business,
which extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner;

 

(d)                                 so long as no
Default has occurred, extensions of credit among Restricted Persons which are
subordinated to the Obligations upon terms and conditions satisfactory to
Required Lenders and the Administrative Agent in their sole and absolute
discretion; and

 

(e)                                  Investments not
described in subsections (a) through (d) above
which do not (taking into account all Investments of all Restricted Persons)
exceed an aggregate amount of $100,000 during any Fiscal Year.

 

“Permitted
Liens” means:

 

(a)                                  statutory Liens
for taxes, assessments or other governmental charges or levies which are not
yet delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP;

 

(b)                                 landlords’,
operators’, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s,
or other like Liens which do not secure Indebtedness, in each case only to the
extent arising in the ordinary course of business and only to the extent securing
obligations which are not delinquent or which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been maintained
in accordance with GAAP;

 

(c)                                  minor defects
and irregularities in title to any property, so long as such defects and
irregularities neither secure Indebtedness nor materially impair the value of
such property or the use of such property for the purposes for which such
property is held;

 

(d)                                 deposits of
cash or securities to secure the performance of bids, trade contracts, leases,
statutory obligations and other obligations of a like nature (excluding appeal
bonds) incurred in the ordinary course of business;

 

(e)                                  Liens under the
Security Documents, including Liens securing Hedge Contracts entered into by
Approved Hedge Counterparties pursuant to and subject to the Intercreditor
Agreement; and

 

15

 

(f)                                    with respect
only to property subject to any particular Security Document, Liens burdening
such property which are expressly allowed by, or described or referenced in,
such Security Document.

 

“Person”
means an individual, corporation, general partnership, limited partnership,
limited liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, Tribunal, or any other legally
recognizable entity.

 

“Prescribed
Forms” has the meaning given to such term in Section 5.3(c).

 

“Prime
Rate” means in respect of ABR Loans, the rate of interest per annum
publicly announced from time to time by JPMorgan Chase Bank, N.A. (or its
successor) as its prime rate in effect at its principal office in New York City
(or if such rate is at any time not available, the prime rate so quoted by any
banking institution as determined by the Administrative Agent in its reasonable
discretion); each change in the Prime Rate shall be effective on the date such
change is publicly announced as being effective. Such rate is set by the
JPMorgan Chase Bank, N.A. as a general reference rate of interest, taking into
account such factors as the JPMorgan Chase Bank, N.A. may deem appropriate; it
being understood that many of the JPMorgan Chase Bank, N.A.’s commercial or
other loans are priced in relation to such rate, that it is not necessarily the
lowest or best rate actually charged to any customer and that the JPMorgan
Chase Bank, N.A. may make various commercial or other loans at rates of
interest having no relationship to such rate.

 

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

 

“Projected
Oil and Gas Production” means the projected production of oil or gas
(measured by volume unit or BTU equivalent, not sales price) for the term of
the contracts or a particular month, as applicable, from properties and
interests owned by the Restricted Persons that are located in or offshore of
the United States and that are expected to have attributable to them oil or gas
reserves, as such production is projected in the Engineering Report most
recently delivered, after deducting projected production from any properties or
interests sold or under contract for sale that had been included in such report
and after adding projected production from any properties or interests that had
not been reflected in such report but that are reflected in a separate or
supplemental report meeting the requirements of Section 8.2(f) and
otherwise are satisfactory to the Administrative Agent.

 

“Proved
Reserves” means “Proved Reserves” as defined in the Definitions for Oil and
Gas Reserves (in this paragraph, the “Definitions”) promulgated by the Society
of Petroleum Engineers (or any generally recognized successor) as in effect at
the time in question.  “Proved
Developed Producing Reserves” means Proved Reserves which are categorized
as both “Developed” and “Producing” in the Definitions, “Proved Developed
Nonproducing Reserves” means Proved Reserves which are categorized as both “Developed”
and “Nonproducing” in the Definitions, and “Proved Undeveloped Reserves” means
Proved Reserves which are categorized as “Undeveloped” in the Definitions.

 

“Rating
Agency” means either S & P or Moody’s.

 

16

 

“Redetermination
Date” means, with respect to any Scheduled Redetermination or any Interim
Redetermination, the date that the redetermined Borrowing Base related thereto
becomes effective pursuant to Section 2.7(d).

 

“Register”
has the meaning given such term in Section 12.5(f).

 

“Regulation
D” means Regulation D of the Board of Governors of the Federal Reserve
System as from time to time in effect.

 

“Required
Lenders” means, at any time while no Loans are outstanding, Lenders having
at least sixty-six and two-thirds percent (66 2/3%) of the Aggregate Maximum
Credit Amounts; and at any time while any Loans are outstanding, Lenders
holding at least sixty-six and two-thirds percent (66 2/3%) of the outstanding
aggregate principal amount of the Loans; provided, that
if there are less than three Lenders, all Lenders shall be required to
constitute the “Required Lenders”.

 

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

 

“Restricted
Person” means the Borrower, each Subsidiary of the Borrower, and each
Guarantor.

 

“Revolving
Credit Exposure” means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lender’s Loans.

 

“S &
P” means Standard & Poor’s Ratings Services (a division of The
McGraw Hill Companies), or its successor.

 

“Scheduled
Redeterminations” has the meaning given to such term in Section 2.7(b).

 

“Secured
Creditors” shall mean, collectively, the Lenders, the Approved Hedge
Counterparties and the Administrative Agent.

 

“Security
Documents” means the instruments listed in the Security Schedule and all
other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to the Administrative Agent in connection
with this Agreement or any transaction contemplated hereby to secure or
guarantee the payment of any part of the Obligations or the Lender Hedge
Obligations or the performance of any Restricted Person’s other duties and
obligations under the Loan Documents.

 

“Security
Schedule” means Schedule 2 hereto.

 

17

 

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

 

“Subsidiary”
means, with respect to any Person, any corporation, association, partnership,
limited liability company, joint venture, or other business or corporate
entity, enterprise or organization which is directly or indirectly (through one
or more intermediaries) controlled by or owned fifty percent or more by such
Person.

 

“Termination
Event” means (a) the occurrence with respect to any ERISA Plan of (i) a
reportable event described in Section 4043(c)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(c) of
ERISA other than a reportable event not subject to the provision for 30-day
notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) or 4043(b)(4) of ERISA, or (b) the
withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in
which it was a “substantial employer” as defined in Section 4001(a)(2) of
ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan
or the treatment of any ERISA Plan amendment as a termination under Section 4041(c) of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan
by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA,
or (e) any other event or condition which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any ERISA Plan.

 

“Torch
Management Services Agreement” means that certain Second Amended and
Restated Agreement for Operational, Accounting and Financial Services dated January 1,
2009 among Torch Energy Advisors Incorporated, Torch Energy Services, Inc.
and the Borrower.

 

“Total
Reserve Value” means, with respect to any Proved Reserves expected to be
produced from any Oil and Gas Properties, the net present value, discounted at
10% per annum, of the future net revenues expected to accrue to the Borrower’s
and its Subsidiaries’ collective interests in such reserves during the
remaining expected economic lives of such reserves.  Each calculation of such expected future net
revenues shall be made in accordance with the then existing standards of the
Society of Petroleum Engineers; provided that
in any event (a) appropriate deductions shall be made for severance and ad
valorem taxes, and for operating, gathering, transportation and marketing costs
required for the production and sale of such reserves, (b) the pricing
assumptions used in determining Total Reserve Value for any particular reserves
shall be based upon (i) annual quotations on the New York Mercantile Exchange
for Henry Hub (natural gas) or Cushing, Oklahoma (oil) futures on the date of
the relevant Engineering Report for each calendar year to the extent such
quotations are available for future 

 

18

 

periods; provided further that with
respect to quotations for calendar years after the fifth calendar year, the
quotation for the fifth calendar year shall be applied, (ii) with respect
to future periods for which quotations are not available on the New York Mercantile
Exchange, constant pricing for such periods based on the quotation for the last
period for which a quotation is available on the New York Mercantile Exchange
for Henry Hub (natural gas) or Cushing, Oklahoma (oil), (c) operating
expenses shall be held constant, (d) future Capital Expenditures shall be
expressed in current year dollars (i.e., inflation shall not be assumed), (e) to
the extent basis Hedge Contracts are not in place, the cash-flows derived from
the pricing assumptions set forth in clause (b) above shall be
further adjusted to account for the historical basis differentials for each
month during the preceding 12-month period calculated by comparing realized
crude oil and natural gas prices to Cushing, Oklahoma and Henry Hub NYMEX
prices for each month during such period and (f) to the extent that Hedge
Contracts are in place the cash-flows derived from the pricing assumptions set
forth in clause (b) above shall be, (i) in the case of
volumes subject to a swap or other fixed priced hedge, at the applicable fixed
price and (ii) in the case of volumes subject to a floor or ceiling hedge
(including a collar), at the price set out in the preceding clause (b)(i),
but not to exceed such ceiling or to be less than such floor.

 

“Tribunal”
means any government, any arbitration panel, any court or any governmental
department, commission, board, bureau, agency or instrumentality of the United
States of America or any state, province, commonwealth, nation, territory,
possession, county, parish, town, township, village or municipality thereof,
whether now or hereafter constituted or existing.

 

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

 

Section 1.2.                                   Types of Loans and
Borrowings.  For
purposes of this Agreement, Loans and Borrowings, respectively, may be
classified and referred to by Type (e.g., a “Eurodollar Loan” or a “Eurodollar
Borrowing”).

 

Section 1.3.                                   Exhibits and Schedules;
Additional Definitions.  All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes.  Reference is hereby made to
the Security Schedule for the meaning of certain terms defined therein and used
but not defined herein, which definitions are incorporated herein by reference.

 

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

 

Section 1.5.                                   References and Titles.  All references in this Agreement to Exhibits,
Schedules, articles, sections, subsections and other subdivisions refer to the
Exhibits, Schedules, articles, sections, subsections and other subdivisions of
this Agreement unless expressly provided otherwise.  Exhibits and Schedules to any Loan Document
shall be deemed incorporated by reference in such Loan Document.  References to any document, instrument, or 

 

19

 

agreement (a) shall include all exhibits, schedules, and other
attachments thereto, and (b) shall include all documents, instruments, or
agreements issued or executed in replacement thereof.  Titles appearing at the beginning of any
subdivisions are for convenience only and do not constitute any part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions.  The words “this
Agreement”, “this instrument”, “herein”, “hereof”, “hereby”, “hereunder” and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited.  The phrases “this section” and “this subsection”
and similar phrases refer only to the sections or subsections hereof in which
such phrases occur.  The word “or” is not
exclusive, and the word “including” (in its various forms) means “including
without limitation”.  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.  Accounting terms have the meanings assigned
to them by GAAP, as applied by the accounting entity to which they refer.  References to “days” shall mean calendar
days, unless the term “Business Day” is used. 
Unless otherwise specified, references herein to any particular Person
also refer to its successors and permitted assigns.

 

Section 1.6.                                   Calculations and
Determinations.  All
calculations under the Loan Documents of interest and fees shall be made on the
basis of actual days elapsed (including the first day but excluding the last)
and a year of 360 days.  Each determination
by a Lender Party of amounts to be paid under Article III or any
other matters which are to be determined hereunder by a Lender Party (such as
any Business Day) shall, in the absence of manifest error, be conclusive and
binding.  Unless otherwise expressly
provided herein or unless Required Lenders otherwise consent all financial
statements and reports furnished to any Lender Party hereunder shall be
prepared and all financial computations and determinations pursuant hereto
shall be made in accordance with GAAP.

 

Section 1.7.                                   Joint Preparation;
Construction of Indemnities and Releases.  This Agreement and the other Loan Documents
have been reviewed and negotiated by sophisticated parties with access to legal
counsel and no rule of construction shall apply hereto or thereto which
would require or allow any Loan Document to be construed against any party
because of its role in drafting such Loan Document.  All indemnification and release provisions of
this Agreement shall be construed broadly (and not narrowly) in favor of the
Persons receiving indemnification or being released.

 

ARTICLE
II - The Credits

 

Section 2.1.                                   Commitments.  Subject to the terms and conditions set forth
herein, each Lender agrees to make Loans to the Borrower during the Commitment
Period in an aggregate principal amount that will not result in (a) such
Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
total Revolving Credit Exposures exceeding the total Commitments.  Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, repay and
reborrow the Loans.

 

20

 

Section 2.2.                                   Loans and
Borrowings.

 

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

 

(b)                                 Types of Loans.  Subject to Section 3.3, each
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. 
Each Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect
the obligation of the Borrower to repay such Loan in accordance with the terms
of this Agreement.

 

(c)                                  Minimum
Amounts; Limitation on Number of Borrowings.  At the commencement of each Interest Period
for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $250,000 and not less than $250,000.  At the time that each ABR Borrowing is made,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $100,000; provided that
an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Commitments. 
Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a
total of five (5) Eurodollar Borrowings outstanding.  Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.

 

(d)                                 Notes.  The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower upon request by such
Lender in substantially the form of Exhibit A, dated, in the case
of (i) any Lender party hereto as of the date of this Agreement, or (ii) any
Lender that becomes a party hereto pursuant to an Assignment and Acceptance, as
of the effective date of the Assignment and Acceptance, payable to such Lender
or its registered assigns in a principal amount equal to its Maximum Credit
Amount as in effect on such date, and otherwise duly completed.  In the event that any Lender’s Maximum Credit
Amount increases or decreases for any reason (whether pursuant to Section
2.6, Section 12.5 or otherwise), the Borrower shall deliver or
cause to be delivered on the effective date of such increase or decrease, a new
Note payable to such Lender in a principal amount equal to its Maximum Credit
Amount after giving effect to such increase or decrease, and otherwise duly
completed.  The date, amount, Type,
interest rate and, if applicable, Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Note.  Failure to make any such notation shall not
affect any Lender’s or the Borrower’s rights or obligations in respect of such
Loans. Upon surrender of any Note at the principal office of the Administrative
Agent for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder or its attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), and an assignment agreement in form
and substance acceptable to the Administrative 

 

21

 

Agent whereby the assignee
holder agrees to be bound by the terms hereof that are applicable to holders,
shall execute and deliver, at the Borrower’s expense, a new Note in exchange
therefor.

 

(e)                                  Loans and
Borrowings under the Existing Credit Agreement.  On the Closing Date:

 

(i)                                     the Borrower
shall pay all accrued and unpaid commitment fees and all other fees that are
outstanding under the Existing Credit Agreement for the account of each “Lender”
under the Existing Credit Agreement;

 

(ii)                                  each “ABR Loan”
outstanding under the Existing Credit Agreement shall be deemed to be amended
and restated with the proceeds of a new ABR Loan and continued as existing
Loans under this Agreement and not as a novation;

 

(iii)                               upon execution
of this Agreement and receipt of $22,222,222.21 from CIT Bank, NGP Capital
Resources Company shall be deemed to have assigned a portion of the ABR Loans
continued under the this Agreement to CIT Bank in an aggregate principal amount
of $22,222,222.21 in accordance with its Percentage Share of the Commitments as
set forth on the Lender Schedule.

 

(iv)                              each “Lender”
under the Existing Credit Agreement shall deliver to the Borrower the Note
issued by the Borrower to it under the Existing Credit Agreement, marked “renewed,
extended and replaced” or otherwise similarly defaced; and

 

(v)                                 the Existing
Credit Agreement and the commitments thereunder shall be superceded by this
Agreement and such commitments shall terminate.

 

It is the intent of the
parties hereto that this Agreement not constitute a novation of the obligations
and liabilities existing under the Existing Credit Agreement or evidence
repayment of any such obligations and liabilities and that this Agreement amend
and restate in its entirety the Existing Credit Agreement and re-evidence the
obligations of the Borrower outstanding thereunder

 

Section 2.3.                                   Requests for
Borrowings.  To request
a Borrowing, the Borrower shall notify the Administrative Agent of such request
by telephone (a) in the case of a Eurodollar Borrowing, not later than
12:00 noon, New York City time, three (3) Business Days before the date of
the proposed Borrowing or (b) in the case of an ABR Borrowing, not later
than 12:00 noon, New York City time, one (1) Business Day before the date
of the proposed Borrowing.  Each such
telephonic Borrowing Notice shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Notice in substantially the form of Exhibit B-1 and
signed by the Borrower.  Each such
telephonic and written Borrowing Notice shall specify the following information
in compliance with Section 2.2:

 

(i)                                     the aggregate
amount of the requested Borrowing;

 

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

 

22

 

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

 

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

 

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

 

(vi)                              the location
and number of the Borrower’s account to which funds are to be disbursed, which
shall comply with the requirements of Section 2.5.

 

If no election as to the Type of Borrowing is
specified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month’s duration.  Each Borrowing Notice shall constitute a
representation that the amount of the requested Borrowing shall not cause the
total Revolving Credit Exposures to exceed the total Commitments (i.e., the
lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing
Base).

 

Promptly following receipt of a Borrowing
Notice in accordance with this Section 2.3, the Administrative
Agent shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing.

 

Section 2.4.                                   Interest
Elections; Conversions.

 

(a)                                  Conversion and
Continuance.  Each
Borrowing initially shall be of the Type specified in the applicable Borrowing
Notice and, in the case of a Eurodollar Borrowing, shall have an initial
Interest Period as specified in such Borrowing Notice.  Thereafter, the Borrower may elect to convert
such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section 2.4. 
The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.

 

(b)                                 Interest
Election Requests; Conversion Requests.  To make an election or conversion, as the
case may be, pursuant to this Section 2.4, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that
a Borrowing Notice would be required under Section 2.3 if the
Borrower was requesting a Borrowing of the Type resulting from such election to
be made on the effective date of such election. 
Each such telephonic Interest Election Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Interest Election Request in substantially the form of Exhibit B-2
and signed by the Borrower.

 

23

 

(c)                                  Information in
Interest Election Requests.  Each telephonic and written Interest Election
Request shall specify the following information in compliance with Section 2.2:

 

(i)                                     the Borrowing
to which such Interest Election Request applies and, if different options are
being elected with respect to different portions thereof, the portions thereof
to be allocated to each resulting Borrowing (in which case the information to
be specified pursuant to Section 2.4(c)(iii) and 2.4(c)(iv) shall
be specified for each resulting Borrowing);

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 2.5.                                   Funding of
Borrowings.

 

(a)                                  Funding by
Lenders.  Each Lender shall make each
Loan to be made by it hereunder on the funding date in the Borrowing Notice by
wire transfer of immediately available funds by 1:00 p.m., New York City
time, to the account of the Administrative Agent most recently designated by it
for such purpose by notice to the Lenders. 
The Administrative Agent will make such Loans available to the Borrower
by promptly crediting the amounts so received, in like funds, to an account of
the Borrower and designated by the Borrower in the applicable Borrowing
Notice.  Nothing herein shall be deemed
to obligate any Lender to obtain the funds 

 

24

 

for its Loan in any
particular place or manner or to constitute a representation by any Lender that
it has obtained or will obtain the funds for its Loan in any particular place
or manner.

 

(b)                                 Presumption of
Funding by the Lenders. 
Unless the Administrative Agent shall have received notice from a Lender
prior to the proposed date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender’s share of such Borrowing,
the Administrative Agent may assume that such Lender has made such share
available on such date in accordance with Section 2.5(a) and
may, in reliance upon such assumption, make available to the Borrower a
corresponding amount.  In such event, if
a Lender has not in fact made its share of the applicable Borrowing available
to the Administrative Agent, then the applicable Lender and the Borrower
severally agree to pay to the Administrative Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the
date such amount is made available to the Borrower to but excluding the date of
payment to the Administrative Agent, at (i) in the case of such Lender,
the greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on
interbank compensation or (ii) in the case of the Borrower, the interest
rate applicable to ABR Loans.  If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender’s Loan included in such Borrowing.

 

Section 2.6.                                   Termination and
Reduction of Aggregate Maximum Credit Amounts.

 

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

 

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

 

(i)                                     The Borrower
may at any time terminate, or from time to time reduce, the Aggregate Maximum
Credit Amounts; provided that (A) each
reduction of the Aggregate Maximum Credit Amounts shall be in an amount that is
an integral multiple of $1,000,000 and not less than $1,000,000 and (B) the
Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts if,
after giving effect to any concurrent prepayment of the Loans in accordance
with Section 3.4(a), the total Revolving Credit Exposures would
exceed the total Commitments.

 

(ii)                                  The Borrower
shall notify the Administrative Agent of any election to terminate or reduce
the Aggregate Maximum Credit Amounts under Section 2.6(b)(i) at
least three (3) Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof.  Promptly following receipt of
any notice, the Administrative Agent shall advise the Lenders of the contents
thereof.  Each notice delivered by the
Borrower pursuant to this Section 2.6(b)(ii) shall be
irrevocable.  Any termination or
reduction of the Aggregate Maximum Credit Amounts shall be permanent and may
not be reinstated.  Each reduction of the
Aggregate Maximum Credit Amounts shall be made ratably among the Lenders in
accordance with each Lender’s Applicable Percentage.

 

25

 

Section 2.7.                                   Borrowing Base.

 

(a)                                  Initial
Borrowing Base.  For the
period from and including the Effective Date to but excluding the first
Redetermination Date, the amount of the Borrowing Base shall be
$35,000,000.  Notwithstanding the
foregoing, the Borrowing Base may be subject to further adjustments from time
to time pursuant to Section 2.8, Section 8.16(c) or
Section 8.21.

 

(b)                                 Scheduled and
Interim Redeterminations.  The
Borrowing Base shall be redetermined semi-annually in accordance with this Section 2.7
(a “Scheduled Redetermination”), and, subject to Section 2.7(d),
such redetermined Borrowing Base shall become effective and applicable to the
Borrower and the Lenders on or about April 1st and October 1st of
each year, commencing October 1, 2009. 
In addition, one time during any 12 month period (i) the Borrower
may, by notifying the Administrative Agent thereof, (ii) the
Administrative Agent may, by notifying the Borrower thereof and (iii) the
Required Lenders may, by directing the Administrative Agent to notify the
Borrower thereof, each elect to cause the Borrowing Base to be redetermined
between Scheduled Redeterminations (an “Interim Redetermination”) in
accordance with this Section 2.7.

 

(c)                                  Scheduled and
Interim Redetermination Procedure.

 

(i)                                     Each Scheduled
Redetermination and each Interim Redetermination shall be effectuated as
follows:  Upon receipt by the
Administrative Agent of (A) in the case of a Scheduled Redetermination,
the Engineering Report as of July 1 pursuant to Section 8.2(e) or
the Engineering Report as of January 1 pursuant to Section 8.2(f) and,
in the case of an Interim Redetermination, the Engineering Report pursuant to Section 8.2(f),
and (B) such other reports, data and supplemental information, as may,
from time to time, be reasonably requested by the Majority Lenders (the
Engineering Report and such other reports, data and supplemental information
being the “Engineering Data”), the Administrative Agent shall evaluate
the information contained in the Engineering Data and shall, in its sole
discretion, propose a new Borrowing Base (the “Proposed Borrowing Base”)
based upon such information and such other information (including, without
limitation, the status of title information with respect to the Oil and Gas
Properties as described in the Engineering Data and the existence of any other
Debt) as the Administrative Agent deems appropriate in its sole
discretion.  In no event shall the
Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.

 

(ii)                                  The
Administrative Agent shall notify the Borrower and the Lenders of the Proposed
Borrowing Base (the “Proposed Borrowing Base Notice”):

 

(A)                              in the case of a Scheduled
Redetermination (1) if the Administrative Agent shall have received the
Engineering Data required to be delivered by the Borrower pursuant to Section 8.2(e) or
Section 8.2(f), as applicable, and (c) in a timely and complete
manner, then on or before March 15th and September 15th of such year
following the date of delivery or (2) if the Administrative Agent shall
not have received the Engineering Data required to be delivered by the Borrower
pursuant to Section 8.2(e) or Section 8.2(f), as
applicable, and (c) in a timely and complete manner, then promptly after
the Administrative Agent has received complete Engineering Data 

 

26

 

from the Borrower and has had a reasonable opportunity to determine the
Proposed Borrowing Base in accordance with Section 2.7(c)(i); and

 

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

 

(iii)                               Any Proposed
Borrowing Base that would increase the Borrowing Base then in effect must be
approved by all of the Lenders in their sole discretion as provided in this Section 2.7(c)(iii);
and any Proposed Borrowing Base that would decrease or maintain the Borrowing
Base then in effect must be approved by the Majority Lenders as provided in
this Section 2.7(c)(iii). 
Upon receipt of the Proposed Borrowing Base Notice, each Lender shall
have fifteen (15) days to agree with the Proposed Borrowing Base or disagree
with the Proposed Borrowing Base by proposing an alternate Borrowing Base.  If at the end of such fifteen (15) days, any
Lender has not communicated its approval or disapproval in writing to the
Administrative Agent, such silence shall be deemed to be a rejection of the
Proposed Borrowing Base.  If, at the end
of such 15-day period, all of the Lenders, in the case of a Proposed Borrowing
Base that would increase the Borrowing Base then in effect, or the Majority
Lenders, in the case of a Proposed Borrowing Base that would decrease or
maintain the Borrowing Base then in effect, have approved, as aforesaid, then
the Proposed Borrowing Base shall become the new Borrowing Base, effective on
the date specified in Section 2.7(d).  If, however, at the end of such 15-day
period, all of the Lenders or the Majority Lenders, as applicable, have not
approved, as aforesaid, then the Administrative Agent shall poll the Lenders to
ascertain the highest Borrowing Base then acceptable to all of the Lenders in
their reasonable discretion or the Majority Lenders, as applicable, such amount
shall become the new Borrowing Base, effective on the date specified in Section 2.7(d).

 

(d)                                 Effectiveness
of a Redetermined Borrowing Base.  After a redetermined Borrowing Base is
approved or is deemed to have been approved by all of the Lenders or Majority
Lenders, as applicable, pursuant to Section 2.7(c)(iii), the
Administrative Agent shall notify the Borrower and the Lenders of the amount of
the redetermined Borrowing Base (the “New Borrowing Base Notice”), and
such amount shall become the new Borrowing Base, effective and applicable to
the Borrower, the Administrative Agent and the Lenders:

 

(i)                                     in the case of
a Scheduled Redetermination, (A) if the Administrative Agent shall have
received the Engineering Data required to be delivered by the Borrower pursuant
to Section 8.2(e) or Section 8.2(f), as
applicable, and in a timely and complete manner, then on the April 1st or October 1st,
as applicable, following such notice, or (B) if the Administrative Agent
shall not have received the Engineering Data required to be delivered by the
Borrower pursuant to Section 8.2(e) or Section 8.2(f),
as applicable, and in a timely and complete manner, then on the Business Day
next succeeding delivery of such notice; and

 

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

 

Such amount shall then become the Borrowing
Base until the next Scheduled Redetermination Date, the next Interim
Redetermination Date or the next adjustment to the Borrowing Base under 

 

27

 

Section 2.8, Section 8.16(c) or
Section 8.21, whichever occurs first.  Notwithstanding the foregoing, no Scheduled
Redetermination or Interim Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrower.

 

Section 2.8.                                   Redetermination
Concurrent with Transfer.   If
Required Lenders shall consent to any sale, transfer, lease, exchange,
alienation or other disposition by the Borrower of any assets or properties
other than as permitted pursuant to Section 9.5 hereof, and the
Borrower shall not use the proceeds thereof within ninety days (90) after the
receipt thereof to either (a) acquire Oil and Gas Properties as consented
to by Required Lenders, or (b) include such proceeds as an addition to the
then Approved Capital and Operating Budget for the purpose of conducting
Approved Development Activities as consented to by Required Lenders, then in
either case the Borrowing Base shall automatically be reduced thereupon by an
amount equal to the value (as determined by the Administrative Agent and the
Required Lenders in their reasonable discretion) attributed to such assets or
properties in the immediately preceding determination of the Borrowing Base.

 

ARTICLE III - Payments of Principal and
Interest; Prepayments; Fees

 

Section 3.1.                                   Repayment of
Loans.  The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Loan in full in cash on
the Maturity Date.

 

Section 3.2.                                   Interest.

 

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

 

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

 

(c)                                  Post-Default
Rate.  Notwithstanding the foregoing,
if an Event of Default has occurred and is continuing or if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower or any
Guarantor hereunder or under any other Loan Document is not paid when due,
whether at stated maturity, upon acceleration or otherwise, and including any
payments in respect of a Borrowing Base Deficiency under Section 3.4(c),
then all Loans outstanding, in the case of an Event of Default, and such
overdue amount, in the case of a failure to pay amounts when due, shall bear
interest, after as well as before judgment, at the Default Rate, but in no
event to exceed the Highest Lawful Rate.

 

(d)                                 Interest
Payment Dates.  Accrued
interest on each Loan shall be payable in arrears on each Interest Payment Date
for such Loan and on the Maturity Date; provided that (i) interest
accrued pursuant to Section 3.2(c) shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than
an optional prepayment of an ABR Loan prior to the Maturity Date), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment, and (iii) in the event of any conversion
of any 

 

28

 

Eurodollar Loan prior to the
end of the current Interest Period therefor, accrued interest on such Loan
shall be payable on the effective date of such conversion.

 

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

 

Section 3.3.                                   Alternate Rate
of Interest.  If prior to
the commencement of any Interest Period for a Eurodollar Borrowing:

 

(a)                                  the
Administrative Agent determines (which determination shall be conclusive absent
manifest error) (i) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period
or (ii) deposits (whether in dollars or an alternative currency) are not
being offered to Lenders in the applicable offshore interbank market for such
currency for the applicable amount and Interest Period of such Eurodollar
Borrowing; or

 

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

 

then the Administrative Agent shall give
notice thereof to the Borrower and the Lenders by telephone or telecopy as
promptly as practicable thereafter and, until the Administrative Agent notifies
the Borrower and the Lenders that the circumstances giving rise to such notice
no longer exist, (i) any Interest Election Request that requests the
conversion of any Borrowing to, or continuation of any Borrowing as, a
Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing
Notice requests a Eurodollar Borrowing, such Borrowing shall be made either as
an ABR Borrowing or at an alternate rate of interest determined by all Lenders,
sufficient to cover each Lender’s cost of funds.

 

Section 3.4.                                   Prepayments.

 

(a)                                  Optional
Prepayments.  Subject to
any break funding costs payable pursuant to Section 5.2 and prior
notice in accordance with Section 3.4(b), the Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, without premium or penalty, (except as may be otherwise provided in
the Fee Letter); provided that the aggregate amounts of all partial prepayments
of principal on such Notes equals $500,000 or any higher integral multiple of
$500,000 and the Borrower shall not make any prepayments which would reduce the
unpaid principal balance of Loans to it to less than the lesser of (i) the
Borrowing Base then in effect or (i) $500,000 without prepaying all
outstanding Obligations and terminating 

 

29

 

this Agreement. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal so prepaid.  Any principal or interest prepaid pursuant to
this section shall be in addition to, and not in lieu of, all payments
otherwise required to be paid under the Loan Documents at the time of such
prepayment.

 

(b)                                 Notice and
Terms of Optional Prepayment.  The Borrower shall notify the Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon,
New York City time, three (3) Business Days before the date of prepayment,
or (ii) in the case of prepayment of an ABR Borrowing, not later than
12:00 noon, New York City time, one Business Day before the date of
prepayment.  Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid.  Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof.  Each partial
prepayment of any Borrowing shall be in an amount that would be permitted in
the case of an advance of a Borrowing of the same Type as provided in Section 2.2.  Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 3.2.

 

(c)                                  Mandatory
Prepayments.

 

(i)                                     If, after
giving effect to any termination or reduction of the Aggregate Maximum Credit
Amounts pursuant to Section 2.6(b), the total Revolving Credit
Exposures exceeds the total Commitments, then the Borrower shall prepay the
Borrowings on the date of such termination or reduction in an aggregate principal
amount equal to such excess.

 

(ii)                                  Upon any
redetermination of or adjustment to the amount of the Borrowing Base in
accordance with Section 2.7, Section 2.8, Section 8.16(c) or
Section 8.21, if the total Revolving Credit Exposures exceeds the
redetermined or adjusted Borrowing Base, then the Borrower shall:

 

(A)                              either:

 

(1)                             prepay the Borrowings in an
aggregate principal amount equal to such excess; or

 

(2)                             pledge additional collateral
not included in the most recent Engineering Report to the Administrative Agent
having a fair market value equal to at least the amount of the deficiency or
otherwise satisfactory to the Administrative Agent such that the total
Revolving Credit Exposures are less than or equal to the Borrowing Base  as redetermined or adjusted; and

 

(B)                                cause, for so long as any
Borrowing Base Deficiency continues to exist, 100% of Excess Cash Flow to be
used to prepay the Borrowings in an amount not to exceed such Borrowing Base
Deficiency, such amounts to be paid to the Administrative Agent within three (3) Business
Days of each delivery to Administrative Agent by Borrower of a report of such
Excess Cash Flow, which report shall be due for

 

30

 

any month a determination thereof is to be made within thirty (30) days
after the end of such month; provided that
while any such Borrowing Base Deficiency continues to exist, the Borrower may
make payments for general and administrative costs approved by the Majority
Lenders in their reasonable discretion.

 

The Borrower shall be obligated to make such
prepayment and/or pledge of collateral within sixty (60) days following its
receipt of the New Borrowing Base Notice in accordance with Section 2.7(d) or
the date the adjustment occurs; provided that
all payments required to be made pursuant to this Section 3.4(c)(ii) must
be made on or prior to the Maturity Date.

 

(iii)                               If a Borrowing
Base Deficiency exists, or during an Event of Default, the Borrower shall prepay
the Borrowings with all net cash proceeds received from any public or private
Indebtedness by the Borrower or any of its Subsidiaries as consented to by
Required Lenders pursuant to Section 9.1, any Equity offering by
the Borrower or any of its Subsidiaries and any sales or other dispositions of
Properties.

 

(iv)                              Each prepayment
of Borrowings pursuant to this Section 3.4(c) shall be
applied, first, ratably to any ABR Borrowings then outstanding, and, second, to
any Eurodollar Borrowings then outstanding, and if more than one Eurodollar
Borrowing is then outstanding, to each such Eurodollar Borrowing in order of
priority beginning with the Eurodollar Borrowing with the least number of days
remaining in the Interest Period applicable thereto and ending with the
Eurodollar Borrowing with the most number of days remaining in the Interest
Period applicable thereto.

 

(v)                                 Each prepayment
of Borrowings shall be applied ratably to the Loans of each Lender included in
the prepaid Borrowings.  Prepayment
pursuant to this Section 3.4(c) shall be accompanied by
accrued interest to the extent required by Section 3.2 and any
break funding costs payable pursuant to Section 5.2.

 

Section 3.5.                                   Fees.

 

(a)                                  Commitment Fees.  The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee (other
than a Defaulting Lender), which shall accrue on any day at a rate per annum
equal to 0.75% on the average daily amount of the unused amount of the
Commitment of such Lender during the period from and including the date of this
Agreement to but excluding the Maturity Date. 
Accrued commitment fees shall be payable in arrears on the last day of
March, June, September and December of each year and on the Maturity
Date, commencing on the first such date to occur after the date hereof.  All commitment fees shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).

 

(b)                                 Administrative
Agent Fees.  The
Borrower agrees to pay to the Administrative Agent, for its own account, fees
payable in the amounts and at the times separately agreed upon between the
Borrower and the Administrative Agent as outlined in the Fee Letter.

 

31

 

ARTICLE IV - Payments; Pro Rata Treatment;
Sharing of Set-offs

 

Section 4.1.                                   Payments
Generally; Pro Rata Treatment; Sharing of Set-offs.

 

(a)                                  Payments by the
Borrower.  The
Borrower shall make each payment required to be made by it hereunder (whether
of principal, interest or fees, or of amounts payable under Section 5.1,
Section 5.2, Section 5.3 or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately available funds,
without defense, deduction, recoupment, set-off or counterclaim.  Fees, once paid, shall be fully earned and
shall not be refundable under any circumstances.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices specified in the
Lender Schedule and except that payments pursuant to Section 5.1, Section 5.2,
Section 5.3 and Section 12.4 shall be made directly to
the Persons entitled thereto.  The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof.  If any payment
hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension.  All payments
hereunder shall be made in U.S. dollars.

 

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

 

(c)                                  Sharing of
Payments by Lenders.  If any
Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on any of its Loans
resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its Loans and accrued interest thereon than the proportion
received by any other Lender, then the Lender receiving such greater proportion
shall purchase (for cash at face value) participations in the Loans of other
Lenders to the extent necessary so that the benefit of all such payments shall
be shared by the Lenders ratably in accordance with the aggregate amount of
principal of and accrued interest on their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.1(c) shall not be construed to
apply to any payment made by the Borrower pursuant to and in accordance with
the express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans to any assignee or participant, other than to the Borrower or any
Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.1(c) shall
apply).  The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of set-off and
counterclaim 

 

32

 

with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.

 

Section 4.2.                                   Presumption of
Payment by the Borrower. 
Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders that the Borrower will not make such
payment, the Administrative Agent may assume that the Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due.  In such event, if the Borrower has not in
fact made such payment, then each of the Lenders severally agrees to repay to
the Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.

 

Section 4.3.                                   Certain
Deductions by the Administrative Agent.  If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.5(b) or Section 4.2
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are
fully paid.

 

ARTICLE V - Increased Costs; Break Funding
Payments; Taxes; Illegality

 

Section 5.1.                                   Increased Costs.

 

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

 

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

 

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

 

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

 

(b)                                 Capital
Requirements.  If any
Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on such Lender’s capital
or on the capital of such Lender’s holding company, if any, as a consequence of
this Agreement or the Loans made by such Lender to a level below that which
such Lender or such Lender’s holding company could have achieved but for such
Change in Law (taking into 

 

33

 

consideration such Lender’s
policies and the policies of such Lender’s holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such Lender’s
holding company for any such reduction suffered.

 

(c)                                  Certificates.  A certificate of a Lender setting forth the
amount or amounts necessary to compensate such Lender or its holding company,
as the case may be, as specified in Section 5.1(a) or 5.1(b) shall
be delivered to the Borrower and shall be conclusive absent manifest
error.  The Borrower shall pay such
Lender the amount shown as due on any such certificate within ten (10) days
after receipt thereof.

 

(d)                                 Effect of
Failure or Delay in Requesting Compensation.  Failure or delay on the part of any Lender to
demand compensation pursuant to this Section 5.1 shall not
constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to
compensate a Lender pursuant to this Section 5.1 for any increased
costs or reductions incurred more than 180 days prior to the date that such
Lender, as the case may be, notifies the Borrower of the Change in Law giving
rise to such increased costs or reductions and of such Lender’s intention to
claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 180-day period referred to above shall be extended to
include the period of retroactive effect thereof.

 

Section 5.2.                                   Break Funding
Payments.  In the
event of (a) the payment of any principal of any Eurodollar Loan other
than on the last day of an Interest Period applicable thereto (including as a
result of an Event of Default), (b) the conversion of any Eurodollar Loan
into an ABR Loan other than on the last day of the Interest Period applicable
thereto, or (c) the failure to borrow, convert, continue or prepay any
Eurodollar Loan on the date specified in any notice delivered pursuant hereto,
then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event.  In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount of such Loan had such event
not occurred, at the Adjusted LIBO Rate that would have been applicable to such
Loan, for the period from the date of such event to the last day of the then
current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), minus (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the Eurodollar
market.

 

A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this Section 5.2
shall be delivered to the Borrower and shall be conclusive absent manifest
error.  The Borrower shall pay such
Lender the amount shown as due on any such certificate within ten (10) days
after receipt thereof.

 

Section 5.3.                                   Reimbursable
Taxes.  The Borrower covenants and
agrees that:

 

(a)                                  The Borrower
will indemnify each Lender Party against and reimburse each Lender Party for
all present and future income, stamp and other taxes, levies, costs and charges

 

34

 

whatsoever imposed,
assessed, levied or collected on or in respect of this Agreement (whether or
not legally or correctly imposed, assessed, levied or collected), excluding,
however, (i) taxes imposed on or measured by such Lender Party’s overall
net income, and franchise taxes imposed on it (in lieu of net income taxes), by
the jurisdiction (or any political subdivision thereof) under the Laws of which
it is organized or otherwise resides for tax purposes, (ii) with respect
to each Lender Party, taxes imposed by reason of any present or former
connection between such Lender Party and the jurisdiction imposing such taxes,
other than solely as a result of this Agreement or any Note or any transaction
contemplated hereby, and (iii) any United States withholding tax imposed
on any payment to such Lender Party by the Borrower pursuant to this Agreement,
but not excluding any portion of such tax that exceeds the United States
withholding tax which would have been imposed on such a payment to such Lender
Party under the laws and treaties in effect when such Lender Party first
becomes a party to this Agreement (all such non-excluded taxes, levies, costs
and charges being collectively called “Reimbursable Taxes”).  Such indemnification shall be on an after-tax
basis and, except as otherwise provided in Section 5.3(b), paid
within three (3) Business Days after a Lender Party makes demand therefor.

 

(b)                                 All payments on
account of the principal of, and interest on, each Lender Party’s Loans and
Notes, and all other amounts payable by the Borrower to any Lender Party
hereunder, shall be made in full without set-off or counterclaim and shall be
made free and clear of and without deductions or withholdings of any nature by
reason of any Reimbursable Taxes, all of which will be for the account of the
Borrower.  In the event the Borrower is
compelled by Law to make any such deduction or withholding from any payment to
any Lender Party, the Borrower shall pay on the due date of such payment, by
way of additional interest, such additional amounts as are needed to cause the
amount receivable by such Lender Party after such deduction or withholding to
equal the amount which would have been receivable in the absence of such
deduction or withholding.  If the
Borrower should make any deduction or withholding as aforesaid, the Borrower
shall within 60 days thereafter forward to such Lender Party an official
receipt or other official document evidencing payment of such deduction or
withholding.

 

(c)                                  Notwithstanding
the foregoing provisions of this section, the Borrower shall be entitled, to
the extent it is required to do so by Law, to deduct or withhold (and not to
make any indemnification or reimbursement for) income or other similar taxes
imposed by the United States of America from interest, fees or other amounts
payable hereunder for the account of any Lender Party, other than a Lender
Party (i) who is a U.S. person for Federal income tax purposes or (ii) who
has the Prescribed Forms on file with the Administrative Agent (with copies
provided to the Borrower) for the applicable year to the extent deduction or
withholding of such taxes is not required as a result of the filing of such
Prescribed Forms; provided that if the Borrower
shall so deduct or withhold any such taxes, it shall provide a statement to the
Administrative Agent and such Lender Party, setting forth the amount of such
taxes so deducted or withheld, the applicable rate and any other information or
documentation which such Lender Party may reasonably request for assisting such
Lender Party to obtain any allowable credits or deductions for the taxes so
deducted or withheld in the jurisdiction or jurisdictions in which such Lender
Party is subject to tax.  As used in this
section, “Prescribed Forms” means such duly executed forms or
statements, and in such number of copies, which may, from time to time, be
prescribed by Law and which, pursuant to applicable provisions of (x) an
income tax treaty between the United States and the country of residence of the
Lender Party providing the forms or statements, (y) the Internal Revenue
Code, or (z) any applicable rules or regulations thereunder, permit
the 

 

35

 

Borrower to make payments
hereunder for the account of such Lender Party free of such deduction or
withholding of income or similar taxes

 

Section 5.4.                                   Mitigation
Obligations; Replacement of Lenders.

 

(a)                                  Designation of
Different Lending Office.  If
any Lender requests compensation under Section 5.1, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 5.3,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the reasonable judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 5.1 or Section 5.3,
as the case may be, in the future and (ii) would not subject such Lender
to any unreimbursed cost or expense and would not otherwise be disadvantageous
to such Lender.  The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.

 

(b)                                 Replacement of
Lenders.  If any Lender requests
compensation under Section 5.1, or if the Borrower is required to
pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 5.3, or if any Lender
defaults in its obligation to fund Loans hereunder or is otherwise a Defaulting
Lender, or, if any Lender is deemed to have rejected a Proposed Borrowing Base
pursuant to Section 2.7(c)(iii) in connection with either a
Scheduled Redetermination or an Interim Redetermination, then the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in Section 12.5),
all its interests, rights and obligations under this Agreement to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment); provided that (i) the Borrower shall have
received the prior written consent of the Administrative Agent, which consent
shall not unreasonably be withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii) in
the case of any such assignment resulting from a claim for compensation under Section 5.1
or payments required to be made pursuant to Section 5.3, such
assignment will result in a reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.

 

ARTICLE VI - Conditions Precedent to
Lending

 

Section 6.1.                                   Documents to be
Delivered.  No Lender
has any obligation to make its first Loan unless the Administrative Agent shall
have received all of the following, duly executed and delivered and in form,
substance and date satisfactory to the Administrative Agent:

 

(a)                                  This Agreement
and any other documents that Lenders are to execute in connection herewith.

 

36

 

(b)                                 Each Note.

 

(c)                                  Security
Documents listed in the Security Schedule.

 

(d)                                 Certain
certificates of the Borrower including:

 

(i)                                     An “Omnibus
Certificate” of the secretary or assistant secretary of the Borrower, which
shall contain the names and signatures of the officers of the Borrower
authorized to execute Loan Documents on behalf of the Borrower and which shall
certify to the truth, correctness and completeness of the following exhibits
attached thereto:  (A) a copy of
resolutions duly adopted by the board of directors of the Borrower, and in full
force and effect at the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Loan Documents delivered or to be
delivered in connection herewith and the consummation of the transactions
contemplated herein and therein, (B) a copy of the certificate of
formation of the Borrower, certified by the appropriate official of the state
of Texas, and (C) a copy of the bylaws of the Borrower, and all amendments
thereto.

 

(ii)                                  A “Compliance
Certificate” by a Responsible Officer of the Borrower, dated as of the Closing
Date, in which such officer certifies to the satisfaction of the conditions set
out in subsections (a), (b), (c) and (d) of Section 6.2.

 

(e)                                  Certificates of
the due formation, valid existence and good standing of the Borrower in Texas
issued by the appropriate authorities of such jurisdiction, and certificates of
the Borrower’s due qualification to do business, issued by appropriate
officials in New Mexico and any other states in which the Borrower owns
property subject to Security Documents or such other evidence of the foregoing
satisfactory to the Administrative Agent.

 

(f)                                    Documents
similar to those specified in subsections Section 6.1(d)(i) and
(e) of this section with respect to each Subsidiary of the Borrower
and the execution by it of its guaranty of the Obligations.

 

(g)                                 True and
complete copies of that certain Resignation and Appointment Agreement dated
even date herewith between the Prior Administrative Agent and the
Administrative Agent and any instruments evidencing transfer or other documents
required in connection with either of the foregoing.

 

(h)                                 Favorable
opinions of (i) Haynes & Boone LLP, counsel for the Borrower,
substantially in the forms set forth in Exhibit D and (ii) any local
counsel opinions reasonably requested by the Administrative Agent in form and
substance satisfactory to the Administrative Agent.

 

(i)                                     The Initial
Financial Statements and the Borrower’s annual business and financial plan for
Fiscal Year 2010.

 

(j)                                     A certificate
by a Responsible Officer of the Borrower, certifying the Initial Financial
Statements of the Borrower delivered pursuant to clause (i) above.

 

37

 

(k)                                  Certificates or
binders evidencing Restricted Persons’ insurance in effect on the date hereof,
naming the Administrative Agent as loss payee and additional insured.

 

(l)                                     A certificate
by a Responsible Officer of the Borrower, in form and detail acceptable to the
Administrative Agent confirming the insurance that is in effect as of the date
hereof and certifying that such insurance is customary for the businesses
conducted by Restricted Persons and is in compliance with the requirements of
this Agreement.

 

(m)                               The Initial Engineering
Report and the Approved Capital and Operating Budget.

 

(n)                                 Payment of all
commitment, facility, agency and other amounts required to be paid to any
Lender or to the Administrative Agent on behalf of any Lender, pursuant to any
Loan Documents, or any commitment agreement heretofore entered into, and
payment of the Administrative Agent’s counsel’s fees and expenses.

 

(o)                                 The Hedge
Contracts set forth in Section 8.21 of the Disclosure Schedule shall be in
full force and effect as of the Closing Date and the notional volumes of such
Hedge Contracts shall be at least 70% of the reasonably anticipated aggregate
Projected Oil and Gas Production attributable to Proved Developed Producing
Reserves for each month continuing through and including December of 2011.

 

(p)                                 The
Administrative Agent shall be reasonably satisfied that the Security Documents
create first priority, perfected Liens on at least 90% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the Initial Reserve Report,
100% of the Proved Developed Producing Reserves of the Borrower and all other
Oil and Gas Properties identified and requested by the Administrative Agent.

 

(q)                                 The
Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the Initial Reserve Report.

 

(r)                                    All documents
and instruments which the Administrative Agent has then reasonably requested,
in addition to those described in this Section 6.1.  All such additional documents and instruments
shall be reasonably satisfactory to the Administrative Agent in form, substance
and date.

 

Section 6.2.                                   Additional Conditions
Precedent.  No Lender
has any obligation to make any Loan (including its first) unless the following
conditions precedent have been satisfied:

 

(a)                                  All
representations and warranties made by any Restricted Person in any Loan
Document shall be true in all respects on and as of the date of such Loan as if
such representations and warranties had been made as of the date of such Loan,
except to the extent that such representation or warranty was made as of a
specific date or updated, modified or supplemented as of a subsequent date with
the consent of Required Lenders and the Administrative Agent.

 

(b)                                 No Default or
Borrowing Base Deficiency shall exist at the date of such Loan.

 

38

 

(c)                                  No Material
Adverse Change shall have occurred to, and no event or circumstance shall have
occurred that could reasonably be expected to result in a Material Adverse
Change since the Closing Date.

 

(d)                                 Each Restricted
Person shall have performed and complied with all agreements and conditions
required in the Loan Documents to be performed or complied with by it on or
prior to the date of such Loan.

 

(e)                                  The making of
such Loan shall not be prohibited by any Law and shall not subject any Lender
to any penalty or other onerous condition under or pursuant to any such Law.

 

(f)                                    The
Administrative Agent shall have received all documents and instruments which
the Administrative Agent has then reasonably requested, in addition to those
described in Section 6.1 (including opinions of legal counsel for
Restricted Persons and the Administrative Agent; corporate documents and
records; documents evidencing governmental authorizations, consents, approvals,
licenses and exemptions; and certificates of public officials and of officers
and representatives of the Borrower and other Persons), as to (i) the
accuracy and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in this Agreement and the other Loan
Documents, (ii) the satisfaction of all conditions contained herein or
therein, and (iii) all other matters reasonably pertaining hereto and
thereto.  All such additional documents
and instruments shall be satisfactory to the Administrative Agent in form,
substance and date.

 

ARTICLE VII - Representations and
Warranties

 

To confirm each Lender’s
understanding concerning Restricted Persons and Restricted Persons’ businesses,
properties and obligations and to induce each Lender to enter into this
Agreement and to extend credit hereunder, the Borrower represents and warrants
to each Lender that:

 

Section 7.1.                                   No Default.  No Restricted Person is in default in the
performance of any of its covenants and agreements contained in any Loan
Document.  No event has occurred and is
continuing which constitutes a Default.

 

Section 7.2.                                   Organization
and Good Standing.  Each
Restricted Person is duly organized, validly existing and in good standing
under the Laws of its jurisdiction of organization, having all powers required
to carry on its business and enter into and carry out the transactions
contemplated hereby.  Each Restricted
Person is duly qualified, in good standing, and authorized to do business in
all other jurisdictions within the United States wherein the character of the
properties owned or held by it or the nature of the business transacted by it
makes such qualification necessary.

 

Section 7.3.                                   Authorization.  Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder.  The Borrower is duly
authorized to borrow funds hereunder.

 

39

 

Section 7.4.                                   No Conflicts or
Consents.  The
execution and delivery by the various Restricted Persons of the Loan Documents
to which each is a party, the performance by each of its obligations under such
Loan Documents, and the consummation of the transactions contemplated by the
various Loan Documents, do not and will not (a) conflict with any
provision of (i) any Law, (ii) the organizational documents of any
Restricted Person, or (iii) any material agreement, judgment, license,
order or permit applicable to or binding upon any Restricted Person, (b) result
in the acceleration of any Indebtedness owed by any Restricted Person, or (c) result
in or require the creation of any Lien upon any assets or properties of any
Restricted Person except as expressly contemplated or permitted in the Loan
Documents.  Except as expressly
contemplated in the Loan Documents no permit, consent, approval, authorization
or order of, and no notice to or filing with, any Tribunal or third party is
required in connection with the execution, delivery or performance by any
Restricted Person of any Loan Document or to consummate any transactions
contemplated by the Loan Documents.

 

Section 7.5.                                   Enforceable
Obligations.  This
Agreement is, and the other Loan Documents when duly executed and delivered
will be, legal, valid and binding obligations of each Restricted Person which
is a party hereto or thereto, enforceable in accordance with their terms except
as such enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors’ rights.

 

Section 7.6.                                   Initial
Financial Statements.  The
Borrower has heretofore delivered to each Lender true, correct and complete
copies of the Initial Financial Statements. 
The Initial Financial Statements fairly present, on a pro forma basis in
accordance with GAAP, the Borrower’s Consolidated financial position at the
date thereof and the Consolidated results of the Borrower’s operations and the
Borrower’s Consolidated cash flows for the period thereof.  Since the Closing Date no Material Adverse
Change has occurred, except as reflected in Section 7.6 of the Disclosure
Schedule.  All Initial Financial
Statements were prepared in accordance with GAAP.

 

Section 7.7.                                   Other
Obligations and Restrictions.  No Restricted Person has any outstanding
Liabilities of any kind (including contingent obligations, tax assessments, and
unusual forward or long-term commitments) which are, individually or in the
aggregate, material to the Borrower or material with respect to the Borrower’s
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in Section 7.7 of the Disclosure Schedule or
otherwise permitted under Section 9.1.  Except as shown in the Initial Financial
Statements or disclosed in Section 7.7 of the Disclosure Schedule, no
Restricted Person is subject to or restricted by any franchise, contract, deed,
charter restriction, or other instrument or restriction which could reasonably
be expected to cause a Material Adverse Change.

 

Section 7.8.                                   Full Disclosure.  No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Restricted
Person (other than industry-wide risks normally associated with the types of
businesses 

 

40

 

conducted by Restricted
Persons) necessary to make the statements contained herein or therein not
misleading as of the date made or deemed made. 
There is no fact known to any Restricted Person (other than industry-wide
risks normally associated with the types of businesses conducted by Restricted
Persons) that has not been disclosed to each Lender in writing which could
cause a Material Adverse Change.  There
are no statements or conclusions in any Engineering Report which are based upon
or include misleading information or fail to take into account material
information regarding the matters reported therein, it being understood that
each Engineering Report is necessarily based upon professional opinions,
estimates and projections and that the Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been
accurate. The Borrower has heretofore delivered to each Lender true, correct
and complete copies of the Initial Engineering Report.

 

Section 7.9.                                   Litigation.  There are no actions, suits or legal,
equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person or
affecting any Collateral (including any which challenge or otherwise pertain to
any Restricted Person’s title to any Collateral) before any Tribunal which, if
resolved adversely to such Restricted Person, could reasonably be expected to
result in a Material Adverse Change. 
There are no outstanding judgments, injunctions, writs, rulings or
orders by any such Tribunal against any Restricted Person or any Restricted
Person’s stockholders, partners, members, directors or officers or affecting
any Collateral or any of its material assets or property.

 

Section 7.10.                             Labor Disputes
and Acts of God.  Except as
disclosed in Section 7.10 of  the Disclosure Schedule, neither the
business nor the properties of any Restricted Person has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), which could reasonably be
expected to cause a Material Adverse Change.

 

Section 7.11.                             ERISA Plans and
Liabilities.  All
currently existing ERISA Plans are listed in Section 7.11 of the
Disclosure Schedule.  Except as disclosed
in the Initial Financial Statements or in Section 7.11 of the Disclosure
Schedule, no Termination Event has occurred with respect to any ERISA Plan and
all ERISA Affiliates are in compliance with ERISA in all material
respects.  No ERISA Affiliate is required
to contribute to, or has any other absolute or contingent liability in respect
of, any “multiemployer plan” as defined in Section 4001 of ERISA.  Except as set forth in Section 7.11 of
the Disclosure Schedule:  (a) no “accumulated
funding deficiency” (as defined in Section 412(a) of the Internal
Revenue Code) exists with respect to any ERISA Plan, whether or not waived by
the Secretary of the Treasury or his delegate, and (b) the current value
of each ERISA Plan’s benefits does not exceed the current value of such ERISA
Plan’s assets available for the payment of such benefits by more than $500,000.

 

Section 7.12.                             Environmental
and Other Laws.  Except as
disclosed in Section 7.12 of the Disclosure Schedule: (a) Restricted
Persons are conducting their businesses in material compliance with all
applicable Laws, including Environmental Laws, and have and are in compliance
with all licenses and permits required under any such Laws; (b) none of
the operations or properties of any Restricted Person is the subject of
federal, state or local investigation (or, to the knowledge of Restricted
Persons, threatened investigation) evaluating whether any material remedial
action is needed to respond to a release of any Hazardous Materials into the
environment or to the improper storage or disposal (including storage or 

 

41

 

disposal at offsite
locations) of any Hazardous Materials; (c) no Restricted Person (and to
the best knowledge of the Borrower, no other Person) has filed any notice under
any Law indicating that any Restricted Person is responsible for the improper
release into the environment, or the improper storage or disposal, of any
material amount of any Hazardous Materials or that any Hazardous Materials have
been improperly released, or are improperly stored or disposed of, upon any
property of any Restricted Person; (d) no Restricted Person has
transported or arranged for the transportation of any Hazardous Material to any
location which is (i) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, listed for possible inclusion on such National Priorities List by
the Environmental Protection Agency in its Comprehensive Environmental
Response, Compensation and Liability Information System List, or listed on any
similar state list or (ii) the subject of federal, state or local enforcement
actions or other investigations which may lead to claims against any Restricted
Person for clean-up costs, remedial work, damages to natural resources or for
personal injury claims (whether under Environmental Laws or otherwise); and (e) no
Restricted Person otherwise has any known material contingent liability under
any Environmental Laws or in connection with the release into the environment,
or the storage or disposal, of any Hazardous Materials.  Each Restricted Person undertook, at the time
of its acquisition of each of its material properties, all appropriate inquiry
into the previous ownership and uses of the Property and any potential
environmental liabilities associated therewith.

 

Section 7.13.                             Names and
Places of Business.  No
Restricted Person has, during the preceding five years, had, been known by, or
used any other trade or fictitious name, except as disclosed in Section 7.13
of the Disclosure Schedule.  Except as
otherwise indicated in Section 7.13 of the Disclosure Schedule, the chief
executive office and principal place of business of each Restricted Person are
(and since such Restricted Person’s organization have been) located at the
address of the Borrower set out on the signature pages hereto.  Except as indicated in Section 7.13 of
the Disclosure Schedule or otherwise disclosed in writing to the Administrative
Agent, no Restricted Person has any other office or place of business.

 

Section 7.14.                             Subsidiaries.  The Borrower presently does not have any
Subsidiaries except those listed in Section 7.14 of the Disclosure
Schedule.  No Restricted Person has any
equity investments in any other Person except those listed in Section 7.14
of the Disclosure Schedule.  The Borrower
owns, directly or indirectly, the equity interests in each of its Subsidiaries
which is indicated in Section 7.14 of the Disclosure Schedule.

 

Section 7.15.                             Government
Regulation.  Neither the
Borrower nor any other Restricted Person owing Obligations is (a) an “investment
company” or a company “controlled” by an “investment company” within the
meaning of the Investment Company Act of 1940, as amended, or (b) subject
to regulation under the Federal Power Act, as amended, or any other Law which
regulates the incurring by such Person of Indebtedness, including Laws relating
to common contract carriers or the sale of electricity, gas, steam, water or
other public utility services.

 

Section 7.16.                             Insider.  No Restricted Person, nor any Person having “control”
(as that term is defined in 12 U.S.C. § 375b(9) or in regulations
promulgated pursuant thereto) of any Restricted Person, is a “director” or an “executive
officer” or “principal shareholder” (as those terms are defined in 12 U.S.C. §
375b(8) or (9) or in regulations promulgated pursuant thereto) 

 

42

 

of any Lender, of a bank
holding company of which any Lender is a Subsidiary or of any Subsidiary of a
bank holding company of which any Lender is a Subsidiary.

 

Section 7.17.                             Solvency.  Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by the Borrower and each Guarantor
and the consummation of the transactions contemplated hereby: (a) the
Borrower and each Guarantor will be solvent (as such term is used in applicable
bankruptcy, liquidation, receivership, insolvency or similar Laws), (b) the
sum of the Borrower’s and each Guarantor’s absolute and contingent liabilities,
including the Obligations or guarantees thereof, shall not exceed the fair
market value of such Restricted Person’s assets, and (c) the Borrower’s
and each Guarantor’s capital is adequate for the businesses in which such
Restricted Person is engaged and intends to be engaged.  Neither the Borrower nor any Restricted
Person has incurred (whether under the Loan Documents or otherwise), nor does
any Restricted Person intend to incur or believe that it will incur, debts,
contingent or otherwise, which will be beyond its ability to pay as such debts
mature.

 

Section 7.18.                             Title to
Properties; Licenses; Insurance.  Except as indicated in Section 7.18 of
the Disclosure Schedule, each Restricted Person has good and defensible title
to, or valid leasehold interests in, all of the Collateral owned or leased by
such Restricted Person and all of its other material properties and assets necessary
or used in the ordinary conduct of its business, free and clear of all Liens,
encumbrances, or adverse claims other than Permitted Liens and of all
impediments to the use of such properties and assets in such Restricted Person’s
business, except that no representation or warranty is made with respect to any
oil, gas or mineral property or interest to which no proved oil or gas reserves
are properly attributed.  Each Restricted
Person owns the net interests in production attributable to the wells and units
evaluated in the Initial Engineering Report. 
The ownership of such Properties does not in the aggregate in any
material respect obligate such Restricted Person to bear the costs and expenses
relating to the maintenance, development and operations of such Properties in
an amount materially in excess of the working interest of such Properties set
forth in the Initial Engineering Report. 
Upon delivery of each Engineering Report furnished to the Lenders
pursuant to Section 8.2(e) and 8.2(f), the statements
made in the preceding sentences of this section and in Section 7.20
shall be true with respect to such Engineering Report.  Each Restricted Person possesses all
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
and other intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Restricted Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.  Each Restricted Person has insurance for its
property and all Collateral, and against liability for injury to persons or
property, in accordance with the Insurance Schedule and Section 8.8
hereof.

 

Section 7.19.                             Regulation U.  Neither the Borrower nor its Subsidiaries are
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock, and no proceeds of any Loans will be used for a purpose
which violates Regulation U.

 

Section 7.20.                             Leases and
Contracts; Performance of Obligations.  The leases, contracts, servitudes and other
agreements forming a part of the Oil and Gas Properties of the Restricted
Persons covered by the Initial Engineering Report and each subsequent
Engineering Report are 

 

43

 

in full force and
effect.  All rents, royalties and other
payments due and payable under such leases, contracts, servitudes and other
agreements, or under any Permitted Liens, or otherwise attendant to the
ownership or operation of any Oil and Gas Properties have been properly and
timely paid when due, except where Restricted Persons are in good faith
disputing such rents, royalties and other payments by appropriate proceedings
and, if necessary, have set aside on their books adequate reserves
therefor.  No Restricted Person is in
default in any material respect with respect to its obligations (and no
Restricted Person is aware of any default in any material respect by any third
party with respect to such third party’s obligations) under any such leases,
contracts, servitudes and other agreements, or under any Permitted Liens, or
otherwise attendant to the ownership or operation of any part of the Oil and
Gas Properties, where such default could adversely affect the ownership or
operation of any Oil and Gas Properties. 
No Restricted Person is currently accounting for any royalties, or
overriding royalties or other payments out of production, on a basis (other
than delivery in kind) less favorable to such Restricted Person than proceeds
received by such Restricted Person (calculated at the well) from sale of
production, and no Restricted Person has any liability (or alleged liability)
to account for the same on any such less favorable basis.

 

Section 7.21.                             Sale of
Production.  Except as
set forth in Section 7.21 of the Disclosure Schedule, no Oil and Gas Property
is subject to any contractual or other arrangement (a) whereby payment for
production is or can be deferred for a substantial period after the month in
which such production is delivered (in the case of oil, not in excess of 30
days, and in the case of gas, not in excess of 60 days) or (b) whereby
payments are made to a Restricted Person other than by checks, drafts, wire
transfer advises or other similar writings, instruments or communications for
the immediate payment of money.  Except
for production sales contracts, processing agreements, transportation
agreements and other agreements relating to the marketing of production that
are listed on the Disclosure Schedule in connection with the Oil and Gas
Properties to which such contract or agreement relates: (i) no Oil and Gas
Property is subject to any contractual or other arrangement for the sale,
processing or transportation of production (or otherwise related to the
marketing of production) which cannot be canceled on 120 days’ (or less)
notice, other than as consented to by the Administrative Agent, and (ii) all
contractual or other arrangements for the sale, processing or transportation of
production  (or otherwise related to the
marketing of production) are bona fide arm’s length transactions made on the
best terms available with third parties not affiliated with Restricted
Persons.  Each Restricted Person is
presently receiving a price for all production from (or attributable to) each
Oil and Gas Property covered by a production sales contract or marketing
contract listed on the Disclosure Schedule that is computed in accordance with
the terms of such contract, and no Restricted Person is having deliveries of
production from such Oil and Gas Property curtailed substantially below such
property’s delivery capacity.  Except as
set forth in the Disclosure Schedule, no Restricted Person, nor, to the
knowledge of any Restricted Person after due inquiry, any Restricted Person’s
predecessors in title, has received prepayments (including payments for gas not
taken pursuant to “take or pay” or other similar arrangements) for any
Hydrocarbons produced or to be produced from any Oil and Gas Properties after
the date hereof.  Except as set forth in
the Disclosure Schedule, no Oil and Gas Property is subject to any “take or pay”
or other similar arrangement (A) which can be satisfied in whole or in
part by the production or transportation of gas from other properties or (B) as
a result of which production from any Oil and Gas Property may be required to
be delivered to one or more third parties without payment (or without full
payment) 

 

44

 

therefor as a result of
payments made, or other actions taken, with respect to other properties.  Except as set forth in the Disclosure
Schedule, there is no Oil and Gas Property with respect to which any Restricted
Person, or, to the knowledge of any Restricted Person after due inquiry, any
Restricted Person’s predecessors in title, has, prior to the date hereof, taken
more (“overproduced”), or less (“underproduced”), gas from the
lands covered thereby (or pooled or unitized therewith) than its ownership
interest in such Oil and Gas Property would entitle it to take; and the
Disclosure Schedule accurately reflects, for each well or unit with respect to
which such an imbalance is shown thereon to exist, (1) whether such
Restricted Person is overproduced or underproduced and (2) the volumes (in
cubic feet or British thermal units) of such overproduction or underproduction
and the effective date of such information. 
Except as set forth in the Disclosure Schedule, no Oil and Gas Property
is subject to a gas balancing arrangement under which one or more third parties
has a right to take a portion of the production attributable to such Oil and
Gas Property without payment (or without full payment) therefor as a result of
production having been taken from, or as a result of other actions or inactions
with respect to, other properties.  No
Oil and Gas Property is subject at the present time to any regulatory refund
obligation and, to the best of Restricted Person’s knowledge, no facts exist
which might cause the same to be imposed.

 

Section 7.22.                             Operation of
Oil and Gas Properties.  The
Oil and Gas Properties (and all properties unitized therewith) are being (and,
to the extent the same could adversely affect the ownership or operation of the
Oil and Gas Properties after the date hereof, to the Restricted Parties’
knowledge after due inquiry, have in the past been) in all material respects
maintained, operated and developed in a good and workmanlike manner, in
accordance with prudent industry standards and in conformity with all
applicable Laws and in conformity with all oil, gas or other mineral leases and
other contracts and agreements forming a part of the Oil and Gas Property and
in conformity with the Permitted Liens. 
No Oil and Gas Property is subject to having allowable production after
the date hereof reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not
the same was permissible at the time) prior to the date hereof and none of the
wells located on the Oil and Gas Properties (or properties unitized therewith)
are or will be deviated from the vertical more than the maximum permitted by
applicable laws, regulations, rules and orders, and such wells are
bottomed under and producing from, with the well bores wholly within, the Oil
and Gas Properties (or, in the case of wells located on properties unitized
therewith, such unitized properties). 
Except as indicated in Section 7.22 of the Disclosure Schedule,
there are no dry holes, or otherwise inactive wells, located on the Oil and Gas
Properties or on lands pooled or unitized therewith, except for wells that have
been properly plugged and abandoned or are scheduled for plugging and
abandonment.  Each Restricted Person has
all governmental licenses and permits necessary or appropriate to own and
operate its Oil and Gas Property, and no Restricted Person has received notice
of any violations in respect of any such licenses or permits.

 

Section 7.23.                             Ad Valorem and
Severance Taxes.  Each
Restricted Person has paid and discharged all ad valorem taxes assessed and
which are due and payable against its Oil and Gas Property or any part thereof
and all production, severance and other taxes assessed against, or measured by,
the production or the value, or proceeds, of the production therefrom which are
due and payable have been paid.

 

45

 

Section 7.24.                             Material
Agreements.  Set forth
on Section 7.24 of the Disclosure Schedule is a complete and correct list
of all material agreements and other instruments maintained as of the date of
this Agreement by each Restricted Person setting forth each counterparty
thereto (other than the Loan Documents and joint operating agreements to which
any Restricted Person is a party) relating to the purchase, transportation by
pipeline, gas processing, marketing, development, sale and supply of Hydrocarbons,
farmout arrangements, contract operating agreements or other material contracts
(excluding oil and gas leases of any 
Restricted Person and joint operating agreements to which any Restricted
Person is a party) to which each Restricted Person is a party on or after the
Closing Date or by which its Properties is bound on or after the Closing Date,
in each case for which breach, nonperformance, cancellation or failure to renew
could reasonably be expected to have a Material Adverse Change (collectively “Material
Agreements”) and copies of such documents have been provided to the
Administrative Agent.

 

Section 7.25.                             Existing
Accounts Payable.  As of the
Closing Date, set forth on Section 7.25 of the Disclosure Schedule is a
complete and correct list of all existing accounts payable of the Restricted
Persons that are more than sixty (60) days past due.

 

ARTICLE VIII - Affirmative Covenants of
the Borrower

 

To conform with the terms
and conditions under which each Lender is willing to have credit outstanding to
the Borrower, and to induce each Lender to enter into this Agreement and extend
credit hereunder, the Borrower warrants, covenants and agrees that until the
full and final payment of the Obligations and the termination of this
Agreement, unless Required Lenders have previously agreed otherwise:

 

Section 8.1.                                   Payment and
Performance.  Each
Restricted Person will pay all amounts due under the Loan Documents, to which
it is a party, in accordance with the terms thereof and will observe, perform
and comply with every covenant, term and condition set forth in the Loan
Documents to which it is a party.  The
Borrower will cause each other Restricted Person to observe, perform and comply
with each term, covenant and condition in any Loan Document that is applicable
to it.

 

Section 8.2.                                   Books,
Financial Statements and Reports.  Each Restricted Person will at all times
maintain full and accurate books of account and records.  The Borrower will maintain and will cause its
Subsidiaries to maintain a standard system of accounting, will maintain its
Fiscal Year, and will furnish the following statements and reports to each
Lender Party at the Borrower’s expense:

 

(a)                                  Annual
Financial Statements.  As soon as
available, and in any event within one hundred twenty (120) days after the end
of each Fiscal Year, complete Consolidated financial statements of the Borrower
together with all notes thereto, prepared in reasonable detail in accordance
with GAAP (except as contemplated in the definition thereof), together with an
unqualified opinion, based on an audit using generally accepted auditing
standards, by an independent certified public accounting firm selected by the
Borrower and reasonably acceptable to the Administrative Agent, stating that
such Consolidated financial statements have been so prepared.  These financial statements shall contain a
Consolidated balance sheet as of the end of 

 

46

 

such Fiscal Year and
Consolidated statements of earnings, of cash flows, and of changes in owners’
equity for such Fiscal Year, each setting forth in comparative form the
corresponding figures for the preceding Fiscal Year.

 

(b)                                 Quarterly
Financial Statements.  As soon as
available, and in any event within sixty (60) days after the end of each Fiscal
Quarter, the Borrower’s Consolidated balance sheet as of the end of such Fiscal
Quarter and Consolidated statements of the Borrower’s earnings and cash flows
for the period from the beginning of the then current Fiscal Year to the end of
such Fiscal Quarter, all in reasonable detail and prepared in accordance with
GAAP, subject to changes resulting from normal adjustments and the absence of
footnotes.  In addition the Borrower
will, together with each such set of financial statements and each set of
financial statements furnished under subsection (a) of this
section, furnish a certificate in the form of Exhibit C signed by a
Responsible Officer of the Borrower stating that such financial statements are
accurate and complete (subject to normal adjustments and the absence of
footnotes), stating that he has reviewed the Loan Documents, containing
calculations showing compliance (or non-compliance) at the end of such Fiscal
Quarter with the requirements of Section 9.11 and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such
certificate or specifying the nature and period of existence of any such
Default.

 

(c)                                  Reports to
Equity Owners.  Promptly
upon their becoming available, copies of all financial statements, reports,
notices and proxy statements sent by any Restricted Person to its equity
holders and all registration statements, periodic reports and other statements
and schedules filed by any Restricted Person with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Authority.

 

(d)                                 Hedge Contracts.  Together with each set of financial
statements furnished under subsections (a) and (b) of
this section, or any other time upon the request of the Administrative Agent,
the Borrower will furnish a report (in form reasonably satisfactory to the
Administrative Agent) of all Hedge Contracts of the Borrower and each of its
Subsidiaries, setting forth the type, term, effective date, termination date
and notional amounts or volumes and the counterparty to each such agreement.

 

(e)                                  Annual
Independent Engineering Report.  By September 1 of each year, commencing September 1,
2009, an Engineering Report prepared as of the preceding July 1 by an
independent petroleum engineers chosen by the Borrower and reasonably
acceptable to the Administrative Agent, concerning all Oil and Gas Properties
and interests owned by any Restricted Person which are located in or offshore
of the United States and which have attributable to them proved oil or gas reserves.  This report shall be satisfactory in scope
and form to the Administrative Agent in its sole and absolute discretion, shall
take into account any “over-produced” status under gas balancing arrangements,
and shall contain information and analysis comparable in scope to that
contained in the Initial Engineering Report). 
This report shall distinguish (or shall be delivered together with a
certificate from an appropriate officer of the Borrower which distinguishes)
those properties treated in the report which are Collateral from those
properties treated in the report which are not Collateral.

 

(f)                                    Interim
Engineering Report.  By March 1
of each year, commencing March 31, 2010, and promptly following notice of
a Interim Redetermination under Section 2.7(b), an 

 

47

 

Engineering Report prepared
as of the preceding January 1 (or the last day of the preceding calendar
month in the case of a Interim Redetermination) by the Borrower’s in-house
petroleum engineers or other petroleum engineers acceptable to the
Administrative Agent, together with an accompanying report on property sales,
property purchases and changes in categories, in the same form and scope as the
Initial Engineering Report.

 

(g)                                 Monthly Production
Report.  As soon as available, and in
any event within twenty (20) days after the end of each calendar month, a
report describing by lease or unit the gross volume of production during such
month from the properties described in the most recent Engineering Report.

 

(h)                                 Monthly Lease
Operating Statement.  As soon as
available, and in any event within seventy-five (75) days after the end of each
calendar month, a lease operating statement describing by lease or unit the net
volume of sales attributable to production during such month from the
properties described in the most recent Engineering Report, and describing the
related severance taxes, other taxes, leasehold operating expenses and capital
costs attributable thereto incurred during such month.

 

(i)                                     Monthly Cash
Receipts and Disbursements Report.  As soon as available, and in any event within
twenty (20) days after the end of each calendar month, a monthly cash receipts
and disbursement report of the Borrower for such month detailing sources and
uses of funds, with a compilation and aging of all accounts receivable and
accounts payable of the Borrower for such month, and a summary of net and gross
general and administrative expenses.

 

(j)                                     Purchasers of
Production.  As soon as
available, and in any event within twenty (20) days after the end of each
calendar month, a list, by name and address, of those Persons who have
purchased production during such month from the Mortgaged Property.

 

(k)                                  Approved
Capital and Operating Budget.  On or prior to December 31st of each
year, an Approved Capital and Operating Budget for the Borrower and its
Subsidiaries for a period not shorter than the immediately following four (4) Fiscal
Quarters, reasonably satisfactory to the Administrative Agent.  In the event that the Administrative Agent
shall have not approved such proposed Approved Capital and Operating Budget,
the Borrower shall discuss such objections with the Administrative Agent and
shall further revise and resubmit the proposed Approved Capital and Operating Budget
until such Approved Capital and Operating Budget is satisfactory to the
Administrative Agent.  Certain Approved
Development Activities have been approved in the initial Approved Capital and
Operating Budget; depending upon the success of these initial Approved
Development Activities, Required Lenders may approve additional Approved
Development Activities, in an Approved Capital and Operating Budget or
otherwise.

 

(l)                                     Quarterly
Updates of Approved Capital and Operating Budget.  On or prior to the sixtieth (60th) day after
the end of each Fiscal Quarter, a proposed revision and/or addition, as
applicable, to the then current Approved Capital and Operating Budget for a
period of not less than the following four (4) Fiscal Quarters, in form,
scope and detail satisfactory to the Administrative Agent.

 

48

 

(m)                               Quarterly
General and Administrative Expense Report.  On or prior to the sixtieth (60th) day after
the end of each Fiscal Quarter, a report describing the actual general and
administrative expenses incurred by the Borrower during such Fiscal Quarter and
evidencing compliance with Section 9.11(e).

 

Section 8.3.                                   Other
Information and Inspections.  Each Restricted Person will furnish to each
Lender any information which the Administrative Agent may from time to time
reasonably request concerning any provision of the Loan Documents, any
Collateral, or any matter in connection with Restricted Persons’ businesses,
properties, prospects, financial condition and operations, including all
evidence which the Administrative Agent from time to time reasonably requests
in writing as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Restricted Person in the
Loan Documents, the satisfaction of all conditions contained therein, and all
other matters pertaining thereto.  Each
Restricted Person will permit representatives appointed by the Administrative
Agent (including independent accountants, auditors, agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours and, prior to default, upon reasonable notice, any of such Restricted
Person’s property, including its books of account, other books and records, and
any facilities or other business assets, and to make copies therefrom and
photocopies and photographs thereof, and to write down and record any
information such representatives obtain. 
Each Restricted Person shall permit the Administrative Agent or its
representatives to investigate and verify the accuracy of the information furnished
to the Administrative Agent or any Lender in connection with the Loan Documents
and to discuss all such matters with its officers, employees and
representatives during normal business hours. 
In each case, the Administrative Agent shall exercise reasonable efforts
to ensure that such visits, inspections and discussions do not unreasonably
interfere with Restricted Persons’ normal business operations.

 

Section 8.4.                                   Notice of
Material Events and Change of Address.  The Borrower will promptly notify each Lender
Party in writing, stating that such notice is being given pursuant to this
Agreement, as soon as it becomes aware of:

 

(a)                                  occurrence of
any Material Adverse Change,

 

(b)                                 the occurrence
of any Default,

 

(c)                                  the
acceleration of the maturity of any Indebtedness owed by any Restricted Person
or of any default by any Restricted Person under any indenture, mortgage,
agreement, contract or other instrument to which any of them is a party or by
which any of them or any of their properties are bound, if such acceleration or
default could cause a Material Adverse Change,

 

(d)                                 the occurrence
of any Termination Event,

 

(e)                                  any claim under
any Law of $100,000 or more, any notice of potential liability under any
Environmental Laws which might exceed such amount, or any other material
adverse claim asserted against any Restricted Person or with respect to any
Restricted Person’s properties, and

 

49

 

(f)                                    the filing of
any suit or proceeding against any Restricted Person in which an adverse
decision could cause a Material Adverse Change.

 

Upon the occurrence of any
of the foregoing Restricted Persons will take all necessary or appropriate
steps to remedy promptly any such Material Adverse Change, Default,
acceleration, default or Termination Event, to protect against any such adverse
claim, to defend any such suit or proceeding, and to resolve all controversies
on account of any of the foregoing.  The
Borrower will also notify the Administrative Agent and the Administrative Agent’s
counsel in writing at least twenty Business Days prior to the date that any
Restricted Person changes its name or the location of its chief executive
office or its location under the Uniform Commercial Code.

 

Section 8.5.                                   Maintenance of
Properties.  Each
Restricted Person will maintain, preserve, protect, and keep all Collateral and
all other property used or useful in the conduct of its business in good
condition (ordinary wear and tear excepted) in accordance with prudent industry
standards, and in material compliance with all applicable Laws, in material
conformity with all applicable contracts, servitudes, leases and agreements,
and will from time to time make all repairs, renewals and replacements needed
to enable the business and operations carried on in connection therewith to be
promptly and advantageously conducted at all times.

 

Section 8.6.                                   Maintenance of
Existence and Qualifications.  Each Restricted Person will maintain and
preserve its existence and its rights and franchises in full force and effect
and will qualify to do business in all states or jurisdictions where required
by applicable Law, except where the failure so to qualify could not reasonably
be expected to cause a Material Adverse Change.

 

Section 8.7.                                   Payment of
Trade Liabilities, Taxes, etc.  Each Restricted Person will (a) timely
file all required tax returns including any extensions; (b) timely pay all
taxes, assessments, and other governmental charges or levies imposed upon it or
upon its income, profits or property before the same become delinquent; (c) within
ninety (90) days past the original invoice or billing date therefor, pay all
Liabilities owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when and as due all other Liabilities now
or hereafter owed by it, other than royalty payments suspended in the ordinary
course of business; and (e) maintain appropriate accruals and reserves for
all of the foregoing in accordance with GAAP. 
Each Restricted Person may, however, delay paying or discharging any of
the foregoing so long as it is in good faith contesting the validity thereof by
appropriate proceedings, if necessary, and has set aside on its books adequate
reserves therefor which are required by GAAP.

 

Section 8.8.                                   Insurance.

 

(a)                                  Each Restricted
Person shall at all times maintain (at its own expense) insurance for its
property in accordance with the Insurance Schedule and insurance with respect
to all Collateral, in such amounts, with such limitations on deductibles, and
against such risks, in such form and with such financially sound and reputable
insurers as shall be reasonably satisfactory to the Administrative Agent from
time to time, and will furnish to each Lender, upon written request, full
information as to the insurance carried. 
All insurance policies covering Collateral 

 

50

 

shall be endorsed (i) to
provide for payment of losses to the Administrative Agent as its interests may
appear, (ii) to provide that such policies may not be canceled or reduced
or affected in any material manner for any reason without ten (10) days
prior notice to the Administrative Agent, (iii) to provide for any other
matters specified in any applicable Security Document or which the
Administrative Agent may reasonably require; and (iv) to provide for
insurance against fire, casualty and any other hazards normally insured
against, in the amount of the replacement value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured.  Each Restricted Person shall at all times
maintain insurance against its liability for injury to persons or property in
accordance with the Insurance Schedule, which insurance shall be by financially
sound and reputable insurers.  Without
limiting the foregoing, each Restricted Person shall at all time maintain
liability insurance in accordance with Insurance Schedule.

 

(b)                                 Each policy for
liability insurance shall provide for all losses to be paid on behalf of the
Administrative Agent (for the benefit of Lenders) and Restricted Persons as
their respective interests may appear, and each policy insuring loss or damage
to Collateral shall provide for all losses to be paid directly to the
Administrative Agent.  Each such policy
shall in addition (i) name the appropriate Restricted Person and the
Administrative Agent and Lenders as insured parties thereunder (without any
representation or warranty by or obligation upon the Administrative Agent or
Lenders) as their interests may appear, (ii) contain the agreement by the
insurer that any loss thereunder shall be payable to the Administrative Agent
notwithstanding any action, inaction or breach of representation or warranty by
any Restricted Person, (iii) provide that there shall be no recourse
against the Administrative Agent or Lenders for payment of premiums or other
amounts with respect thereto and (iv) provide that at least thirty (30)
days’ prior written notice of cancellation or of lapse shall be given to the
Administrative Agent by the insurer. 
Each Restricted Person will, if so requested by the Administrative
Agent, deliver to the Administrative Agent original or duplicate policies of such
insurance and, as often as the Administrative Agent may reasonably request, a
report of a reputable insurance broker with respect to such insurance.  Each Restricted Person will also, at the
request of the Administrative Agent, duly execute and deliver instruments of
assignment of such insurance policies and cause the respective insurers to
acknowledge notice of such assignment. 
The Administrative Agent is hereby authorized to enforce payment under
all such insurance policies and to compromise and settle any claims thereunder,
in its own name or in the name of the Restricted Persons.

 

(c)                                  Reimbursement
under any liability insurance maintained by Restricted Persons pursuant to this
Section 8.8 may be paid directly to the Person who has incurred the
liability covered by such insurance. 
With respect to any loss involving damage to Collateral as to which subsection (b) of
this Section 8.8 is not applicable, each Restricted Person will
make or cause to be made the necessary repairs to or replacements of such
Collateral, and any proceeds of insurance maintained by each Restricted Person
pursuant to this Section 8.8 shall be paid to such Restricted
Person by the Administrative Agent as reimbursement for the costs of such
repairs or replacements as such repairs or replacements are made or acquired.

 

Section 8.9.                                   Performance on
the Borrower’s Behalf.  If
any Restricted Person fails to pay any taxes, insurance premiums, expenses,
attorneys’ fees or other amounts it is required to pay under any Loan Document,
the Administrative Agent may pay the same. 
The Borrower shall immediately reimburse the Administrative Agent for
any such payments and each amount 

 

51

 

paid by the Administrative
Agent shall constitute an Obligation owed hereunder which is due and payable on
the date such amount is paid by the Administrative Agent.

 

Section 8.10.                             Interest.  The Borrower hereby promises to each Lender
Party to pay interest at the Default Rate on all Obligations (including
Obligations to pay fees or to reimburse or indemnify any Lender but excluding
principal of, and interest on, any Loan, interest on which is covered by Section 3.4(a))
which the Borrower has in this Agreement promised to pay to such Lender Party
and which are not paid when due.  Such
interest shall accrue from the date such Obligations become due until they are
paid.

 

Section 8.11.                             Compliance with
Agreements and Law.  Each
Restricted Person will perform all material obligations it is required to
perform under the terms of each indenture, mortgage, deed of trust, security
agreement, lease, franchise, agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound in accordance with the terms thereof and applicable Laws.  Each Restricted Person will conduct its
business and affairs in material compliance with all Laws applicable thereto.
Each Restricted Person will cause all material licenses and permits necessary
or appropriate for the conduct of its business and the ownership and operation
of its property used and useful in the conduct of its business to be obtained
and at all times maintained in good standing and in full force and effect.

 

Section 8.12.                             Environmental
Matters; Environmental Reviews.

 

(a)                                  Each Restricted
Person will comply in all material respects with all Environmental Laws now or
hereafter applicable to such Restricted Person or its properties, as well as
all contractual obligations and agreements with respect to environmental
remediation or other environmental matters, and shall obtain, when and as
required by Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations and will
maintain such authorizations in full force and effect in all material
respects.  No Restricted Person will do
anything or permit anything to be done which will subject any of its properties
to any material remedial obligations under, or result in noncompliance with
applicable permits and licenses issued under, any applicable Environmental
Laws, assuming disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances. 
Upon the Administrative Agent’s reasonable request, but no more than
once during any Fiscal Year, the Borrower will provide at its own expense an
environmental inspection of any of the Restricted Persons’ material real
properties and audit of their environmental compliance procedures and
practices, in each case from an engineering or consulting firm approved by the
Administrative Agent.

 

(b)                                 The Borrower
will promptly furnish to the Administrative Agent copies of all written notices
of violation, orders, claims, citations, complaints, penalty assessments, suits
or other proceedings received by any Restricted Person, or of which the
Borrower otherwise has notice, pending or threatened against any Restricted
Person 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 any Restricted Person’s ownership or use of
its properties or the operation of its business.

 

52

 

(c)                                  The Borrower
will promptly furnish to the Administrative Agent all requests for information,
notices of claim, demand letters, and other notifications, received by the
Borrower in connection with any Restricted Person’s 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 Material at any
location.

 

Section 8.13.                             Evidence of
Compliance.  Each
Restricted Person will furnish to each Lender at such Restricted Person’s or
the Borrower’s expense all evidence which the Administrative Agent from time to
time reasonably requests in writing as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in the Loan Documents, the satisfaction of all conditions contained
therein, and all other matters pertaining thereto.

 

Section 8.14.                             Right of Offset
with Respect to Bank Accounts.  To secure the repayment of the Obligations
each Restricted Person hereby grants to each Lender 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 any Lender 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 any Lender from
or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, (b) any and all deposits (general
or special, time or demand, provisional or final) of Borrower with any Lender,
and (c) any other credits and claims of Borrower at any time existing
against any Lender, including claims under certificates of deposit.  At any time and from time to time after the
occurrence of any Default, each Lender is hereby authorized to foreclose upon,
or to offset against the Obligations then due and payable (in either case
without notice to Borrower), any and all items hereinabove referred to.  The remedies of foreclosure and offset are
separate and cumulative, and either may be exercised independently of the other
without regard to procedures or restrictions applicable to the other.

 

Section 8.15.                             Guaranties of
the Borrower’s Subsidiaries.  Each Subsidiary of the Borrower or its
Subsidiaries now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by the Administrative Agent,
execute and deliver to the Administrative Agent an absolute and unconditional
guaranty of the timely repayment of the Obligations when and as due and
punctual performance when and as due of the obligations of the Borrower
hereunder, which guaranty shall be satisfactory to the Administrative Agent in
form and substance.  Each Subsidiary of
the Borrower existing on the date hereof shall duly execute and deliver such a
guaranty prior to the making of any Loan hereunder.  The Borrower will cause each of its
Subsidiaries to deliver to the Administrative Agent, simultaneously with its
delivery of such a guaranty, written evidence reasonably satisfactory to the
Administrative Agent and its counsel that such Subsidiary has taken all company
action necessary to duly approve and authorize its execution, delivery and
performance of such guaranty and any other documents which it is required to
execute. In addition the Borrower will, and will cause its Subsidiaries to,
promptly upon request by the Administrative Agent, secure the Obligations by
pledging or creating, or causing to be pledged or created a valid, first
priority and perfected security interest in all of the Equity interests in any
of its Subsidiaries.

 

53

 

Section 8.16.                             Agreement to
Deliver Security Documents; Title Information.

 

(a)                                  The Borrower
agrees to deliver and to cause each other Restricted Person to deliver, to
further secure the Obligations whenever requested by the Administrative Agent
in its sole and absolute discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other Security
Documents in form and substance satisfactory to the Administrative Agent for
the purpose of granting, confirming, and perfecting first and prior liens or
security interests, subject only to Permitted Liens, in any real or personal
property now owned or hereafter acquired by any Restricted Person.  The Borrower agrees to deliver and to cause
each other Restricted Person to deliver, whenever requested by the
Administrative Agent, in its sole and absolute discretion, transfer orders or
letters in lieu thereof with respect to the production and proceeds of
production from the Collateral, in form and substance satisfactory to the
Administrative Agent.  The Borrower
hereby authorizes the Administrative Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Mortgaged Property (or covering “all personal property” or “all assets”)
without the signature of the Borrower or any other Guarantor where permitted by
law.  A carbon, photographic or other
reproduction of the Security Documents or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.

 

(b)                                 The Borrower
also agrees to deliver, whenever requested by the Administrative Agent in its
sole and absolute discretion, favorable title opinions and/or title reports
from legal counsel acceptable to the Administrative Agent with respect to any
Restricted Person’s properties and interests designated by the Administrative
Agent, based upon abstract or record examinations to dates acceptable to the
Administrative Agent and (i) stating that such Restricted Person has good
and defensible title to such properties and interests, free and clear of all
Liens other than Permitted Liens, (ii) confirming that such properties and
interests are subject to Security Documents securing the Obligations that
constitute and create legal, valid and duly perfected first deed of trust or
mortgage liens in such properties and interests and first priority assignments
of and security interests in the Hydrocarbons attributable to such properties
and interests and the proceeds thereof, and (iii) covering such other
matters as the Administrative Agent may reasonably request.

 

(c)                                  In the event
the Administrative Agent has requested satisfactory title information pursuant
the foregoing on additional Properties that the Borrower has included in the
Engineering Report, the Borrower shall, within forty-five (45) days of notice
from the Administrative Agent that title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such title
defects or exceptions (including defects or exceptions as to priority) which
are not permitted by Section 9.2 raised by such information, (ii) substitute
acceptable Mortgaged Property with no title defects or exceptions having an
equivalent value or (iii) deliver title information in form and substance
acceptable to the Administrative Agent so that the Administrative Agent shall
have received, together with title information previously delivered to the
Administrative Agent, satisfactory title information on such additional
Properties evaluated by such Engineering Report.  If the Borrower is unable to cure any title
defect requested to be cured within the 45-day period, such default shall not
be a Default, but instead the Administrative Agent and/or Majority Lenders
shall have the right to excluded such additional Properties and may send a
notice to the Borrower and the Lenders that the then outstanding Borrowing Base
shall be reduced by the amount attributable to such Additional 

 

54

 

Properties as determined by
the Majority Lenders. This new Borrowing Base shall be effective immediately
after the receipt of such notice.

 

Section 8.17.                             Production
Proceeds. 
Notwithstanding that, by the terms of the various Security Documents,
Restricted Persons are and will be assigning to the Administrative Agent and
Lenders all of the “Production Proceeds” (as defined therein) accruing to the
property covered thereby, so long as no Default has occurred Restricted Persons
may continue to receive from the purchasers of production all such Production
Proceeds, subject, however, to the Liens created under the Security Documents,
which Liens are hereby affirmed and ratified. 
Upon the occurrence of a Default, the Administrative Agent and Lenders
may exercise all rights and remedies granted under the Security Documents,
including the right to obtain possession of all Production Proceeds then held
by Restricted Persons or to receive directly from the purchasers of production
all other Production Proceeds.  In no
case shall any failure, whether purposed or inadvertent, by the Administrative
Agent or Lenders to collect directly any such Production Proceeds constitute in
any way a waiver, remission or release of any of their rights under the
Security Documents, nor shall any release of any Production Proceeds by the
Administrative Agent or Lenders to Restricted Persons constitute a waiver,
remission, or release of any other Production Proceeds or of any rights of the
Administrative Agent or Lenders to collect other Production Proceeds
thereafter.

 

Section 8.18.                             Operating
Account and Account Control Agreement.

 

(a)                                  The Borrower
shall cause all proceeds arising from the Oil and Gas Properties of the
Borrower, including without limitation, from the sale of Hydrocarbons, to be
paid directly into the Operating Account. The Administrative Agent shall send
notice to the Borrower if the Administrative Agent is sending or has sent a
notice to the Operating Account Bank that the Administrative Agent is
exercising its right to take control of the Operating Account; provided that
the Administrative Agent agrees to only exercise any such control during the
continuance of an Event of Default.  With
respect to the Operating Account, the Administrative Agent shall receive copies
of each Restricted Person’s bank account statements as shall from time to time
be reasonably requested by the Administrative Agent. Upon the request of the
Administrative Agent, the Borrower shall (i) close the Operating Account
and (ii) establish and maintain, at the Borrower’s expense, a new
operating account with a bank reasonably acceptable to the Administrative
Agent.

 

(b)                                 The Borrower
agrees to deliver, within thirty (30) days of the Closing Date, a duly executed
account control agreement, in form and substance satisfactory to the
Administrative Agent, from the Operating Account Bank holding the Operating
Account, pursuant to which the Operating Account Bank recognizes the
Administrative Agent’s Lien in the Operating Account and, upon the occurrence
and during the continuance of an Event of Default, agrees to transfer collected
balances in the Operating Account to the Administrative Agent pursuant to its
instructions from time to time.

 

(c)                                  The Operating
Account and related account control agreement and the Liens and security
interests established in the Operating Account and funds deposited therein will
continue until all the Obligations under this Agreement are paid in full and
this Agreement is terminated.  Otherwise,
the account control agreement shall remain and continue in full force and
effect.

 

55

 

Section 8.19.                             Mortgaged
Property Covenants.  As used in
this section, the terms “Mortgaged Property”, “Permitted Encumbrances”, “Production”
and “Property” mean, respectively, all “Mortgaged Property”, “Permitted
Encumbrances”, “Production” and “Property” as defined in any Mortgage, and the
term “Mortgagor” means each “Mortgagor” as defined in any Mortgage.

 

(a)                                  Leases and
Contracts; Performance of Obligations.   Each Restricted Person will maintain in full
force and effect all oil, gas or mineral leases, contracts, servitudes and
other agreements forming a part of any Oil and Gas Property, to the extent the
same cover or otherwise relate to such Oil and Gas Property, and each
Restricted Person will timely perform all of its obligations thereunder.   Each Restricted Person will properly and
timely pay when and as due all rents, royalties and other payments due and
payable under any such leases, contracts, servitudes and other agreements, or
under the Permitted Liens or otherwise attendant to its ownership or operation
of any Oil and Gas Property.  Each
Restricted Person will promptly notify the Administrative Agent of any claim
(or any conclusion by such Restricted Person) that such Restricted Person is obligated
to account for any royalties, or overriding royalties or other payments out of
production, on a basis (other than delivery in kind) less favorable to such
Restricted Person than proceeds received by Restricted Person (calculated at
the well) from sale of production.

 

(b)                                 Representation
to Continue to be True.  Each
Restricted Person will carry out its sales of production, will operate the Oil
and Gas Properties, and will otherwise deal with the Oil and Gas Properties and
the production, in such a way that the representations and warranties in Section 7.21
and Section 7.22 remain true and correct in all material respects
at, and as of, all times that this Agreement is in effect (and not just at, and
as of, the times such representations and warranties are made).

 

Section 8.20.                             Development of
Properties.

 

(a)                                  The Borrower
shall use all reasonable efforts to complete in a timely manner the Approved
Development Activities contemplated by the Approved Capital and Operating
Budget.  In addition, the Borrower shall
use all reasonable efforts to develop in a timely manner and bring into
production in a prudent and businesslike manner all proved developed
non-producing reserves and projects that the Administrative Agent and Lenders
have considered in the determination of the Borrowing Base, as identified in
the Approved Capital and Operating Budget.

 

(b)                                 The Borrower
shall ensure that at all times it has available to it, either through its
employees or through independent contractors, petroleum engineers with
appropriate experience and expertise in the proper operation and development of
properties similar to the Oil and Gas Properties.

 

(c)                                  From
time-to-time, but not less than once each Fiscal Quarter (at the time described
in Section 8.2(l), the Borrower shall deliver to the Administrative
Agent and each Lender a written proposal containing revisions to the Approved
Capital and Operating Budget then in effect, showing, if applicable, among
other things, any revised projections of Approved Development Activities for
the applicable period following such revision as prescribed by 

 

56

 

Section 8.2(l), which
revisions shall be satisfactory to the Administrative Agent. In the event that
the Administrative Agent shall object to a proposed revision, the Borrower
shall discuss such objections with the Administrative Agent and shall further
revise and resubmit such proposed revisions to the Approved Capital and
Operating Budget until such revised Approved Capital and Operating Budget are
satisfactory to the Administrative Agent. Once approved in writing by the
Administrative Agent, the then existing Approved Capital and Operating Budget
shall be amended and the Approved Capital and Operating Budget as revised and
amended shall thereafter replace and supersede the prior Approved Capital and
Operating Budget.

 

Section 8.21.                             Required Hedge
Contracts.  The
Borrower shall maintain the Hedge Contracts set forth in Section 8.21 of
the Disclosure Schedule, and shall in addition enter into such other Hedge
Contracts or other contractual agreements with respect to oil and gas
production attributable to the Oil and Gas Properties as Required Lenders may
reasonably require, in form and substance, and with volumes, pricing and
structure, mutually satisfactory to the Administrative Agent and the Borrower
so that the notional volumes of all Hedge Contracts and additional fixed-price
physical off-take contracts, in the aggregate, are more than 50% of the
reasonably anticipated aggregate Projected Oil and Gas Production attributable to
Proved Developed Producing Reserves for each month during the Commitment Period
continuing through and including the month that is thirty-six (36) months
following such month.  The Borrower may,
and may permit its Subsidiaries to, assign, amend, modify, terminate or unwind
Hedge Contracts if (i) it provides not less than two (2) Business
Days prior written notice of such intent to the Administrative Agent, and (ii) concurrently
with such notice, the Administrative Agent and/or the Majority Lenders shall have
the right to adjust the then effective Borrowing Base by an amount determined
by the Majority Lenders equal to the economic value of such hedge positions.
This new Borrowing Base shall be effective immediately after the receipt of
such notice.

 

Section 8.22.                             Use of Proceeds.  The Borrower shall use all Loans solely to (i) acquire
Oil and Gas Properties not included in the Approved Capital and Operating
Budget with the approval of the Lenders, (ii) finance Approved Development
Activities regarding the development of the Borrower’s Oil and Gas Properties,
and (iii) provide working capital and for other general corporate
purposes, in each case in accordance with the Approved Capital and Operating
Budget.  In no event shall the funds from
any Loan be used directly or indirectly by any Person for personal, family,
household or agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any “margin stock”
(as such term is defined in Regulation U promulgated by the Board) or to extend
credit to others directly or indirectly for the purpose of purchasing or
carrying any such margin stock.  The
Borrower represents and warrants that the Borrower is not engaged principally,
or as one of the Borrower’s important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock.

 

ARTICLE IX - Negative Covenants of the
Borrower

 

To conform with the terms
and conditions under which each Lender is willing to have credit outstanding to
the Borrower, and to induce each Lender to enter into this Agreement and make
the Loans, the Borrower warrants, covenants and agrees that until the full and
final 

 

57

 

payment of the Obligations
and the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:

 

Section 9.1.                                   Indebtedness.  No Restricted Person will in any manner owe
or be liable for Indebtedness except:

 

(a)                                  the
Obligations;

 

(b)                                 Indebtedness
associated with bonds or surety obligations required by Law in connection with
the operation of the Borrower’s Oil and Gas Properties in an aggregate amount
not to exceed $50,000,000;

 

(c)                                  Indebtedness
arising under Hedge Contracts required under Section 8.21 or
otherwise permitted under Section 9.3;

 

(d)                                 Indebtedness
under Capital Leases in an aggregate amount not to exceed at any time $100,000;
and

 

(e)                                  miscellaneous
items of Indebtedness not described in subsections (a) through
(c) which do not in the aggregate (taking into account all such
Indebtedness of all Restricted Persons) exceed $100,000 at any one time
outstanding.

 

Section 9.2.                                   Limitation on
Liens.  Except for Permitted Liens, no
Restricted Person will create, assume or permit to exist any Lien upon any of
the properties or assets which it now owns or hereafter acquires.

 

Section 9.3.                                   Hedge Contracts.  No Restricted Person will be a party to or in
any manner be liable on any Hedge Contract other than Hedge Contracts required
pursuant to Section 8.21, existing Hedge Contracts described in Section 8.21
of the Disclosure Schedule, and other Hedge Contracts described below:

 

(a)                                  contracts
entered into with the purpose and effect of fixing prices on oil or gas
expected to be produced by Restricted Persons; provided
that at all times: (i) no such contract fixes a price for a term of more
than three years; (ii) the aggregate monthly production covered by all
such contracts (determined, in the case of contracts that are not settled on a
monthly basis, by a monthly proration acceptable to the Administrative Agent)
for any single month does not in the aggregate exceed eighty percent (80%) of
Restricted Persons’ aggregate Projected Oil and Gas Production anticipated (at
the time such Hedge Contract is entered into) to be sold in the ordinary course
of the Restricted Persons’ businesses for such month, (iii) except for
Collateral under the Security Documents with respect to Lender Hedge
Obligations and Hedge Contracts with Approved Hedge Counterparties a party to
the Intercreditor Agreement, no such contract requires any Restricted Person to
put up money, assets, or other security against the event of its nonperformance
prior to actual default by such Restricted Person in performing its obligations
thereunder, and (iv) each such contract is with a counterparty or has a
guarantor of the obligation of the counterparty who (unless such counterparty
is a Lender or one of its Affiliates) at the time the contract is made has
long-term obligations rated AA or Aa2 or better, respectively, by either Rating
Agency; and

 

58

 

(b)                                 contracts
entered into by a Restricted Person with the purpose and effect of fixing
interest rates on a principal amount of indebtedness of such Restricted Person
that is accruing interest at a variable rate; provided
that (i) at the time such Hedge Contract is entered into, the aggregate
notional amount of such contracts does not exceed seventy-five percent (75%) of
the anticipated outstanding principal balance of the indebtedness to be hedged
by such contracts or an average of such principal balances calculated using a
generally accepted method of matching interest swap contracts to declining
principal balances, (ii) the floating rate index of each such contract
generally matches the index used to determine the floating rates of interest on
the corresponding indebtedness to be hedged by such contract and (iii) each
such contract is with a counterparty or has a guarantor of the obligation of
the counterparty who (unless such counterparty is a Lender or one of its
Affiliates) at the time the contract is made has long-term obligations rated AA
or Aa2 or better, respectively, by either Rating Agency.

 

Section 9.4.                                   Limitation on
Mergers, Issuances of Securities.  No Restricted Person will merge or
consolidate with or into any other Person without Required Lenders’ written
consent, except that any Subsidiary of the Borrower may be merged into or
consolidated with (a) another Subsidiary of the Borrower, so long as a
Guarantor is the surviving business entity, or (b) the Borrower, so long
as the Borrower is the surviving business entity.  No Subsidiary of the Borrower will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to the Borrower or a wholly-owned Subsidiary of the Borrower, and only
to the extent not otherwise forbidden under the terms hereof.  No Subsidiary of the Borrower which is a
partnership will allow any diminution of the Borrower’s interest (direct or
indirect) therein.

 

Section 9.5.                                   Limitation on
Sales of Property.  No
Restricted Person will sell, transfer, lease, exchange, alienate or dispose of
any of its material assets or properties or any material interest therein, or
discount, sell, pledge or assign any notes payable to it, accounts receivable
or future income, except, to the extent not otherwise forbidden under the
Security Documents:

 

(a)                                  equipment which
is worthless or obsolete or which is replaced by equipment of equal suitability
and value;

 

(b)                                 inventory
(including Hydrocarbons sold as produced and seismic data) which is sold in the
ordinary course of business on ordinary trade terms;

 

(c)                                  equity
interests of any Subsidiaries of the Borrower which are transferred to the
Borrower or a wholly owned Subsidiary of the Borrower; and

 

(d)                                 any other
property which is sold for fair consideration to a Person who is not an
Affiliate, not in the aggregate in excess of $100,000 in any Fiscal Year, the
sale of which will not materially impair or diminish the value of the
Collateral or the Borrower’s Consolidated financial condition, business or
operations.

 

The Administrative Agent agrees that within
five Business Days following receipt of written notice from the Borrower of any
sale of property permitted hereby, the Administrative Agent shall use its best
efforts to deliver such documents to the Borrower, at the Borrower’s expense,
as 

 

59

 

the Borrower may reasonably request to
release any Liens in favor of the Administrative Agent on such property.

 

No Restricted Person will
abandon or consent to the abandonment of, any oil or gas well constituting
Collateral so long as such well is capable (or is subject to being made capable
through drilling, reworking or other operations which it would be commercially
feasible to conduct) of producing Hydrocarbons in commercial quantities (as
determined without considering the effect of any mortgage).  Without Required Lenders’ written consent, no
Restricted Person will elect not to participate in a proposed operation on any
oil and gas property constituting Collateral where the effect of such election
would be the forfeiture either temporarily (e.g., until a certain sum of money
is received out of the forfeited interest) or permanently of any interest in
the Collateral.

 

Section 9.6.                                   Limitation on
Dividends and Redemptions.  No
Restricted Person will declare or make any Distribution, except, so long as no
Default shall have occurred and be continuing or would result therefrom (a) Distributions
payable solely in Equity interests in respect of which such Distribution is
being made, (b) Distributions to the Borrower or any Subsidiary that is a
Guarantor, and (c) Distributions required pursuant to the Borrower’s 2008
Stock Incentive Plan as in effect on the Closing Date.

 

Section 9.7.                                   Limitation on
Investments and New Businesses.  On and after the Closing Date, no Restricted
Person will (a) make any expenditure or commitment or incur any obligation
or enter into or engage in any transaction except in the ordinary course of
business, (b) engage directly or indirectly in any business or conduct any
operations except in connection with or incidental to its present businesses
and operations, or (c) make any acquisitions of or capital contributions
to or other Investments in any Person or property, other than (i) purchases
of assets or property in exchange for the current or future delivery of the
Borrower’s common stock to the seller thereof in an aggregate amount up to
$2,000,000 per annum, (ii) Permitted Investments or (iii) as set
forth in the Approved Capital and Operating Budget.

 

Section 9.8.                                   Limitation on
Credit Extensions.  Except for
Permitted Investments, no Restricted Person will extend credit, make advances
or make loans other than (a) normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner, and (b) loans to the Borrower
or to any Guarantor that is a Subsidiary of the Borrower.

 

Section 9.9.                                   Transactions
with Affiliates.  Neither the
Borrower nor any of its Subsidiaries nor any Guarantor will engage in any
material transaction with any of its Affiliates on terms which are less
favorable to it than those which would have been obtainable at the time in arm’s-length
dealing with Persons other than such Affiliates; provided
that such restriction shall not apply to the Torch Management Services
Agreement or transactions among the Borrower and Guarantors.

 

Section 9.10.                             Prohibited
Contracts.  Except as
expressly provided for in the Loan Documents, no Restricted Person will,
directly or indirectly, enter into, create, or otherwise allow to exist any
contract or other consensual restriction on the ability of any Subsidiary of
the 

 

60

 

Borrower to: (a) pay
dividends or make other distributions to the Borrower, (b) redeem equity
interests held in it by the Borrower, (c) repay loans and other
indebtedness owing by it to the Borrower, or (d) transfer any of its
assets to the Borrower.  No Restricted
Person will enter into any “take-or-pay” contract or other contract or
arrangement for the purchase of goods or services which obligates it to pay for
such goods or service regardless of whether they are delivered or furnished to
it.  No Restricted Person will amend or
permit any amendment to any Material Agreement or other contract or lease which
releases, qualifies, limits, makes contingent or otherwise detrimentally
affects the rights and benefits of the Administrative Agent or any Lender under
or acquired pursuant to any Security Documents without Required Lenders’
consent, including without limitation any amendment to the Borrower’s organizational
documents, the Torch Management Services Agreement.  No ERISA Affiliate will incur any obligation
to contribute to any “multiemployer plan” as defined in Section 4001 of
ERISA.

 

Section 9.11.                             Financial
Covenants.

 

(a)                                  Current Ratio.  The Borrower will not permit the ratio of (i) aggregate
consolidated current assets (including any amounts available hereunder not
dedicated to Approved Development Activities) to (ii) aggregate
consolidated current liabilities (excluding current maturities of the Notes) to
be less than 1.0 to 1.0 at any time.  For
purposes of this calculation the mark-to-market portion of any Hedge Contract
shall be excluded from the calculation of both consolidated current assets and
consolidated current liabilities.

 

(b)                                 Debt to
Consolidated EBITDA Ratio.  As
of the end of each Fiscal Quarter, commencing September 30, 2009, the
Borrower will not permit the ratio of (i) Consolidated Funded Indebtedness
(other than Indebtedness permitted under Section 9.1(b)), including
the Obligations, to (ii) Consolidated EBITDA, to be greater than (A) 6.5
to 1.0 for the Fiscal Quarter ending September 30, 2009, (B) 6.0 to
1.0 for the Fiscal Quarter ending December 31, 2009, (C) 5.5 to 1.0
for each Fiscal Quarter ending in the year 2010, and (D) 5.0 to 1.0 for
each Fiscal Quarter thereafter; provided that
Consolidated EBITDA for the Fiscal Quarters ending September 30, 2009, December 31,
2009 and March 31, 2010 shall be calculated as follows:

 

(i)                                     for the Fiscal
Quarter ending September 30, 2009, Consolidated EBITDA shall be
Consolidated EBITDA for such quarter multiplied by four;

 

(ii)                                  for the fiscal
quarter ending December 31, 2009, Consolidated EBITDA shall be
Consolidated EBITDA for the six-month period ending on such date multiplied by
two.

 

(iii)                               for the fiscal
quarter ending March 31, 2010, Consolidated EBITDA shall be Consolidated
EBITDA for the nine-month period ending on such date multiplied by four/thirds.

 

Thereafter, Consolidated EBITDA for each
Fiscal Quarter shall be calculated using Consolidated EBITDA for the period of
four Fiscal Quarters ending on the last day of such Fiscal Quarter.

 

(c)                                  Interest
Coverage Ratio.  As of the
end of each Fiscal Quarter, commencing September 30, 2009, the Borrower
will not permit the ratio of (i) Consolidated EBITDA to (ii) cash
interest payments (other than interest payments on Indebtedness permitted under
Section 9.1(b)) 

 

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(“Interest Expense”)
made during such period, to be less than (A) 1.75 to 1.0 for the Fiscal
Quarter ending September 30, 2009, and (B) 2.0 to 1.0 for each Fiscal
Quarter thereafter; provided that
Interest Expense for the Fiscal Quarters ending September 30, 2009, December 31,
2009 and March 31, 2010 shall be calculated as follows:

 

(ii)                                  for the Fiscal
Quarter ending September 30, 2009, Interest Expense shall be Interest
Expense for such quarter multiplied by four;

 

(iii)                               for the Fiscal
Quarter ending December 31, 2009, Interest Expense shall be Interest
Expense for the six-month period ending on such date multiplied by two.

 

(iv)                              for the Fiscal
Quarter ending March 31, 2010, Interest Expense shall be Interest Expense
for the nine-month period ending on such date multiplied by four/thirds.

 

Thereafter, Interest Expense for each Fiscal
Quarter shall be calculated using Interest Expense for the period of four
Fiscal Quarters ending on the last day of such Fiscal Quarter.

 

(d)                                 Asset Coverage
Ratio.  The Borrower will not, as of
any date of determination, permit its ratio of Total Reserve Value to
Consolidated Funded Indebtedness (other than Indebtedness permitted under Section 9.1(b)),
including the Obligations as of such date to be less 1.75 to 1.00.

 

(e)                                  G & A
Expenses.  The
Borrower will not permit the general and administrative expenses of the
Borrower and its Subsidiaries on a consolidated basis to exceed $2,500,000 per
year for the year following the Closing Date; provided
that such general and administrative expenses can be increased by $250,000 each
successive 12-month period so long as the Borrower is not in Default under this
Section 9.11.  For purposes
of this Section 9.11(e), any general and administrative expenses
incurred by the Borrower on behalf of any related Person and not reimbursed to
the Borrower in cash within sixty (60) days after the incurrence thereof shall
be included in the general and administrative expenses of the Borrower.

 

Section 9.12.                             No Subsidiaries.  Neither the Borrower nor any of its
Subsidiaries shall create or acquire any Subsidiaries.

 

ARTICLE X - Events of Default and Remedies

 

Section 10.1.                             Events of
Default.  Each of the following events
constitutes an “Event of Default” under this Agreement:

 

(a)                                  Any Restricted
Person fails to pay any principal component of any Obligation when due and
payable, whether at a date for the payment of a fixed installment or as a
contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;

 

(b)                                 Any Restricted
Person fails to pay any Obligation (other than the Obligations in subsection (a) above),
when due and payable, whether at a date for the payment of a fixed installment
or as a contingent or other payment becomes due and payable or as a result of
acceleration or otherwise, within three Business Days after the same becomes
due, as provided in Section 3.2 with respect to interest, Section 3.5
with respect to fees, Section 8.9 with respect to 

 

62

 

certain payments made by the
Administrative Agent on behalf of the Borrower, Section 12.4 with
respect to various costs and expenses, or otherwise in any other provision of
the Loan Documents;

 

(c)                                  Any “default”
or “event of default” occurs under any Loan Document which defines either such
term, and the same is not remedied within the applicable period of grace (if
any) provided in such Loan Document;

 

(d)                                 Any Restricted
Person fails to duly observe, perform or comply with any covenant, agreement or
provision of Section 8.4 or Article IX;

 

(e)                                  Any Restricted
Person fails (other than as referred to in subsections (a), (b),
(c) or (d) above) to duly observe, perform or comply
with any covenant, agreement, condition or provision of any Loan Document to
which it is a party, and such failure remains unremedied for a period of thirty
(30) days after notice of such failure is given by the Administrative Agent to
the Borrower;

 

(f)                                    Any
representation or warranty previously, presently or hereafter made in writing
by or on behalf of any Restricted Person in connection with any Loan Document
shall prove to have been false or incorrect in any material respect (except for
any representation or warranty qualified by materiality, which shall be true
and correct in all respects) on any date on or as of which made, or any Loan
Document at any time ceases to be valid, binding and enforceable as warranted
in Section 7.5 for any reason other than its release or
subordination by the Administrative Agent;

 

(g)                                 Any Restricted
Person fails to duly observe, perform or comply with any agreement with any
Person or any term or condition of any instrument, if such agreement or
instrument is materially significant to the Borrower or to the Borrower and its
Subsidiaries on a Consolidated basis or materially significant to any
Guarantor, and such failure is not remedied within the applicable period of
grace (if any) provided in such agreement or instrument;

 

(h)                                 Any Restricted
Person (i) fails to pay any portion, when such portion is due, of any of
its Indebtedness in excess of $500,000, or (ii) breaches or defaults in
the performance of any agreement or instrument by which any such Indebtedness
is issued, evidenced, governed, or secured, and any such failure, breach or
default continues beyond any applicable period of grace provided therefor;

 

(i)                                     Either (i) any
“accumulated funding deficiency” (as defined in Section 412(a) of the
Internal Revenue Code) in excess of $100,000 exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
or (ii) any Termination Event occurs with respect to any ERISA Plan and
the then current value of such ERISA Plan’s benefit liabilities exceeds the
then current value of such ERISA Plan’s assets available for the payment of
such benefit liabilities by more than $100,000 (or in the case of a Termination
Event involving the withdrawal of a substantial employer, the withdrawing
employer’s proportionate share of such excess exceeds such amount);

 

(j)                                     Any Restricted
Person:

 

63

 

(i)                                     suffers the
entry against it of a judgment, decree or order for relief by a Tribunal of
competent jurisdiction in an involuntary proceeding commenced under any
applicable bankruptcy, insolvency or other similar Law of any jurisdiction now
or hereafter in effect, including the federal Bankruptcy Code, as from time to
time amended, or has any such proceeding commenced against it which remains
undismissed for a period of thirty (30) days; or

 

(ii)                                  commences a
voluntary case under any applicable bankruptcy, insolvency or similar Law now
or hereafter in effect, including the federal Bankruptcy Code, as from time to
time amended; or applies for or consents to the entry of an order for relief in
an involuntary case under any such Law; or makes a general assignment for the
benefit of creditors; or is generally not paying (or admits in writing its
inability to pay) its debts as such debts become due; or takes corporate or
other action authorizing any of the foregoing; or

 

(iii)                               suffers the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial
part of its assets or of any part of the Collateral in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days (30) after the
making thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or

 

(iv)                              suffers the
entry against it of a final judgment (ineligible for further appeal) for the
payment of money in excess of $500,000 (not covered by insurance satisfactory
to the Administrative Agent in its discretion), unless the same is discharged
within thirty days after the date of entry thereof or an appeal or appropriate
proceeding for review thereof is taken within such period and a stay of
execution pending such appeal is obtained; or

 

(v)                                 suffers a writ
or warrant of attachment or any similar process to be issued by any Tribunal
against all or any substantial part of its assets or any part of the
Collateral, and such writ or warrant of attachment or any similar process is
not stayed or released within thirty (30) days after the entry or levy thereof
or after any stay is vacated or set aside;

 

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

 

(k)                                  Any Change of
Control occurs; and

 

(l)                                     Any Material
Adverse Change occurs.

 

Upon the occurrence of an Event of Default
described in subsection (j)(i), (j)(ii) or (j)(iii) of
this section with respect to any Restricted Person, all of the Obligations
shall thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest,
notice of intention to accelerate, declaration or notice of acceleration, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by the Borrower and each Restricted Person who at any time ratifies or
approves this Agreement.  Upon any such
acceleration, any obligation of any Lender to make any further Loans hereunder
shall be permanently terminated.  During
the continuance of any other Event of Default, the Administrative Agent at any
time and from time to time may (and upon written 

 

64

 

instructions from Required Lenders, the
Administrative Agent shall), without notice to the Borrower or any other
Restricted Person, do either or both of the following:  (1) terminate any obligation of Lenders
to make Loans hereunder, and (2) declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand or
of dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by the
Borrower and each Restricted Person who at any time ratifies or approves this
Agreement.

 

Section 10.2.                             Remedies.  If any Default shall occur and be continuing,
Required Lenders, or the Administrative Agent at the direction of Required
Lenders, may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document.  All rights, remedies and powers conferred
upon Lender Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.

 

Section 10.3.                             Application of
Proceeds after Acceleration.  Except as otherwise provided in the Security
Documents with respect to application of proceeds to any reimbursements due the
Administrative Agent thereunder, if the Administrative Agent collects or
receives money pursuant to the Loan Documents after the acceleration of the
Obligations as provided in Section 10.1, the Administrative Agent
shall distribute all money so collected or received:

 

(a)                                  first to any
reimbursements due the Administrative Agent hereunder; and

 

(b)                                 then ratably to
the payment of the Obligations (and among the outstanding Obligations in the
manner provided in Section 4.1) and the Lender Hedge Obligations,
until such Obligations and Lender Hedge Obligations are paid in full.

 

The Administrative Agent
shall have no responsibility to determine the existence or amount of Lender
Hedge Obligations and may reserve from the application of amounts under this Section amounts
distributable in respect of Lender Hedge Obligations until it has received
evidence satisfactory to it of the existence and amount of such Lender Hedge
Obligations.

 

ARTICLE XI - Administrative Agent

 

Section 11.1.                             Appointment and
Authority.  Each Lender
Party hereby irrevocably authorizes the Administrative Agent, and the
Administrative Agent hereby undertakes, to receive payments of principal,
interest and other amounts due hereunder as specified herein and to take all
other actions and to exercise such powers under the Loan Documents as are
specifically delegated to the Administrative Agent by the terms hereof or
thereof, together with all other powers reasonably incidental thereto.  The relationship of the Administrative Agent
to the other Lender Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute the Administrative Agent a trustee or other fiduciary
for any Lender Party or any holder of any participation in a Note nor to impose
on the Administrative Agent duties and obligations other than those expressly
provided for in the Loan Documents.  With
respect to any matters not expressly provided for in the Loan 

 

65

 

Documents and any matters
which the Loan Documents place within the discretion of the Administrative
Agent, the Administrative Agent shall not be required to exercise any
discretion or take any action, and it may request instructions from Lenders
with respect to any such matter, in which case it shall be required to act or
to refrain from acting (and shall be fully protected and free from liability to
all Lender Parties in so acting or refraining from acting) upon the instructions
of Required Lenders (including itself); provided, however, that the Administrative Agent shall not be required
to take any action which exposes it to a risk of personal liability that it
considers unreasonable or which is contrary to the Loan Documents or to
applicable Law.

 

Section 11.2.                             Exculpation,
the Administrative Agent’s Reliance, Etc.  Neither the Administrative Agent nor any of
its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, including their negligence of any kind, except that
each shall be liable for its own gross negligence or willful misconduct.  Without limiting the generality of the
foregoing, the Administrative Agent (a) may treat the Person whose name is
set forth on the Register as the holder of any Obligation as the holder thereof
until the Administrative Agent receives written notice of the assignment or
transfer thereof in accordance with this Agreement, signed by such Person and
in the form required under Section 12.5(c) and in form
satisfactory to the Administrative Agent; (b) may consult with legal
counsel (including counsel for the Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts; (c) makes no warranty or
representation to any other Lender and shall not be responsible to any other
Lender Party for any statements, warranties or representations made in or in
connection with the Loan Documents; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of the Loan Documents on the part of any
Restricted Person or to inspect the property (including the books and records)
of any Restricted Person; (e) shall not be responsible to any other Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any instrument or document
furnished in connection therewith; (f) may rely upon the representations
and warranties of each Restricted Person or Lender Party in exercising its
powers hereunder; and (g) shall incur no liability under or in respect of
the Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (including any facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or
Persons.

 

Section 11.3.                             Credit
Decisions.  Each Lender
Party acknowledges that it has, independently and without reliance upon any
other Lender Party, made its own analysis of Restricted Persons and the
transactions contemplated hereby and its own independent decision to enter into
this Agreement and the other Loan Documents. 
Each Lender Party also acknowledges that it will, independently and
without reliance upon any other Lender Party and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents. In
this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is
acting in this transaction as special counsel to the Administrative Agent only,
except to the extent otherwise expressly stated in any legal opinion or any
Loan Document.  Each other party hereto
will consult with its own legal counsel to the extent that it deems necessary
in connection with the Loan Documents and the matters contemplated therein.

 

66

 

Section 11.4.                             Indemnification.  Each Lender, severally and not jointly,
agrees to indemnify the Administrative Agent (to the extent not reimbursed by
the Borrower within ten (10) days after demand), ratably according to such
Lender’s Percentage Share, from and against any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called “liabilities and costs”) which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against the Administrative Agent growing out of, resulting from or in any other
way associated with any of the Collateral, the Loan Documents and the
transactions and events (including the enforcement thereof) at any time
associated therewith or contemplated therein (whether arising in contract or in
tort and otherwise and including any violation or noncompliance with any
Environmental Laws by any Person or any liabilities or duties of any Person
with respect to Hazardous Materials found in or released into the environment).

 

THE FOREGOING INDEMNIFICATION
SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY
EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT
LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ADMINISTRATIVE AGENT,

 

provided only that no
Lender shall be obligated under this section to indemnify the Administrative
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by the Administrative Agent’s own individual gross
negligence or willful misconduct, as determined in a final judgment.  Cumulative of the foregoing, each Lender
agrees, severally and not jointly, to reimburse the Administrative Agent
promptly upon demand for such Lender’s Percentage Share of any costs and
expenses to be paid to the Administrative Agent by the Borrower under Section 12.4(a) to
the extent that the Administrative Agent is not timely reimbursed for such
expenses by the Borrower as provided in such section.  As used in this section the term “Administrative
Agent” shall refer not only to the Person designated as such in Section 1.1
but also to each director, officer, agent, attorney, employee, representative
and Affiliate of such Person.

 

In the event any Lender
shall pay its Percentage Share of any such indemnification or reimbursement
amount to the Administrative Agent pursuant to this Section 11.4,
and subsequently the Borrower shall pay such amount to the Administrative Agent
pursuant to Section 12.4(a) or 12.4(b) hereof, the
Administrative Agent shall reimburse such Lender by its Percentage Share of
such amount so received.

 

Section 11.5.                             Rights as
Lender.  In its capacity as a Lender,
the Administrative Agent shall have the same rights and obligations as any
Lender and may exercise such rights as though it were not the Administrative
Agent.  The Administrative Agent may
accept deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with any Restricted Person or its Affiliates,
all as if it were not the Administrative Agent hereunder and without any duty
to account therefor to any other Lender.

 

Section 11.6.                             Sharing of
Set-Offs and Other Payments.  Each Lender Party agrees that if it shall,
whether through the exercise of rights under Security Documents or rights of
banker’s lien, set off, or counterclaim against the Borrower or otherwise,
obtain payment of a portion of 

 

67

 

the aggregate Obligations
owed to it which, taking into account all distributions made by the
Administrative Agent under Section 4.1, causes such Lender Party to
have received more than it would have received had such payment been received
by the Administrative Agent and distributed pursuant to Section 4.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Lender Parties to share all payments as provided for in Section 4.1,
and (b) such other adjustments shall be made from time to time as shall be
equitable to ensure that the Administrative Agent and all Lender Parties share
all payments of Obligations as provided in Section 4.1; provided, however, that
nothing herein contained shall in any way affect the right of any Lender Party
to obtain payment (whether by exercise of rights of banker’s lien, set-off or
counterclaim or otherwise) of indebtedness other than the Obligations.  The Borrower expressly consents to the foregoing
arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker’s lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation.  If all or any part of any
funds transferred pursuant to this section is thereafter recovered from the
seller under this section which received the same, the purchase provided for in
this section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to
the order of a Tribunal order to be paid on account of the possession of such
funds prior to such recovery.

 

Section 11.7.                             Investments.  Whenever the Administrative Agent in good
faith determines that it is uncertain about how to distribute to Lender Parties
any funds which it has received, or whenever the Administrative Agent in good
faith determines that there is any dispute among Lender Parties about how such
funds should be distributed, the Administrative Agent may choose to defer
distribution of the funds which are the subject of such uncertainty or
dispute.  If the Administrative Agent in
good faith believes that the uncertainty or dispute will not be promptly
resolved, or if the Administrative Agent is otherwise required to invest funds
pending distribution to Lender Parties, the Administrative Agent shall invest
such funds in Cash Equivalents pending distribution; all interest on any such
Investment shall be distributed upon the distribution of such Investment and in
the same proportion and to the same Persons as such Investment.  All moneys received by the Administrative
Agent for distribution to Lender Parties (other than to the Person who is the
Administrative Agent in its separate capacity as a Lender Party) shall be held
by the Administrative Agent pending such distribution solely as the
Administrative Agent for such Lender Parties, and the Administrative Agent
shall have no equitable title to any portion thereof.

 

Section 11.8.                             Benefit of Article XI.  The provisions of this Article (other
than the following Section 11.9) are intended solely for the
benefit of Lender Parties, and except as expressly provided for in Section 11.9
hereof, no Restricted Person shall be entitled to rely on any such provision or
assert any such provision in a claim or defense against any Lender.  Lender Parties may waive or amend such
provisions as they desire without any notice to or consent of the Borrower or
any Restricted Person.

 

Section 11.9.                             Resignation.  The Administrative Agent may resign at any
time by giving written notice thereof to Lenders and the Borrower.  Each such notice shall set forth the date of
such resignation.  Upon any such
resignation, Required Lenders shall have the right to appoint 

 

68

 

(with, unless an Event of
Default shall have occurred and be continuing, the consent of the Borrower,
such consent not to be unreasonably withheld or delayed) a successor the
Administrative Agent.  A successor must
be appointed for any retiring the Administrative Agent, and such the
Administrative Agent’s resignation shall become effective only when such
successor accepts such appointment.  If,
within thirty days after the date of the retiring the Administrative Agent’s
resignation, no successor the Administrative Agent has been appointed and has
accepted such appointment, then the retiring the Administrative Agent may
appoint (with, unless an Event of Default shall have occurred and be
continuing, the consent of the Borrower, such consent not to be unreasonably
withheld or delayed) a successor the Administrative Agent, which shall be a
commercial bank organized or licensed to conduct a banking or trust business
under the Laws of the United States of America or of any state thereof.  Upon the acceptance of any appointment as the
Administrative Agent hereunder by a successor the Administrative Agent, the
retiring the Administrative Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents.  After any retiring the Administrative Agent’s
resignation hereunder the provisions of this Article XI shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was the Administrative Agent under the Loan Documents.

 

Section 11.10.                       Notice of
Default.  The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of any Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Administrative Agent for the account of Lenders,
unless the Administrative Agent shall have received written notice from a
Lender or the Borrower referring to this Agreement, describing such Default and
stating that such notice is a “notice of default.”  The Administrative Agent will notify Lenders
of its receipt of any such notice.  The
Administrative Agent shall take such action with respect to such Default as may
be directed by Required Lenders in accordance with Article X; provided, however, that
unless and until the Administrative Agent has received any such direction, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable or in the best interest of Lenders.

 

Section 11.11.                       Subagents.  The Administrative Agent may perform any and
all its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. 
The exculpatory provisions of the preceding Sections of this Article XI
shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

 

Section 11.12.                       Administrative
Agent May File Proofs of Claim.  In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Borrower or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal
of any Loan shall then be due and payable as herein expressed or by declaration
or otherwise and irrespective of whether the Administrative Agent shall have
made any demand on the Borrower) shall be entitled and empowered, by
intervention in such proceeding or otherwise:

 

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(a)                                  to file and
prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Indebtedness that are owing and
unpaid and to file such other documents as may be necessary or advisable in
order to have the claims of the Lenders and the Administrative Agent (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Lenders and the Administrative Agent and their respective agents and
counsel and all other amounts due the Lenders and the Administrative Agent
under Section 12.4) allowed in such judicial proceeding;

 

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

 

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

 

Section 11.13.                       Authority of Administrative Agent to Release Collateral and Liens.  Each Lender hereby authorizes the
Administrative Agent to release any collateral that is permitted to be sold or
released pursuant to the terms of the Loan Documents.  Each Lender hereby authorizes the
Administrative Agent to execute and deliver to the Borrower, at the Borrower’s
sole cost and expense, any and all releases of Liens, termination statements,
assignments or other documents reasonably requested by the Borrower in
connection with any sale or other disposition of Property to the extent such
sale or other disposition is permitted by the terms of Section 9.5
or is otherwise authorized by the terms of the Loan Documents.

 

ARTICLE XII - Miscellaneous

 

Section 12.1.                             Waivers and
Amendments; Acknowledgments.

 

(a)                                  Waivers and
Amendments.  No failure
or delay (whether by course of conduct or otherwise) by any Lender in exercising
any right, power or remedy which such Lender Party may have under any of the
Loan Documents shall operate as a waiver thereof or of any other right, power
or remedy, nor shall any single or partial exercise by any Lender Party of any
such right, power or remedy preclude any other or further exercise thereof or
of any other right, power or remedy.  No
waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section, and then such waiver or consent shall be effective only
in the specific instances and for the purposes for which given and to the
extent specified in such writing.  No
notice to or demand on any Restricted Person shall in any case of itself
entitle any Restricted Person to any other or further notice or demand in
similar or other circumstances.  This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan Documents
shall be valid or effective against any party hereto unless the same is in
writing and signed by (i) if such party is the Borrower, by the Borrower, (ii) if
such party is the Administrative Agent, by such party, and (iii) if such
party is a Lender, by such Lender or by the 

 

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Administrative Agent on
behalf of Lenders with the written consent of Required Lenders (which consent
has already been given as to the termination of the Loan Documents as provided
in Section 12.10). 
Notwithstanding the foregoing or anything to the contrary herein, the
Administrative Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would:  (A) waive any of the
conditions specified in Article VI (provided
that the Administrative Agent may in its discretion withdraw any request it has
made under Section 6.1(r) or Section 6.2(f)), (B) increase
the maximum amount which such Lender is committed hereunder to lend, (C) reduce
any fees payable to such Lender hereunder, or the principal of, or interest on,
such Lender’s Note, (D) extend the Maturity Date, waive the provisions of Section 2.7
or Section 11.6, or postpone any date fixed for any payment of any
such fees, principal or interest, (E) amend the definition herein of “Majority
Lenders” or “Required Lenders” or otherwise change the aggregate amount of
Percentage Shares which is required for the Administrative Agent, Lenders or
any of them to take any particular action under the Loan Documents, (F) release
the Borrower from its obligation to pay such Lender’s Obligations or any
Guarantor from its guaranty of such payment, (G) release all or
substantially all of the Collateral, except for such releases relating to sales
or dispositions of property permitted by the Loan Documents, or (H) amend
this Section 12.1(a). 
Notwithstanding the foregoing or anything to the contrary herein, the
Administrative Agent shall not, without the prior consent of each individual
Lender affected thereby (or, as applicable, an Affiliate of such Lender),
execute and deliver any waiver or amendment to any Loan Document which would (1) cause
an obligation under any outstanding Hedge Contract owing to such Lender (or its
Affiliate) that, prior to such waiver or amendment, constituted a “Lender Hedge
Obligation” to cease to be a “Lender Hedge Obligation” or (2) cause the
priority of the Lien securing such obligation or the priority of payment with
respect to such obligation in connection with the exercise of remedies under
such Loan Document to be subordinate in any manner to the Obligations (other
than expense reimbursements, expenses of enforcement, and other similar
obligations owing under the Loan Documents). 
Lenders hereby authorize the Administrative Agent to release any
Collateral relating to sales or dispositions of Collateral expressly permitted
by Section 9.5 hereof or approved by Required Lenders pursuant
thereto.

 

(b)                                 Acknowledgments
and Admissions.  The Borrower
hereby represents, warrants, acknowledges and admits that (i) it has been
advised by counsel in the negotiation, execution and delivery of the Loan
Documents to which it is a party, (ii) it has made an independent decision
to enter into this Agreement and the other Loan Documents to which it is a
party, without reliance on any representation, warranty, covenant or
undertaking by the Administrative Agent or any Lender, whether written, oral or
implicit, other than as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iii) there are no
representations, warranties, covenants, undertakings or agreements by any
Lender as to the Loan Documents except as expressly set out in this Agreement
or in another Loan Document delivered on or after the date hereof, (iv) no
Lender has any fiduciary obligation toward the Borrower with respect to any
Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between the Borrower and the other
Restricted Persons, on one hand, and each Lender, on the other hand, is and
shall be solely that of debtor and creditor, respectively; provided
that, solely for purposes of Section 12.5(f) the
Administrative Agent shall act as the Administrative Agent of the Borrower in
maintaining the Register as set forth therein, (vi) no partnership or
joint venture exists with respect to the Loan Documents between any Restricted 

 

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Person and any Lender, (vii) the
Administrative Agent is not the Borrower’s Administrative Agent, but the
Administrative Agent for Lenders; provided further
that, solely for purposes of Section 12.5(f) the
Administrative Agent shall act as the Administrative Agent of the Borrower in
maintaining the Register as set forth therein, (viii) should an Event of
Default or Default occur or exist, each Lender will determine in its sole
discretion and for its own reasons what remedies and actions it will or will
not exercise or take at that time, (ix) without limiting any of the
foregoing, the Borrower is not relying upon any representation or covenant by
any Lender, or any representative thereof, and no such representation or
covenant has been made, that any Lender will, at the time of an Event of
Default or Default, or at any other time, waive, negotiate, discuss, or take or
refrain from taking any action permitted under the Loan Documents with respect
to any such Event of Default or Default or any other provision of the Loan Documents,
and (x) all Lender Parties have relied upon the truthfulness of the
acknowledgments in this section in deciding to execute and deliver this
Agreement and to become obligated hereunder.

 

(c)                                  Joint
Acknowledgment.  THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT 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.

 

Section 12.2.                             Survival of
Agreements; Cumulative Nature.  All of Restricted Persons’ various
representations, warranties, covenants and agreements in the Loan Documents
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the performance hereof and thereof, including the making or
granting  of the Loans and the  delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to each Lender Party and all of Lender Parties’ obligations to the
Borrower are terminated.  All statements
and agreements contained in any certificate or other instrument delivered by
any Restricted Person to any Lender Party under any Loan Document shall be
deemed representations and warranties by the Borrower or agreements and
covenants of the Borrower under this Agreement. 
The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Lender Parties in the Loan Documents, are cumulative, and, except
for expressly specified waivers and consents, no Loan Document shall be
construed in the context of another to diminish, nullify, or otherwise reduce
the benefit to any Lender Party of any such representation, warranty,
indemnity, covenant, right, power or privilege. 
In particular and without limitation, no exception set out in this
Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or covenant shall be subject only to those
exceptions which are expressly made applicable to it by the terms of the
various Loan Documents.

 

Section 12.3.                             Notices.  All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided that the Administrative Agent may give telephonic
notices to the other Lender Parties), and shall be deemed sufficiently given or
furnished if delivered by personal delivery, by facsimile, by delivery service
with proof of 

 

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delivery, or by registered
or certified United States mail, postage prepaid, to the Borrower and
Restricted Persons at the address of the Borrower specified on the signature pages hereto,
to the Administrative Agent at the address of the Administrative Agent
specified its signature page hereto and to each Lender Party at its
address specified on the Lenders Schedule (unless changed by similar notice in
writing given by the particular Person whose address is to be changed).  Any such notice or communication shall be
deemed to have been given (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery during normal business
hours at the address provided herein, (b) in the case of facsimile, upon
receipt, or (c) in the case of registered or certified United States mail,
three days after deposit in the mail; provided, however, that no Borrowing Notice shall become effective
until actually received by the Administrative Agent.  Electronic mail and Internet and intranet websites
may be used only to distribute routine communications, such as financial
statements and other information as provided in Section 8.2, and to
distribute Loan Documents for execution by the parties thereto, and may not be
used for any other purpose.

 

Section 12.4.                             Payment of
Expenses; Indemnity.

 

(a)                                  Payment of
Expenses.  Whether or
not the transactions contemplated by this Agreement are consummated, the
Borrower will promptly (and in any event, within 30 days after any invoice or
other statement or notice) pay: (i) all transfer, stamp, mortgage,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document or transaction referred to herein or
therein, (ii) all reasonable costs and expenses incurred by or on behalf
of the Administrative Agent (including attorneys’ fees, consultants’ fees and
engineering fees, travel costs and miscellaneous expenses) in connection with (A) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto, (B) the
filing, recording, refiling and re-recording of any Loan Documents and any
other documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document, (C) the
borrowings hereunder and other action reasonably required in the course of
administration hereof, (D) monitoring or confirming (or preparation or
negotiation of any document related to) any Restricted Person’s compliance with
any covenants or conditions contained in this Agreement or in any Loan
Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of any Lender Party (including without limitation attorneys’ fees,
consultants’ fees and accounting fees) in connection with the preservation of
any rights under the Loan Documents or the defense or enforcement of any of the
Loan Documents (including this section), any attempt to cure any breach
thereunder by any Restricted Person, or the defense of any Lender Party’s
exercise of its rights thereunder.  In
addition to the foregoing, until all Obligations have been paid in full, the
Borrower will also pay or reimburse the Administrative Agent for all reasonable
out-of-pocket costs and expenses of the Administrative Agent or its agents or
employees in connection with the continuing administration of the Loans and the
related due diligence of the Administrative Agent, including travel and
miscellaneous expenses and fees and expenses of the Administrative Agent’s
outside counsel, reserve engineers and consultants engaged in connection with
the Loan Documents.

 

(b)                                 Indemnity.  the Borrower agrees to indemnify each Lender
Party, upon demand, from and against any and all liabilities, obligations,
broker’s fees, claims, losses, damages, 

 

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penalties, fines, actions,
judgments, suits, settlements, costs, expenses or disbursements (including
reasonable fees of attorneys, accountants, experts and advisors) of any kind or
nature whatsoever (in this section collectively called “liabilities and
costs”) which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against such Lender Party growing out of, resulting
from or in any other way associated with any of the Collateral, the Loan
Documents and the transactions and events (including the enforcement or defense
thereof) at any time associated therewith or contemplated therein (whether
arising in contract or in tort or otherwise). 
Among other things, the foregoing indemnification covers all liabilities
and costs incurred by any Lender Party related to any breach of a Loan Document
by a Restricted Person, any bodily injury to any Person or damage to any Person’s
property, or any violation or noncompliance with any Environmental Laws by any
Lender Party or any other Person or any liabilities or duties of any Lender
Party or any other Person with respect to Hazardous Materials found in or
released into the environment.

 

THE FOREGOING INDEMNIFICATION
SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY
EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY
OR CAUSED, IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY ANY LENDER PARTY,

 

provided only that no
Lender Party shall be entitled under this section to receive indemnification
for that portion, if any, of any liabilities and costs which is proximately
caused by its own individual gross negligence or willful misconduct, as
determined in a final judgment.  If any
Person (including the Borrower or any of its Affiliates) ever alleges such
gross negligence or willful misconduct by any Lender Party, the indemnification
provided for in this section shall nonetheless be paid upon demand, subject to
later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct. 
As used in this section the term “Lender Party” shall refer not
only to each Person designated as such in Section 1.1 but also to
each Affiliate of such Person and to its and their directors, officers, agents,
trustees, attorneys, employees, and representatives.

 

Section 12.5.                             Joint and
Several Liability; Parties in Interest; Assignments.

 

(a)                                  All Obligations
which are incurred by two or more Restricted Persons shall be their joint and
several obligations and liabilities.  All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however,
that no Restricted Person may assign or transfer any of its rights or delegate
any of its duties or obligations under any Loan Document without the prior
consent of all of the Lenders.  Neither
the Borrower nor any Affiliates of the Borrower shall directly or indirectly
purchase or otherwise retire any Obligations owed to any Lender nor will any
Lender accept any offer to do so, unless each Lender shall have received
substantially the same offer with respect to the same Percentage Share of the
Obligations owed to it.  If the Borrower
or any Affiliate of the Borrower at any time purchases some but less than all
of the Obligations owed to all Lender Parties, such purchaser shall not be
entitled to any rights of any Lender under the Loan Documents unless and until
the Borrower or its Affiliates have purchased all of the Obligations.

 

74

 

(b)                                 No Lender shall
sell any participation interest in its commitment hereunder or any of its
rights under its Loans or under the Loan Documents to any Person unless the
agreement between such Lender and such participant at all times provides: (i) that
such participation exists only as a result of the agreement between such
participant and such Lender and that such transfer does not give such
participant any right to vote as a Lender or any other direct claims or rights
against any Person other than such Lender, (ii) that such participant is
not entitled to payment from any Restricted Person under Section 5.1(b) or
Section 5.3 of amounts in excess of those payable to such Lender
under such sections (determined without regard to the sale of such
participation), and (iii) unless such participant is an Affiliate of such
Lender, that such participant shall not be entitled to require such Lender to
take any action under any Loan Document or to obtain the consent of such
participant prior to taking any action under any Loan Document, except for
actions which would require the consent of all Lenders under subsection (a) of
Section 12.1.  No Lender
selling such a participation shall, as between the other parties hereto and
such Lender, be relieved of any of its obligations hereunder as a result of the
sale of such participation.  Each Lender
which sells any such participation to any Person (other than an Affiliate of
such Lender) shall give prompt notice thereof to the Administrative Agent and
the Borrower.

 

(c)                                  Except for
sales of participations under the immediately preceding subsection, no Lender
shall make any assignment or transfer of any kind of its commitments or any of
its rights under its Loans or under the Loan Documents, except for assignments
to an Eligible Transferee, and then only if such assignment is made in
accordance with the following requirements:

 

(i)                                     Each such
assignment shall apply to all Obligations owing to the assignor Lender
hereunder and to the unused portion of the assignor Lender’s (and any such
Affiliate(s)) commitments, so that after such assignment is made the assignor
Lender (together with any such Affiliate(s)) shall have a fixed (and not a
varying) Percentage Share in its aggregate Loans and Notes and be committed to
make that Percentage Share of all future Loans, the assignee shall have a fixed
Percentage Share in such aggregate Loans and Notes and be committed to make
that Percentage Share of all future Loans, and, except in the case of an
assignment of the entire remaining amount of the assignor’s (and any such
Affiliate’s) Percentage Shares of the aggregate Maximum Credit Amount, the
Percentage Share of the aggregate Maximum Credit Amount of both the assignor
(and any such Affiliate) and assignee (and any such Affiliate) shall equal or
exceed $5,000,000.

 

(ii)                                  The parties to
each such assignment shall execute and deliver to the Administrative Agent, for
its acceptance and recording in the “Register” (as defined below in this
section), an Assignment and Acceptance in the form of Exhibit E,
appropriately completed, together with the Notes subject to such assignment and
a processing fee payable by such assignor Lender (and not at the Borrower’s
expense) to the Administrative Agent of $3,500. 
Upon such execution, delivery, and payment and upon the satisfaction of
the conditions set out in such Assignment and Acceptance, then (A) the
Borrower shall issue new Notes to such assignor and assignee, and (B) as
of the “Settlement Date” specified in such Assignment and Acceptance the
assignee thereunder shall be a party hereto and a Lender hereunder and the
Administrative Agent shall thereupon deliver to the Borrower and each Lender a
schedule showing the revised Percentage Shares of such assignor Lender and such
assignee Lender and the Percentage Shares of all other Lenders.

 

75

 

(iii)                               Each assignee
Lender which is not a United States person (as such term is defined in Section 7701(a)(30)
of the Internal Revenue Code) for Federal income tax purposes, shall (to the
extent it has not already done so) provide the Administrative Agent and the
Borrower with the “Prescribed Forms” referred to in Section 5.3(c).

 

(iv)                              Unless the assignee
is an Affiliate of the assignor, such assignment shall be consented to in
writing by the Administrative Agent and, unless an Event of Default shall have
occurred and be continuing, the Borrower (such consent not to be unreasonably
withheld or delayed).

 

(d)                                 Nothing
contained in this section shall prevent or prohibit any Lender from assigning
or pledging all or any portion of its Loans and Notes to any Federal Reserve
Bank as collateral security pursuant to Regulation A of the Board and any
Operating Circular issued by such Federal Reserve Bank; provided
that no such assignment or pledge shall relieve such Lender from its
obligations hereunder.

 

(e)                                  By executing
and delivering an Assignment and Acceptance, each assignee Lender thereunder
will be confirming to and agreeing with the Borrower, the Administrative Agent
and each other Lender Party that such assignee understands and agrees to the
terms hereof, including Article IX hereof.

 

(f)                                    The
Administrative Agent shall maintain a copy of each Assignment and Acceptance
and a register for the recordation of the names and addresses of Lenders and
the Percentage Shares of, and principal amount of the Loans owing to, each
Lender from time to time (in this section called the “Register”).  The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower and each Lender
Party may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes.  The Register
shall be available for inspection by the Borrower or any Lender Party at any
reasonable time and from time to time upon reasonable prior notice.  The Administrative Agent shall act as the
Administrative Agent of the Borrower solely for purposes of maintaining the
Register as set forth in this Section 12.5(f).

 

Section 12.6.                             Confidentiality.  The Administrative Agent and each Lender
(each, a “Lending Party”) agrees to keep confidential any information
furnished or made available to it by any Restricted Person pursuant to this
Agreement that is marked confidential; provided that
nothing herein shall prevent any Lending Party from disclosing such information
(a) to any other Lending Party or any Affiliate of any Lending Party, or
any officer, director, employee, agent, attorney, auditor, or advisor of any
Lending Party or Affiliate of any Lending Party, (b) to any other Person
if reasonably incidental to the administration of the credit facility provided
herein, (c) as required by any Law, the Borrower acknowledging and
agreeing that the Borrower affirms that each Lender Party may be a publicly
traded company that may be required by law to disclose certain terms hereof as
part of its normal public and regulatory reporting and related disclosures, (d) upon
the order of any court or administrative agency, (e) upon the request or
demand of any Tribunal, (f) that is or becomes available to the public or
that is or becomes available to any Lending Party other than as a result of a
disclosure by any Lending Party prohibited by this Agreement, (g) in
connection with any litigation to which such Lending Party or any of its
Affiliates may be a party, (h) to the extent necessary in connection with
the exercise 

 

76

 

of any right or remedy under
this Agreement or any other Loan Document, and (i) subject to provisions
substantially similar to those contained in this section, to any actual or
proposed participant or assignee or any actual or proposed contractual
counterparty (or its advisors) to any securitization, hedge, or other
derivative transaction relating to the parties’ obligations hereunder.  Any Person required to maintain the
confidentiality of information described in this section shall be considered to
have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such information as such
Person would accord to its own confidential information.

 

Section 12.7.                             Governing Law;
Submission to Process. 
Except to the extent that the Law of another jurisdiction is expressly
elected in a Loan Document, the Loan Documents shall be deemed contracts and
instruments made under the Laws of the State of New York and shall be construed
and enforced in accordance with and governed by the Laws of the State of New
York and the Laws of the United States of America.  The Borrower hereby irrevocably submits
itself and each other Restricted Person to the non-exclusive jurisdiction of
the state and federal courts sitting in the State of New York and agrees and
consents that service of process may be made upon it or any Restricted Person
in any legal proceeding relating to the Loan Documents or the Obligations by
any means allowed under New York or federal law.

 

Section 12.8.                             Limitation on
Interest.  Lender
Parties, Restricted Persons and any other parties to the Loan Documents intend
to contract in strict compliance with applicable usury Law from time to time in
effect.  In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be charged by applicable Law from time to time
in effect.  Neither any Restricted Person
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully contracted for, charged, or received
under applicable Law from time to time in effect, and the provisions of this
section shall control over all other provisions of the Loan Documents which may
be in conflict or apparent conflict herewith. 
Lender Parties expressly disavow any intention to contract for, charge,
or collect excessive unearned interest or finance charges in the event the
maturity of any Obligation is accelerated. 
If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c) any
Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount
in excess of that permitted to be charged by applicable Law then in effect,
then all sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at such Lender’s or holder’s option,
promptly returned to the Borrower or the other payor thereof upon such
determination.  In determining whether or
not the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable Law, Lender Parties and Restricted
Persons (and any other payors thereof) shall to the greatest extent permitted
under applicable Law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate,
and spread the total 

 

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amount of interest
throughout the entire contemplated term of the instruments evidencing the
Obligations in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable Law in order to lawfully contract for, charge, or receive the
maximum amount of interest permitted under applicable Law.

 

Section 12.9.                             Tax Matters;
Administrative Services.  The
Borrower and Lenders agree that they will use such allocation to prepare and
file all returns and other reports with, and to prepare or file any other
information provided to the Internal Revenue Service or any other Person or
governmental entity for federal income tax purposes, including but not limited
to, for purposes of Lenders reporting the allocation of the issue price
pursuant to Treas. Reg. § 1.1273-2(h)(2). 
Lenders agree to provide the Borrower with the information required to
be provided pursuant to Treas. Reg. § 1.1275-2(e) promptly upon request of
the Borrower.  The Borrower and Lenders
acknowledge that this Section 12.9 is intended to establish the
allocation of the issue price of the investment unit in accordance with Treas.
Reg. § 1.1273-2(h)(1) and Section 1273(c)(2) of the Internal
Revenue Code, which allocation is binding on the Borrower and Lenders pursuant
to Treas. Reg. § 1.1273-2(h)(2), but this Section 12.9 does not
constitute recognition by any of them that the amount allocated to each
component shall be treated as its issue price for any purpose other than as
expressly provided herein.  The Borrower
shall report payments of interest to each Lender as required by
section 6049 of the Internal Revenue Code (or any other provision requiring
such report) in the amounts reasonably requested by the Administrative Agent.

 

Section 12.10.                       Termination;
Limited Survival.  In its sole
and absolute discretion the Borrower may at any time that no Obligations are
owing (other than indemnity obligations and similar obligations that survive
the termination of this Agreement for which no notice of a claim has been
received by the Borrower) elect in a written notice delivered to the
Administrative Agent to terminate this Agreement.  Upon receipt by the Administrative Agent of
such a notice, if no such Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder.  Notwithstanding the foregoing or anything
herein to the contrary, any waivers or admissions made by any Restricted Person
in any Loan Document, any Obligations under Section 5.1(b) or Section 5.3,
and any obligations which any Person may have to indemnify or compensate any
Lender Party shall survive any termination of this Agreement or any other Loan
Document.  At the request and expense of
the Borrower, the Administrative Agent shall prepare and execute all necessary
instruments to reflect and effect such termination of the Loan Documents.  The Administrative Agent is hereby authorized
to execute all such instruments on behalf of all Lenders, without the joinder
of or further action by any Lender.

 

Section 12.11.                       Severability.  If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.

 

Section 12.12.                       Counterparts;
Fax.  This Agreement may be
separately executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to constitute one and the same Agreement. 
This Agreement 

 

78

 

and the Loan Documents may
be validly executed and delivered by facsimile or other electronic
transmission.

 

Section 12.13.                       Waiver of Jury
Trial, Punitive Damages, etc.  The Borrower and each Lender Party hereby
knowingly, voluntarily, intentionally, and irrevocably (a) waives, to the
maximum extent not prohibited by Law, any right it may have to a trial by jury
in respect of any litigation based hereon, or directly or indirectly at any
time arising out of, under or in connection with the Loan Documents or any
transaction contemplated thereby or associated therewith, before or after
maturity; (b) waives, to the maximum extent not prohibited by Law, any
right it may have to claim or recover in any such litigation any “Special
Damages”, as defined below, (c) certifies that no party hereto nor any
representative or agent or counsel for any party hereto has represented,
expressly or otherwise, or implied that such party would not, in the event of
litigation, seek to enforce the foregoing waivers, and (d) acknowledges
that it has been induced to enter into this Agreement, the other Loan Documents
and the transactions contemplated hereby and thereby by, among other things,
the mutual waivers and certifications contained in this section.  As used in this section, “Special Damages”
includes all special, consequential, exemplary, or punitive damages (regardless
of how named), but does not include any payments or funds which any party
hereto has expressly promised to pay or deliver to any other party hereto.

 

Section 12.14.                       USA Patriot Act
Notice.  Each Lender that is subject to
the Act (as hereinafter defined) and the Administrative Agent (for itself and
not on behalf of any Lender) hereby notifies the 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 the Borrower, which information includes
the name and address of the Borrower and other information that will allow such
Lender or the Administrative Agent, as applicable, to identify the Borrower in
accordance with the Act.

 

[Remainder of page intentionally
left blank; signature pages follow]

 

79

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed as of the date
first written above.

 

	
   

  	
  Borrower:

  
	
   

  	
   

  
	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Chris Work

  
	
   

  	
   

  	
  Chris
  Work, as Vice President and

  
	
   

  	
   

  	
  Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices to the Borrower:

  
	
   

  	
   

  
	
   

  	
  1331
  Lamar, Suite 1450

  
	
   

  	
  Houston,
  Texas 77010

  
	
   

  	
  Attention: Mr. John J. Lendrum, III

  

 

 

Signature Page to

Second Amended and Restated Credit Agreement

(Resaca Exploitation, Inc.)

 

S-1

 

	
   

  	
  CIT
  CAPITAL USA INC.,

  
	
   

  	
  as
  the Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David M. Bornstein

  
	
   

  	
   

  	
  David
  M. Bornstein, as Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  
	
   

  	
  If
  related to amendments, consents, waivers, financial statements, operating
  reports, engineering reports, etc.:

  
	
   

  	
   

  
	
   

  	
  505
  Fifth Avenue, 10th Floor

  
	
   

  	
  New
  York, NY 10017

  
	
   

  	
  Attn:
  Marc Theisinger

  
	
   

  	
  Telecopy
  No.: (212) 771-9675

  
	
   

  	
   

  
	
   

  	
  If
  related to rate sets, drawdown requests, paydowns, interest, fees, etc.:

  
	
   

  	
   

  
	
   

  	
  11
  West 42nd Street

  
	
   

  	
  New
  York, NY 10036

  
	
   

  	
  Attn:
  Nadira Teekah Prescott

  
	
   

  	
  Telecopy
  No. (800) 390-2026

  
	
   

  	
  Email:
  agencyservices@cit.com

  
	
   

  	
   

  
	
   

  	
  In
  each case, with a copy to:

  
	
   

  	
   

  
	
   

  	
  700
  Louisiana Street, Suite 5200

  
	
   

  	
  Houston,
  TX 77002

  
	
   

  	
  Attn:
  David Bornstein

  
	
   

  	
  Telecopy
  No. (713) 237-8156

  

 

 

Signature Page to

Second Amended and Restated Credit Agreement

(Resaca Exploitation, Inc.)

 

S-2

 

	
   

  	
  CIT
  BANK,

  
	
   

  	
  as
  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Daniel Burnett

  
	
   

  	
   

  	
  Daniel
  Burnett, as an Authorized Signatory

  

 

 

Signature Page to

Second Amended and Restated Credit Agreement

(Resaca Exploitation, Inc.)

 

S-3

 

	
   

  	
  NGP
  CAPITAL RESOURCES COMPANY,

  
	
   

  	
  as
  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  R. Kelly Plato

  
	
   

  	
   

  	
  R. Kelly Plato, as Senior Vice President

  

 

 

Signature Page to

Second Amended and Restated Credit Agreement

(Resaca Exploitation, Inc.)

 

S-4

 

SCHEDULE 1

 

DISCLOSURE SCHEDULE

 

To supplement the following
sections of the Agreement of which this Schedule is a part, the Borrower hereby
make the following disclosures:

 

Section 7.6.                                   Initial Financial Statements
— Material Adverse Changes:

 

None

 

Section 7.7.                                   Other Obligations and
Restrictions:

 

None

 

Section 7.9.                                   Litigation:

 

None

 

Section 7.10.                             Labor Disputes and Acts of
God:

 

None

 

Section 7.11.                             ERISA Plans and Liabilities:

 

None

 

Section 7.12.                             Environmental and Other Laws:

 

None

 

Section 7.13.                             Names and Places of Business:

 

Prior to July 10, 2008,
the Borrower was known as Resaca Exploitation, L.P., a Delaware limited
partnership with its principal place of business and chief executive office at
1331 Lamar, Suite 1450, Houston, Texas 77010.

 

Section 7.14.                             The Borrower’s Subsidiaries:

 

Resaca Operating Company, a
Texas corporation with its principal place of business and chief executive
office at 1331 Lamar, Suite 1450, Houston, Texas 77010 and with the
following organization identification number: 801041394.

 

Section 7.18.                             Titles to Properties;
Licenses; Insurance:

 

None

 

1-1

 

Section 7.22                                Operation of Oil and Gas
Properties:

 

None

 

Section 7.24                                Material
Agreements

 

1.               Second Amended and Restated Agreement for
Administrative Services, dated January 1, 2009, by and among Borrower and
Torch Energy Advisors Incorporated, a Delaware corporation and Torch Energy
Services, Inc., a Texas corporation.

 

2.               Amended and Restated Co-Employer
Agreement, dated January 1, 2009, by and among Borrower and Torch Energy
Advisors Incorporated, a Delaware corporation

 

3.               Amended and Restated Employment
Agreement, dated January 1, 2009, by and among Borrower and Torch Energy
Advisors Incorporated, a Delaware corporation and Dennis Hammond.

 

4.               Agreement for Purchase and Sale, dated March 10,
2006, by and among SDG Resources, L.P., Innovative Oil and Gas Development and
Trading Company, Inc., Arkios Partners, L.P., and Resaca Exploitation, LP.

 

5.               ISDA Master Agreement, dated April 28,
2006, by and between BP Corporation North America, INC. and Resaca Exploitation,
LP, as amended.

a.               Amendment Agreement, dated October 12,
2007, by and between BP Corporation North America, INC. and Resaca
Exploitation, LP.

b.              Restated Amendment Agreement, dated July 1,
2008, by and between BP Corporation North America, INC. and Resaca
Exploitation, LP.

c.               Ratification of Master Agreement, dated July 11,
2008, by and between BP Corporation North America, INC. and Resaca Exploitation, Inc.

d.              Hedges entered into with BP Corporation
North America Inc. on May 1, 2006.

e.               Hedges entered into with BP Corporation
North America Inc. on June 24, 2009.

 

6.               The Resaca Exploitation, Inc. 401K
Plan.

 

7.               Unit Agreement for the Cooper Jal Unit
located in Lea County, New Mexico.

 

Section 7.25                                Existing
Accounts Payable

 

None

 

1-2

 

Section 8.21                                Hedge Contracts as of
Closing Date:

 

The following are hedges
currently in place with BP Corporation North America Inc.:

 

Natural Gas Hedges

 

	
  Period Covered

  	
   

  	
  Index

  	
   

  	
  MMBtu/

  Month

  	
   

  	
  Weighted

  Avg. Floor 

  Price

  	
   

  	
  Weighted

  Avg. Cap

  Price

  	
   

  	
  Swap

  Price

  	
   

  
	
  6/1/09
  — 12/31/10

  	
   

  	
  WAHA West Texas IF

  	
   

  	
  20,000

  	
   

  	
  $

  	
  6.30

  	
   

  	
  $

  	
  11.50

  	
   

  	
  N/A

  	
   

  
	
  1/1/11
  — 05/31/11

  	
   

  	
  WAHA West Texas IF

  	
   

  	
  10,000

  	
   

  	
  $

  	
  6.30

  	
   

  	
  $

  	
  11.00

  	
   

  	
  N/A

  	
   

  
	
  1/1/011
  — 5/31/11

  	
   

  	
  WAHA West Texas IF

  	
   

  	
  1,000

  	
   

  	
  N/A

  	
   

  	
  N/A

  	
   

  	
  $

  	
  6.10

  	
   

  
	
  6/1/11
  — 12/31/11

  	
   

  	
  WAHA West Texas IF

  	
   

  	
  11,000

  	
   

  	
  $

  	
  5.50

  	
   

  	
  $

  	
  6.90

  	
   

  	
  N/A

  	
   

  
	
  1/1/12
  — 6/30/12

  	
   

  	
  WAHA West Texas IF

  	
   

  	
  7,500

  	
   

  	
  N/A

  	
   

  	
  N/A

  	
   

  	
  $

  	
  6.30

  	
   

  

 

Oil Hedges

 

	
  Period Covered

  	
   

  	
  Index

  	
   

  	
  BBL/

  Month

  	
   

  	
  Weighted

  Average Floor

  Price

  	
   

  	
  Weighted

  Average Cap

  Price

  	
   

  
	
  1/01/09
  — 12/31/09

  	
   

  	
  Platts — West TX Sour

  	
   

  	
  11,000

  	
   

  	
  $

  	
  58.00

  	
   

  	
  $

  	
  66.30

  	
   

  
	
  1/01/10
  — 05/31/11

  	
   

  	
  Platts — West TX Sour

  	
   

  	
  10,000

  	
   

  	
  $

  	
  58.00

  	
   

  	
  $

  	
  66.30

  	
   

  
	
  6/1/11 — 12/31/11

  	
   

  	
  Platts
  — West TX Sour

  	
   

  	
  9,000

  	
   

  	
  $

  	
  60.00

  	
   

  	
  $

  	
  77.00

  	
   

  
	
  1/1/12
  — 6/30/12

  	
   

  	
  Platts — West TX Sour

  	
   

  	
  6,000

  	
   

  	
  $

  	
  60.00

  	
   

  	
  $

  	
  77.00

  	
   

  

 

1-3

 

SCHEDULE 2

 

SECURITY SCHEDULE

 

1.                                       Deed of Trust, Line of
Credit Mortgage, Assignment, Security Agreement and Financing Statement dated May 1,
2006 executed by the Borrower in favor of NGP Capital Resources Company, as
collateral agent for the benefit of the Secured Creditors, pledging Oil and Gas
Properties located in Texas and New Mexico, amended by First Amendment to Deed
of Trust, Line of Credit Mortgage, Assignment, Security Agreement and Financing
Statement dated July 11, 2008 executed by the Borrower in favor of NGP
Capital Resources Company, as collateral agent for the benefit of the Secured
Creditors, and as further amended by Second Amendment to Deed of Trust, Line of
Credit Mortgage, Assignment, Security Agreement and Financing Statement of even
date herewith executed by the Borrower in favor of the CIT Capital USA Inc., as
collateral agent for the benefit of the Secured Creditors, each recorded in the
following jurisdictions:

 

Crane County, Texas

Ector County, Texas

Howard County, Texas

Mitchell County, Texas

Pecos County, Texas

Winkler County, Texas

Lea County, New Mexico

Eddy County, New Mexico

 

2.                                       UCC-1 Financing Statement
naming the Borrower as debtor and NGP Capital Resources Company as secured
party, covering all assets of the Borrower and filed with the Secretary of
State of Texas in connection with the Existing Credit Agreement.

 

3.                                       UCC-3 Financing Statement
Amendment amending item 2 above in connection with the resignation of NGP
Capital Resources Company as collateral agent and appointment of CIT Capital
USA Inc. as successor collateral agent under the Security Documents.

 

4                                          Amended and Restated
Security Agreement June 26, 2009 by the Borrower in favor of CIT Capital
USA Inc., as the collateral agent for the benefit of the Secured Creditors.

 

5.                                       UCC-1 Financing Statement
naming the Borrower as debtor and CIT Capital USA Inc., as the collateral agent
for the benefit of the Secured Creditors, as secured party, covering all assets
of the Borrower and filed with the Secretary of State of Texas in connection
with item 4 above.

 

6.                                       Guaranty Agreement dated June 26,
2009 by Resaca Operating Company in favor of CIT Capital USA Inc., as the
collateral agent for the benefit of the Secured Creditors.

 

 

SCHEDULE 3

 

INSURANCE SCHEDULE

 

See Attached.

 

 

SCHEDULE 4

 

LENDERS SCHEDULE

 

	
  Lenders

  	
   

  	
  Percentage

  Share

  	
   

  	
  Maximum

  Credit

  Amount

  	
   

  	
  Percentage Share

  of Borrowing Base

  as of Closing Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CIT Bank

   

  Address:

  2180
  South 1300 East, Ste 250

  Salt
  Lake City, UT 84106

  Telecopier No.: 
  (201) 464-3524

  Telephone No.:  (201) 412-6814

  Attn: Dan Burnett

  	
   

  	
  0.714285714

  	
  %

  	
  $

  	
  35,714,285.71

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NGP Capital Resources Company

   

  Address:

  1221 McKinney Street, Suite 2975

  Houston, Texas 
  77002

  Telecopier No.:  (713) 752-0063

  Telephone No.:  (713) 752-0062

  Attn: R. Kelly Plato

  	
   

  	
  0.285714286

  	
  %

  	
  $

  	
  14,285,714.29

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTALS

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  50,000,000.00

  	
   

  	
  $

  	
  35,000,000.00

  	
   

  

 

 

EXHIBIT A

 

PROMISSORY NOTE

 

	
  $

  	
   

  	
  New York, New York

  	
   

  	
  , 200  

  

 

FOR VALUE RECEIVED, the
undersigned, RESACA EXPLOITATION, INC., a Texas corporation (the “Borrower”),
hereby promises to pay to the order of
                                       
(the “Lender”), the principal sum of
                                               ,
or, if greater or less, the aggregate unpaid principal amount of the Loans made
by Lender to the Borrower pursuant to the terms of the Credit Agreement (as
hereinafter defined), together with interest on the unpaid principal balance
thereof as set forth in the Credit Agreement, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of the Administrative Agent under the Credit Agreement, or at such
other place within Harris County, Texas, as from time to time may be designated
by the holder of this Note.

 

This Note (a) is issued
and delivered under that certain Second Amended and Restated Credit Agreement
of dated as of June 26, 2009 among the Borrower, CIT Capital USA Inc., as
the Administrative Agent, and the lenders (including Lender) referred to
therein (as from time to time supplemented, amended or restated, the “Credit
Agreement”), and is a “Note” as defined therein, (b) is subject to the
terms and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof upon
the happening of certain stated events, and (c) is secured by and entitled
to the benefits of certain Security Documents (as identified and defined in the
Credit Agreement).  Payments on this Note
shall be made and applied as provided in the Credit Agreement.  Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.

 

Notwithstanding the
foregoing paragraph and all other provisions of this Note, in no event shall
the interest payable hereon, whether before or after maturity, exceed the
maximum interest which, under applicable Law, may be contracted for, charged,
or received on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon.

 

If this Note is placed in
the hands of an attorney for collection after default, or if all or any part of
the indebtedness represented hereby is proved, established or collected in any
court or in any bankruptcy, receivership, debtor relief, probate or other court
proceedings, the Borrower and all endorsers, sureties and guarantors of this
Note jointly and severally agree to pay reasonable attorneys’ fees and
collection costs to the holder hereof in addition to the principal and interest
payable hereunder.

 

The Borrower and all
endorsers, sureties and guarantors of this Note hereby severally waive demand,
presentment, notice of demand and of dishonor and nonpayment of this Note,
protest, notice of protest, notice of intention to accelerate the maturity of
this Note, declaration or notice of acceleration of the maturity of this Note,
diligence in collecting, the bringing of any suit 

 

A-1

 

against any party and any
notice of or defense on account of any extensions, renewals, partial payments
or changes in any manner of or in this Note or in any of its terms, provisions
and covenants, or any releases or substitutions of any security, or any delay,
indulgence or other act of any trustee or any holder hereof, whether before or
after maturity.

 

This Note and the rights and
duties of the parties hereto shall be governed by the Laws of the State of New
York (without regard to principles of conflicts of law), except to the extent
the same are governed by applicable federal Law.

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

A-2

 

EXHIBIT B-1

 

FORM OF BORROWING NOTICE

 

[                   ], 20[   ]

 

Resaca Exploitation, Inc.,
a Texas corporation (the “Borrower”), pursuant to Section 2.3 of
the Second Amended and Restated Credit Agreement dated as of June 26, 2009
(together with all amendments, restatements, supplements or other modifications
thereto, the “Credit Agreement”) among the Borrower, CIT Capital USA
Inc., as the Administrative Agent and the other agents and lenders (the “Lenders”)
which are or become parties thereto (unless otherwise defined herein, each
capitalized term used herein is defined in the Credit Agreement), hereby
requests a Borrowing as follows:

 

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

 

(ii)                                  Date of such
Borrowing is
[                                ],
20[    ];

 

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

 

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

 

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

 

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

 

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

 

(viii)                        Location and
number of the Borrower’s account to which funds are to be disbursed, which
shall comply with the requirements of Section 2.5 of the Credit Agreement,
is as follows:

 

[                                                        ]

[                                                        ]

[                                                        ]

[                                                        ]

[                                                        ]

 

B-1-1

 

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

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

B-1-2

 

EXHIBIT B-2

 

FORM OF INTEREST ELECTION REQUEST

 

[                ], 20[   ]

 

Resaca Exploitation, Inc.,
a Texas corporation (the “Borrower”), pursuant to Section 2.4 of
the Second Amended and Restated Credit Agreement dated as of June 26, 2009
(together with all amendments, restatements, supplements or other modifications
thereto, the “Credit Agreement”) among the Borrower, CIT Capital USA
Inc., as the Administrative Agent and the other agents and lenders (the “Lenders”)
which are or become parties thereto (unless otherwise defined herein, each
capitalized term used herein is defined in the Credit Agreement), hereby makes
an Interest Election Request as follows:

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

B-2-1

 

EXHIBIT C

 

CERTIFICATE ACCOMPANYING FINANCIAL STATEMENTS

 

Reference is made to that
certain Second Amended and Restated Credit Agreement dated as of June 26,
2009 (as amended or supplemented, the “Agreement”), by and among Resaca
Exploitation, Inc., a Texas corporation (the “Borrower”), CIT
Capital USA Inc., as the Administrative Agent, and certain financial
institutions (“Lenders”).  Terms
which are defined in the Agreement are used herein with the meanings given them
in the Agreement.

 

This Certificate is
furnished pursuant to Section 8.2(b) of the Agreement.  Together herewith the Borrower is furnishing
to the Administrative Agent and each Lender Borrower’s *[audited/unaudited]
financial statements (the “Financial Statements”) as of
                        
(the “Reporting Date”).  The
Borrower hereby represents, warrants, and acknowledges to the Administrative
Agent and each Lender that:

 

(a)                                  the officer of
the Borrower signing this instrument is the duly elected, qualified and acting
                        
of the Borrower and as such is a Responsible Officer of the Borrower;

 

(b)                                 the Financial
Statements are accurate and complete and satisfy the requirements of the
Agreement;

 

(c)                                  attached hereto
is a schedule of calculations showing the Borrower’s compliance as of the
Reporting Date with the requirements of Section 9.11 of the
Agreement *[and the Borrower’s non-compliance as of such date with the
requirements of Section(s)                         
of the Agreement];

 

(d)                                 on the
Reporting Date the Borrower was, and on the date hereof the Borrower is, in
full compliance with the disclosure requirements of Section 8.4 of
the Agreement, and no Default otherwise existed on the Reporting Date or
otherwise exists on the date of this instrument *[except for Default(s) under
Section(s)                         
of the Agreement, which *[is/are] more fully described on a schedule attached
hereto].

 

(e)                                  *[Unless
otherwise disclosed on a schedule attached hereto,] The representations and
warranties of the Borrower set forth in the Agreement and the other Loan
Documents are true and correct on and as of the date hereof, with the same
effect as though such representations and warranties had been made on and as of
the date hereof.

 

The officer of the Borrower
signing this instrument hereby certifies that he has reviewed the Loan
Documents and the Financial Statements and has otherwise undertaken such
inquiry as is in his opinion necessary to enable him to express an informed
opinion with respect to the above representations, warranties and
acknowledgments of the Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and
complete.

 

C-1

 

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

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

C-2

 

EXHIBIT D

 

LEGAL OPINION

 

See attached.

 

 

EXHIBIT E

 

ASSIGNMENT AND ACCEPTANCE

 

Reference is made to that
certain Second Amended and Restated Credit Agreement dated as of June 26,
2009 (as amended or supplemented, the “Agreement”), by and among Resaca
Exploitation, Inc., a Texas corporation (the “Borrower”), CIT
Capital USA Inc., as the Administrative Agent, and certain financial
institutions (“Lenders”).  Terms
which are defined in the Agreement are used herein with the meanings given them
in the Agreement.

 

The “Assignor” and
the “Assignee” referred to on Schedule 1 agree as follows:

 

1.                                       The Assignor
hereby sells and assigns to the Assignee, without recourse and without
representation or warranty except as expressly set forth herein, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor’s rights and obligations under the Agreement and the other Loan
Documents as of the date hereof equal to the percentage interest specified on
Schedule 1 of all outstanding rights and obligations under the Agreement and
the other Loan Documents.  After giving
effect to such sale and assignment, the Assignee’s Maximum Credit Amount and
the amount of the Loans owing to the Assignee will be as set forth on Schedule
1.

 

2.                                       The Assignor (i) represents
and warrants that 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
adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant thereto; (iii) makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of any Restricted Person or the performance or observance
by any Restricted Person of any of its obligations under the Loan Documents or
any other instrument or document furnished pursuant thereto; and (iv) attaches
the Note held by the Assignor and requests that the Administrative Agent
exchange such Note for a new Note payable to the order of the Assignee in an
amount equal to the Maximum Credit Amount assumed by the Assignee pursuant
hereto and to the Assignor in an amount equal to the Maximum Credit Amount
retained by the Assignor, if any, as specified on Schedule 1.

 

3.                                       The Assignee (i) confirms
that it has received a copy of the Agreement, together with copies of the
financial statements referred to in Section 8.2 thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Administrative Agent,
the Assignor or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Agreement; (iii) confirms
that it is an Eligible Transferee [(subject to the required consent of the Administrative
Agent [and the Borrower])]; (iv) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Agreement as are delegated to the
Administrative Agent by the terms thereof, together with such powers and
discretion as are 

 

E-1

 

reasonably incidental
thereto; (v) agrees that it will perform in accordance with their terms
all of the obligations that by the terms of the Agreement are required to be
performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue
Service or other forms required under Section 12.5(c).

 

4.                                       Following the
execution of this Assignment and Acceptance, it will be delivered to the Administrative
Agent for acceptance, if required by Section 12.5(c), and recording
by the Administrative Agent and, if required by Section 12.5(c),
(unless an Event of Default shall have occurred and be continuing) acceptance
by the Borrower.  The effective date for
this Assignment and Acceptance (the “Effective Date”) shall be the date
of acceptance hereof by the Administrative Agent and, unless an Event of
Default shall have occurred and be continuing, the Borrower, unless otherwise
specified on Schedule 1.

 

5.                                       Upon such
acceptance and recording by the Administrative Agent, as of the Effective Date,
(i) the Assignee shall be a party to the Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of
a Lender thereunder and (ii) the Assignor shall, to the extent provided in
this Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Agreement.

 

6.                                       Upon such
acceptance and recording by the Administrative Agent, from and after the
Effective Date, the Administrative Agent shall make all payments under the
Agreement and the Notes in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest and commitment fees
with respect thereto) to the Assignee. 
The Assignor and Assignee shall make all appropriate adjustments in
payments under the Agreement and the Notes for periods prior to the Effective
Date directly between themselves.

 

7.                                       Assignee hereby
agrees to treat, for federal income tax purposes, any interest paid by the
Borrower to, or for the benefit of, Assignee under the Agreement in the manner
reasonably requested by the Administrative Agent.

 

8.                                       This Assignment
and Acceptance shall be governed by, and construed in accordance with, the Laws
of the State of New York.

 

9.                                       This Assignment
and Acceptance may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.  Delivery of
an executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart of
this Assignment and Acceptance.

 

IN WITNESS WHEREOF, the
Assignor and the Assignee have caused Schedule 1 to this Assignment and
Acceptance to be executed by their officers thereunto duly authorized as of the
date specified thereon.

 

E-2

 

SCHEDULE 1

to

ASSIGNMENT AND ACCEPTANCE

 

	
  Percentage interest
  assigned: 

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Assignee’s Maximum Credit
  Amount:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Aggregate outstanding
  principal amount of Loans assigned:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Principal amount of new
  Note payable to Assignee:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Principal amount of new
  Note payable to Assignor:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Effective Date (if other
  than date of acceptance by the Administrative Agent):

  	
   

  	
  *

  	
   ,  

  	
  200

  

 

 

	
   

  	
  [NAME OF ASSIGNOR], as Assignor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Dated:
                      ,
  200

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE], as Assignee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

*                                         This date should be no
earlier than five Business Days after the delivery of this Assignment and
Acceptance to the Administrative Agent.

 

E-3

 

	
  Accepted [and Approved] **

  	
   

  
	
  this        day of
                        ,
  200

  	
   

  
	
   

  	
   

  
	
  CIT CAPITAL USA INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [Approved this          day
  **

  	
   

  
	
  of
                          ,
  200

  	
   

  
	
   

  	
   

  
	
  RESACA EXPLOITATION, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

**                                  Required if the
Assignee is an Eligible Transferee solely by reason of clause (b) of
the definition of “Eligible Transferee”.

 

E-4

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