Document:

Exhibit 4.3

 

CERTIFICATE
OF DESIGNATIONS, PREFERENCES

AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK

OF

RESACA EXPLOITATION, INC.

 

Resaca Exploitation, Inc.
(the “Company”), a corporation
organized and existing under the Texas Business Organization Code (the “TBOC”), does hereby certify that, pursuant
to authority conferred upon the Board of Directors of the Company by the
Certificate of Formation, of the Company, and pursuant to the TBOC, the Board
of Directors of the Company adopted resolutions (i) designating a series
of the Company’s previously authorized preferred stock, without par value per
share, and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of Forty Nine Thousand One Hundred Sixteen (49,116)
shares of Series A Convertible Preferred Stock of the Company, as follows:

 

RESOLVED, that the Company
is authorized to issue 49,116 shares of Series A Convertible Preferred
Stock (the “Preferred Shares”),
without par value per share, which shall have the following powers,
designations, preferences and other special rights:

 

(1)   Dividends.  The holders of the Preferred Shares (each, a
“Holder” and collectively, the “Holders”) shall be entitled to receive
dividends (“Dividends”) payable in
cash on the Stated Value (as defined below) of such Preferred Share at the
Dividend Rate (as defined below), which shall be cumulative.  Dividends on the Preferred Shares shall
commence accruing on the Initial Issuance Date and shall be computed on the
basis of a 360-day year consisting of twelve 30-day months.  To the extent permitted by law, Dividends
shall be payable (a) in arrears on the last day of each Calendar Quarter
(each, an “Dividend Date”) with the
first Dividend Date being June 30, 2010, (b) on each Conversion Date
thereafter by inclusion in the applicable Conversion Amount (as defined below)
and (c) on the Maturity Date (as defined below) (each, a “Dividend Date”).  If a Dividend Date is not a Business Day (as
defined below), then the Dividend shall be due and payable on the Business Day
immediately following such Dividend Date. 
On each Dividend Date, if the Company does not have current or
accumulated “earnings and profits” within the meaning of Sections 301 and 312
of the Internal Revenue Code of 1986, as amended, through such Dividend Date,
the Company shall not withhold any amount of the applicable Dividend in respect
of U.S. federal income tax.  Notwithstanding the foregoing, in
the case of any Electing Holder the Company shall not pay any Dividends in cash
on the Dividend Date but instead such Dividends shall be included in the
calculation of such Holder’s Conversion Amount for purposes of any conversion
or redemption hereunder.

 

(2)   Conversion of Preferred Shares.  Preferred Shares shall be convertible into
shares of the Company’s Common Stock, par value $0.01 per share (the “Common Stock”), on the terms and conditions
set forth in this Section 2.

 

(a)   Certain Defined Terms. 
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:

 

 

(i)      “Additional Amount” means, on a per Preferred Share basis, the
product of (x) the result of the following formula: (Dividend Rate)(N/360)
and (y) the Stated Value.

 

(ii)     “Adjusted
Price” means, for any Dilutive Issuance, the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and (B) the
quotient of (1) the sum of (x) the product of the Applicable Price
and the number of shares of Common Stock Deemed Outstanding immediately prior
to such Dilutive Issuance and (y) the consideration, if any, received by
the Company upon such Dilutive Issuance, divided by (2) the product of (x) the
Applicable Price multiplied by (y) the number of shares of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance.

 

(iii) “Allocation Percentage” means a fraction,
the numerator of which is the number of Preferred Shares issued to a Holder on
the Initial Issuance Date and the denominator of which is the aggregate amount
of all the Preferred Shares issued on the Initial Issuance Date.

 

(iv)    “AMEX” means the NYSE Amex.

 

(v)     “Approved
Stock Plan” means any
employee benefit plan currently existing or hereinafter created which has been
approved by the Board of Directors of the Company, pursuant to which the
Company’s securities may be issued to any employee, consultant, officer or
director for services provided to the Company.

 

(vi)    “Asset Sale”
means, in one transaction or a series of related transactions, (i) the
sale, lease, conveyance or other disposition of any assets or rights other than
in the ordinary course of business consistent with past practice, or (ii) the
sale of Equity Interests in any of the Company’s Subsidiaries, which sale,
lease conveyance or other disposition of assets or rights or sale of Equity
Interests generates proceeds to the Company equal to or greater than
$15,000,000; provided, however, that neither (A) a sale, lease, conveyance
or other disposition of the Rich Valley Properties nor (B) any sale,
lease, conveyance or other disposition of the Barnett Shale Properties made
solely for the purpose of contributing such Barnett Shale Properties to a joint
venture entity in which the Company, or one of its wholly-owned Subsidiaries,
owns any Equity Interests thereof, shall be considered an Asset Sale for
purposes of this Certificate of Designations.

 

(vii)   “Available Asset Sale Proceeds” means, for any Asset Sales,
the difference between (i) the cash proceeds generated in such Asset Sale
and (ii) the outstanding principal amount (including any interest thereon)
of the Senior Debt; provided, however, that in the event of any Asset Sale
relating to Barnett Shale Properties the Available Asset Sale 

 

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Proceeds shall be equal to
the difference between (A) the cash proceeds generated in such Asset Sale
and (B) $15,000,000.

 

(viii)        “Barnett Shale Properties” means the stratigraphic equivalent
of that certain interval described as 100’ above and 100’ below the interval
seen between 3,450’ and 3,650’ on the Welex Spectral Density — Dual Spaced
Neutron Log dated July 29, 1986 for the Hogtown Moore Unit #13-2 Well
located in the George E. Moore Survey, Eastland County, Texas, as such
stratigraphic equivalent underlies, comprises a portion of or is attributable
to (i) the Desdemona Field Unit (being that certain unit covering 7,273
acres, more or less, situated in Eastland, Erath and Comanche Counties, Texas,
as more particularly described in that certain Unit Agreement dated July 1,
1986, recorded in Volume 1089, pages 1-72 of the Deed Records of Eastland
County, Texas, in Volume 51, pages 202-272 of the Oil & Gas
Records of Erath County, Texas and in Volume 616, pages 43-115 of the Deed
Records of Comanche County, Texas), as such may have been amended, modified or
altered, and/or (ii) the Hogtown-Moore Unit (being that certain unit
covering 2,675.5 acres, more or less, situated in Eastland and Erath Counties,
Texas, as more particularly described in that certain Unit Agreement October 1,
1985 recorded in  Volume 1000, page 226,
et seq. of the Deed Records of Eastland County, Texas and in Volume 47, page 237,
et seq. of the Oil & Gas Records of Erath County, Texas), as such may
have been amended, modified or altered.

 

(ix)     “Bloomberg” means Bloomberg Financial Markets.

 

(x)      “Business Day”
means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed.

 

(xi)     “Calendar Quarter”
means each of the following periods:  the
period beginning on and including January 1 and ending on and including March 31;
the period beginning on and including April 1 and ending on and including June 30;
the period beginning on and including July 1 and ending on and including September 30;
and the period beginning on and including October 1 and ending on and
including December 31.

 

(xii) “Cano” means
Cano Petroleum, Inc., a Delaware corporation.

 

(xiii) “Capital Stock”
means: (1)  in the case of a corporation, corporate stock; (2) in the
case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock;  (3) in the case of a partnership
or limited liability company, partnership interests (whether general or
limited) or membership interests; and (4) any other interest or
participation 

 

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that confers on a Person the right to receive a share of the profits
and losses of, or distributions of assets of, the issuing Person.

 

(xiv)    “Change of Control”
means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of
the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant
to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company.

 

(xv)     “Change of Control Redemption
Premium” means 110%.

 

(xvi)    “Closing Sale Price”
means, for any security as of any date, the last closing trade price for such
security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing trade price then the last trade price of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security the last trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the last trade price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no last trade price is reported
for such security by Bloomberg, the average of the ask prices of any market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.).  If the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Sale Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Required Holders.  If the Company and the Required Holders are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 2(d)(iii).  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

 

(xvii)       “Common Stock Deemed Outstanding” means, at
any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of
whether the Options or Convertible Securities are actually exercisable 

 

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at such time, but excluding any shares of Common Stock owned or held by
or for the account of the Company or issuable upon conversion of the Preferred
Shares.  Any shares of Common Stock issued as
part of the Merger Consideration (as defined in the Merger Agreement),
including Common Stock deemed to be outstanding pursuant to Sections 2(f)(i)(A) and
2(f)(i)(B) as a result of Options issued in connection with the Merger shall all be
considered “Common Stock Deemed Outstanding” regardless of whether the Merger
occurs before, simultaneous with or after the Offering or the Subsequent
Offering (if any).

 

(xviii) “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.

 

(xix) “Conversion
Amount” means the sum of (1) the Additional Amount and (2) the
Stated Value.

 

(xx)          “Conversion Price” means [$0.9926] [to be
adjusted to account for reverse stock split approved by Resaca shareholders],
subject to adjustment as provided herein.

 

(xxi)         “Convertible Securities” means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.

 

(xxii)        “Default Conversion Price” means as of any
date of determination, the product of (A) 90% and (B) the lower of (1) the
Conversion Price and (2) [$0.7941] [to be adjusted to account for reverse
stock split approved by Resaca shareholders] subject to adjustment as provided
herein.

 

(xxiii)       “Dividend Rate” means (i) 7.875% per
annum and (ii) for the period from and after the occurrence of a
Triggering Event through such time that such Triggering Event is cured, fifteen
percent (15%) per annum.

 

(xxiv)       “Electing Holder” means any Holder of Preferred Shares that
has irrevocably elected to “PIK” Dividends on each Dividend Date rather than
receive cash on each such date.  The
election to receive “PIK” Dividends shall be binding any subsequent assignee or
transferee of such Holder’s Preferred Shares.

 

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(xxv)        “Eligible Market” means the NYSE, The NASDAQ
Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market.

 

(xxvi)       “Equity Conditions” means:  (i) on each day during the period
beginning six (6) months prior to the applicable date of determination and
ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”),
either (x) the Registration Statement (as defined in the Investors Rights
Agreement) filed pursuant to the Investors Rights Agreement shall be effective
and available for the resale of all of the Registrable Securities in accordance
with the terms of the Investors Rights Agreement and there shall not have been
any Grace Periods or (y) all shares of Common Stock issuable upon
conversion of the Preferred Shares shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) on each day during the Equity Conditions
Measuring Period, the Common Stock is designated for quotation on a Principal
Market and shall not have been suspended from trading on such exchange or
market (other than suspensions of not more than three (3) days and
occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall proceedings for such delisting or
suspension by such exchange or market have been commenced, threatened or pending
either (A) in writing by such exchange or market, which has not been
satisfied in favor of the Company or (B) by falling below the minimum
listing maintenance requirements of such exchange or market; (iii) on each
day during the Equity Conditions Measuring Period, the Company shall have
delivered Common Stock upon conversion of the Preferred Shares to the Holders
on a timely basis as set forth in Section 2(d)(ii) hereof,
respectively; (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 7 hereof or the rules or regulations of the
applicable Principal Market;; (v) during the Equity Conditions Measuring
Period, there shall not have occurred either (A) the public announcement
of a pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated or (B) a Triggering Event or an event
that with the passage of time or giving of notice would constitute a Triggering
Event; (vi) the Company shall have no knowledge of any fact that would
cause (viii) the Registration Statements required pursuant to the
Investors Rights Agreement not to be effective and available for the resale of
at least all of the Registrable Securities in accordance with the terms of the
Investors Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Preferred Shares not to be eligible for sale without
restriction pursuant to Rule 144(k) and any applicable state securities
laws; and (viii) the Company otherwise shall have been in material
compliance with and shall not have materially breached any provision, covenant,
representation or warranty of the Investors Rights Agreement.

 

6

 

(xxvii)      “Equity Interests” means Capital Stock and all warrants,
options or other rights to acquire Capital Stock.

 

(xxviii)     “Excluded Securities” means any Common Stock issued or
issuable or deemed to be issued in accordance with Section 2(f) hereof
by the Company: (i) in connection with any Approved Stock Plan; (ii) upon
conversion of the Preferred Shares; (iii) in connection with the Merger or
the Reverse Split; (iv) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $50,000,000 (other than an “at-the-market
offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity lines”); (v) in
connection with any strategic acquisition or transaction whether through an
acquisition of stock or a merger of any business, assets or technologies the
primary purpose of which is not to raise equity capital; (vi) upon
conversion, exercise or exchange of any Options or Convertible Securities or
vesting of any Restricted Shares, any of which are outstanding on the day
immediately preceding the Subscription Date; provided that such issuance of
Common Stock upon conversion, exercise or exchange of such Options or
Convertible Securities or vesting of such Restricted Shares is made pursuant to
the terms of such Options, Convertible Securities or Restricted Shares in
effect on the date immediately preceding the Subscription Date and such
Options, Convertible Securities or Restricted Shares are not amended, modified
or changed on or after the Subscription Date; and (vii) in connection with
any stock split, stock dividend, recapitalization or similar transaction by the
Company for which adjustment is made pursuant to Section 2(f)(ii);
provided, however, that any Common Stock issued in the Offering or the
Subsequent Offering shall not be deemed to be an “Excluded Security.”

 

(xxix)     “Fundamental
Transaction” means that the Company shall (or in the case of clause (vi)
any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act)),
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person or Persons to
make a purchase, tender or exchange offer that is accepted by the holders of
more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Person or
Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate
a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person
whereby such other Person acquires more than the 50% of either
the outstanding shares of 

 

7

 

Voting Stock (not including any shares of Voting Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock; provided,
however, that the Merger, the Offering, the Subsequent Offering (if
any) and the Reverse Split, regardless of when the Merger, the Offering or the
Subsequent Offering (if any) occurs, shall not be considered a Fundamental
Transaction.

 

(xxx) “Indebtedness” of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above.

 

(xxxi) “Initial
Issuance Date” means the “Closing Date” as defined under the Merger
Agreement.

 

(xxxii) “Investors Rights Agreement”
means that certain Investors Rights Agreement, dated April 5, 2010, by and
among the Company, Cano and the holders of Preferred Shares signatory thereto,
as 

 

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such agreement may be amended from time to time as provided in such
agreement.

 

(xxxiii) “Liquidation
Event” means the voluntary or involuntary liquidation, dissolution
or winding up of the Company or such Subsidiaries the assets of which
constitute all or substantially all of the assets of the business of the
Company and its Subsidiaries taken as a whole, in a single transaction or series
of transactions.

 

(xxxiv) “Market Price”
means, [$0.7941] [to be adjusted to account for reverse stock split approved by
Resaca shareholders], as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction.

 

(xxxv)        “Maturity Date”
means, with respect to a Preferred Share, October 6, 2012, unless extended
pursuant to Section 2(d)(vii)(B).

 

(xxxvi)       “Merger” means
the merger of Resaca Acquisition Sub, Inc. with and into Cano pursuant to
the terms and conditions of the Merger Agreement and the transactions
contemplated under the Merger Agreement.

 

(xxxvii) “Merger Agreement” means that certain Agreement and Plan of
Merger dated September 29, 2009, by and among Resaca Exploitation, Inc.,
Resaca Acquisition Sub, Inc. and Cano, as amended.

 

(xxxviii) “N” means (i) for any Non-Electing
Holder, the number of days from, but excluding, the last Dividend Date with
respect to which dividends have been paid by the Company on the applicable
Preferred Share, or the Initial Issuance Date if no Dividend Date has occurred,
and (ii) for any Electing Holder, the number of days from, but excluding,
the last Conversion Date or Redemption Date with respect to which dividends
have been paid by the Company on the applicable Preferred Share, or the Initial
Issuance Date if no such Conversion Date or Redemption Date has occurred, in
each case, through and including the Conversion Date or other date of
determination for such Preferred Share, as the case may be, for which such
determination is being made.

 

(xxxix)        “Non-Electing Holder”
means any Holder of Preferred Shares that has irrevocably elected to receive
Dividends paid in cash on each Dividend Date. 
The election to receive cash Dividends shall be binding on any
subsequent assignee or transferee of such Holder’s Preferred Shares.

 

(xl)             “NYSE”
means The New York Stock Exchange, Inc.

 

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(xli) “Offering”
means the offering of shares of Common Stock pursuant to that certain
Registration Statement on Form S-1 (Registration No. 333-164551),
including all amendments thereto, as filed with the SEC.

 

(xlii) “Options” means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.

 

(xliii) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted
or listed on an Eligible Market,
or, if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

 

(xliv) “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

(xlv) “Principal
Market” means NYSE Amex, or if the Common Stock is not traded on the
Principal Market, an Eligible Market.

 

(xlvi) “Redemption Date”
means any Triggering Event Redemption Date, any Asset Sale Redemption Date and
any Change of Control Redemption Date.

 

(xlvii) “Required
Holders” means the Holders of Preferred Shares representing at least
a majority of the aggregate Preferred Shares then outstanding.

 

(xlviii) “Restricted
Shares” means shares of restricted Common Stock.

 

(xlix) “Reverse Split”
means the reverse split of the outstanding shares of Common Stock by a ratio of
one for five immediately prior to the Merger.

 

(l) “Rich Valley
Properties” means those certain oil, gas and mineral leases,
overriding royalty interests, mineral interests, agreements, all production
attributable thereto, and all wells, equipment, pipelines, gathering lines,
facilities and appurtenances, any of which of the foregoing are attributable
to, used, obtained or intended for use in connection with the properties
described as follows:

 

(A)          Sections 16, 21, 22, 23, 26, 27, 28, 29, 34, and 35,
Township 26 North, Range 5 West, Grant County, Oklahoma;

 

(B)           Section 25, Township 26 North, Range 6 West, Grant
County, Oklahoma;

 

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(C)          Sections 8, 16, 19, 20, 21, 28, and 29, Township 25 North,
Range 5 West, Grant County, Oklahoma;

 

(D)          Section 22, Township 23 North, Range 6 West, Garfield
County, Oklahoma;

 

(E)           Sections 11 and 15, Township 20 North, Range 8 West,
Garfield County, Oklahoma; and

 

(F)           Section 24, Township 20 North, Range 2 West, Noble
County, Oklahoma.

 

(li) “SEC”
means the Securities and Exchange Commission.

 

(lii) “Senior Debt”
means the principal of (and premium, if any), interest on, and all fees and
other amounts (including, without limitation, any out-of-pocket costs,
enforcement expenses (including out-of-pocket legal fees and disbursements),
collateral protection expenses and other reimbursement or indemnity obligations
relating thereto) whether now or hereafter outstanding and payable by Company
and/or its Subsidiaries under or in connection with the Second Amended and
Restated Credit Agreement, dated 
            ,
2010, by and among the Company, the lenders party thereto from time to time
(the “Lenders”), and Union Bank, N.A. (f/k/a
Union Bank of California, N.A.), as administrative agent for such Lenders and
as issuing lender for such Lenders, as the same may be further amended,
supplemented, restated, refinanced, or otherwise modified from time to time.

 

(liii) “Stated
Value” means $1,000.

 

(liv) “Subscription
Date” means the “Closing Date” as defined under the Merger
Agreement.

 

(lv) “Subsidiaries”
shall mean and refer to any entity of which the Company holds 51% or more
of  the capital securities .

 

(lvi) “Subsequent Offering”
means if the Offering is not completed, then an offering of shares of Common
Stock completed for the sole purpose of facilitating and consummating the
Merger and related transactions.

 

(lvii) “Successor Entity”
means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose
common stock or equivalent equity security is quoted or listed for trading on
an Eligible Market, Successor Entity shall mean such Person’s Parent Entity.

 

11

 

(lviii) “Tax”
means any tax, levy, impost, duty or other charge or withholding of a similar
nature (including any related penalty or interest).

 

(lix) “Tax
Deduction” means a deduction or withholding for or on account of Tax
from a payment under this Certificate of Designations.

 

(lx) “Trading
Day” means any day on which the Common Stock are traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the shares of Common Stock are then traded; provided
that “Trading Day” shall not include any day on which the shares of Common
Stock are scheduled to trade on such exchange or market for less than 4.5 hours
or any day that the shares of Common Stock are suspended from trading during
the final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
Time).

 

(lxi) “Voting Stock”
of a Person means Capital Stock of such Person of the class or classes pursuant
to which the holders thereof have the general voting power to elect, or the
general power to appoint, at least a majority of the board of directors,
managers or trustees of such Person (irrespective of whether or not at the time
Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).

 

(lxii) “Weighted
Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York City Time, and ending at
4:00:00 p.m., New York City Time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market
on the electronic bulletin board for such security during the period beginning
at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m., New
York City Time, as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours, the
average of the highest closing bid price and the lowest closing ask price of
any of the market makers for such security as reported in the “pink sheets” by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Required Holders.  If the Company and the Required Holders are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(d)(iii) below with
the term “Weighted Average Price” being substituted for the 

 

12

 

term “Closing Sale Price.” All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.

 

(b)   Holder’s Conversion Right. 
Subject to the provisions of Section 7 and Section 10, at any
time or times on or after the Initial Issuance Date, any Holder shall be
entitled to convert any whole number of Preferred Shares, plus the amount of
any accrued but unpaid Dividends per Preferred Share then remaining, into fully
paid and nonassessable shares of Common Stock in accordance with Section 2(d) at
the Conversion Rate (as defined below).

 

(c)   Conversion.  The
number of shares of Common Stock issuable upon conversion of each Preferred
Share pursuant to Section 2(b) shall be determined according to the
following formula (the “Conversion Rate”):

 

Conversion Amount

Conversion Price

 

No
fractional shares of Common Stock are to be issued upon the conversion of any
Preferred Share, but rather the number of shares of Common Stock to be issued
shall be rounded to the nearest whole number.

 

(d)   Mechanics of Conversion. 
The conversion of Preferred Shares shall be conducted in the following
manner:

 

(i)            Holder’s
Delivery Requirements.  To convert
Preferred Shares into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m.,
New York City Time, on such date, a copy of a properly completed notice of
conversion executed by the registered Holder of the Preferred Shares subject to
such conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and the
Company’s designated transfer agent (the “Transfer
Agent”) and (B) if required by Section 2(d)(viii),
surrender to a common carrier for delivery to the Company as soon as
practicable following such date the original certificates representing the
Preferred Shares being converted (or compliance with the procedures set forth
in Section 13) (the “Preferred Stock
Certificates”).

 

(ii)           Company’s
Response.  Upon receipt by the
Company of copy of a Conversion Notice, the Company shall (I) as soon as
practicable, but in any event within two (2) Trading Days, send, via
facsimile, a confirmation of receipt of such Conversion Notice to such Holder
and the Transfer Agent, which confirmation shall constitute an instruction to
the Transfer Agent to process such Conversion Notice in accordance with the
terms herein and (II) on or before the third (3rd) Trading Day following the date of receipt by the
Company of such Conversion Notice (the “Share

 

13

 

Delivery Date”), (A) provided the
Transfer Agent is participating in the DTC Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (B) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the Conversion
Notice, a certificate, registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be
entitled.  If the number of Preferred
Shares represented by the Preferred Stock Certificate(s) submitted for
conversion, as may be required pursuant to Section 2(d)(viii), is greater
than the number of Preferred Shares being converted, then the Company shall, as
soon as practicable and in no event later than three (3) Business Days
after receipt of the Preferred Stock Certificate(s) (the “Preferred Stock Delivery Date”) and at its
own expense, issue and deliver to the Holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted.  The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.

 

(iii)          Dispute
Resolution.  In the case of a dispute
as to the determination of the Closing Sale Price or the arithmetic calculation
of the Conversion Rate, the Company shall instruct the Transfer Agent to issue
to the Holder the number of shares of Common Stock that is not disputed and
shall transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within two (2) Business Days of
receipt of such Holder’s Conversion Notice or other date of determination.  If such Holder and the Company are unable to
agree upon the determination of the Closing Sale Price or arithmetic
calculation of the Conversion Rate within two (2) Business Days of such
disputed determination or arithmetic calculation being transmitted to the
Holder, then the Company shall within two (2) Business Days submit via
facsimile (A) the disputed determination of the Closing Sale Price to an
independent, reputable investment bank selected by the Company and approved by
the Required Holders or (B) the disputed arithmetic calculation of the
Conversion Rate to the Company’s independent, outside accountant.  The Company shall cause, at the Company’s
expense, the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holders of
the results no later than two (2) Business Days from the time it receives
the disputed determinations or calculations. 
Such investment bank’s or accountant’s determination or calculation, as
the case may be, shall be binding upon all parties absent error.

 

14

 

(iv)          Record
Holder.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.

 

(v)           Company’s
Failure to Timely Convert.

 

(A)  Cash Damages.  If (x) (I) within
three (3) Trading Days after the Company’s receipt of the facsimile copy
of a Conversion Notice or (II) on any Company Delivery Date, the Company
shall fail to credit a Holder’s balance account with DTC or issue and deliver a
certificate to such Holder for the number of shares of Common Stock to which
such Holder is entitled upon such Holder’s conversion or the Company’s conversion,
as applicable, of Preferred Shares or (y) within three (3) Trading
Days of the Company’s receipt of a Preferred Stock Certificate the Company
shall fail to issue and deliver a new Preferred Stock Certificate representing
the number of Preferred Shares  to which
such Holder is entitled pursuant to Section 2(d)(ii), then due to the
uncertainty and difficulty of estimating a Holder’s damages for such delay and
as a reasonable estimate of such Holder’s actual loss due to the delay and not
as a penalty, the Company shall pay additional damages to such Holder for each
day after the Share Delivery Date or the Company Delivery Date, as applicable,
that such conversion is not timely effected and/or each day after the Preferred
Stock Delivery Date that such Preferred Stock Certificate is not delivered in
an amount equal to one and one half percent (1.5%) of the product of (I) the
sum of the number of shares of Common Stock not issued to the Holder on or
prior to the Share Delivery Date or Company Delivery Date, as applicable, and
to which such Holder is entitled as set forth in the applicable Conversion
Notice or in any Company Conversion Notice and, in the event the Company has
failed to deliver a Preferred Stock Certificate to the Holder on or prior to
the Preferred Stock Delivery Date, the number of shares of Common Stock
issuable upon conversion of the Preferred Shares represented by such Preferred
Stock Certificate as of the Preferred Stock Delivery Date and (II) the Closing
Sale Price of the Common Stock on the Share Delivery Date or Company Delivery
Date, as applicable, in the case of the failure to deliver Common Stock, or the
Preferred Stock Delivery Date, in the case of failure to deliver a Preferred
Stock Certificate.  If the Company fails
to pay the additional damages set forth in this Section 2(d)(v)(A) within
five (5) Trading Days of the date incurred, then the Holder entitled to
such payments shall have the right at any time, so long as the Company
continues to fail to make such payments, to require the Company, upon written
notice, to immediately issue, in lieu of such cash damages, the number of
shares of Common Stock 

 

15

 

equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the Holder
in the Conversion Notice or in effect on the Company Delivery Date. In addition
to the foregoing, if (i) on the Share Delivery Date or (ii) on any
Company Delivery Date, the Company shall fail to issue and deliver a
certificate to a Holder or credit such Holder’s balance account with DTC for
the number of shares of Common Stock to which such Holder is entitled upon such
Holder’s conversion or the Company’s Conversion, as applicable, of Preferred
Shares, and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares of Common Stock issuable
upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three (3) Trading Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions and
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such
Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Common
Stock and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Sale Price on the Conversion Date or the
Company Delivery Date, as applicable.

 

(B)  Void Conversion Notice; Adjustment of Conversion Price.  If for any reason a Holder has not received
all of the shares of Common Stock to which such Holder is entitled prior to the
sixth (6th) Trading Day
after the Share Delivery Date or Company Delivery Date, as applicable, with
respect to a conversion of Preferred Shares, then the Holder, upon written
notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice or any applicable Company Conversion Notice, with respect to,
and retain or have returned, as the case may be, any Preferred Shares that have
not been converted pursuant to such Holder’s Conversion Notice or Company
Conversion Notice; provided that the voiding of a Holder’s Conversion Notice or
Company Conversion Notice, as applicable, shall not effect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to Section 2(d)(v)(A) or otherwise.  Thereafter, the Conversion Price of any
Preferred Shares returned or retained by the Holder for failure to timely
convert shall be adjusted to the lesser of (I) the Conversion Price  

 

16

 

relating to the voided Conversion Notice or
voided Company Conversion Notice, as applicable, and (II) the lowest
Weighted Average Price of the Common Stock during the period beginning on the
Conversion Date or Company Delivery Date, as applicable, and ending on the date
such Holder voided the Conversion Notice or Company Conversion Notice, as
applicable, subject to further adjustment as provided in this Certificate of
Designations.

 

(C)  Conversion Failure. 
If for any reason a Holder has not received all of the shares of Common
Stock to which such Holder is entitled prior to the tenth (10th) Trading Day after the
Share Delivery Date or the Company Delivery Date, as applicable, with respect
to a conversion of Preferred Shares (a “Conversion
Failure”), then the Holder, upon written notice to the Company, may
require that the Company redeem all Preferred Shares held by such Holder,
including the Preferred Shares previously submitted for conversion and with
respect to which the Company has not delivered shares of Common Stock, in
accordance with Section 3. 
Notwithstanding anything to the contrary in this Certificate of
Designations, a Holder’s exclusive remedies for the Company’s failure to deliver
shares of Common Stock on any Share Delivery Date or any Company Delivery Date
shall be as set forth in Section 2(d)(v) and Section 3.

 

(vi)          Pro Rata Conversion; Disputes.  Subject to Section 10,
in the event the Company receives a Conversion Notice from more than one
Holder for the same Conversion Date and the Company can convert some, but not
all, of such Preferred Shares, the Company shall convert from each Holder
electing to have Preferred Shares converted at such time a pro rata amount of
such Holder’s Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such Holder relative
to the number of Preferred Shares submitted for conversion on such date.  In the event of a dispute as to the number of
shares of Common Stock issuable to a Holder in connection with a conversion of
Preferred Shares, the Company shall issue to such Holder the number of shares
of Common Stock not in dispute and resolve such dispute in accordance with Section 2(d)(iii).

 

(vii)         Mandatory
Redemption at Maturity.

 

(A)  If any Preferred Share remains outstanding on the Maturity Date,
the Company shall redeem such Preferred Share for an amount in cash per
Preferred Share (the “Maturity Date
Redemption Price”) equal to the Conversion Amount by wire transfer
of immediately available funds to an account designated in writing by such
Holder.

 

17

 

(B)  If the Company fails to redeem all of the Preferred Shares
outstanding on the Maturity Date by payment of the Maturity Date Redemption
Price for each such Preferred Share, then in addition to any remedy such Holder
may have under the Investors Rights Agreement, (1) the applicable Maturity Date
Redemption Price payable in respect of such unredeemed Preferred Shares shall
bear interest at the rate of 1.5% per month, prorated for partial months, until
paid in full, and (2) any Holder shall have the option to require the
Company to convert any or all of such Holder’s Preferred Shares and for which
the Maturity Date Redemption Price has not been paid into (on a per Preferred
Share basis) shares of Common Stock equal to the number which results from
dividing the Maturity Date Redemption Price by the Default Conversion Price.  If the Company has failed to pay the Maturity
Date Redemption Price in a timely manner as described above, then the Maturity
Date shall be automatically extended for any Preferred Shares until the date
the Holders receive such shares of Common Stock or Maturity Date Redemption
Price and shall be further extended for any Preferred Shares for as long as (x) the
conversion of such Preferred Shares would violate the provisions of Section 7
or (y) a Triggering Event or an event that with the passage of time or
giving of notice would constitute a Triggering Event shall have occurred and be
continuing.

 

(C)  Other than as specifically permitted by this Certificate of
Designations, the Company may not redeem any of the outstanding Preferred
Shares and any unpaid Dividends thereon.

 

(viii)        Book-Entry.  Notwithstanding anything to the contrary set
forth herein, upon conversion of Preferred Shares in accordance with the terms
hereof, the Holder thereof shall not be required to physically surrender the
certificate representing the Preferred Shares to the Company unless (A) the
full or remaining number of Preferred Shares represented by the certificate are
being converted or (B) a Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice) requesting
reissuance of Preferred Shares upon physical surrender of any Preferred
Shares.  The Holder and the Company shall
maintain records showing the number of Preferred Shares so converted and the
dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of the certificate representing the Preferred Shares upon each such
conversion.  In the event of any dispute
or discrepancy, such records of the Company establishing the number of
Preferred Shares to which the record holder is entitled shall be controlling
and determinative in the absence of manifest error.  In connection with any transfer of all or any
portion of Preferred Shares held by any Holder, such Holder may physically
surrender the certificate representing the 

 

18

 

Preferred Shares to the Company, whereupon the Company will forthwith
issue and deliver upon the order of such Holder a new certificate or
certificates of like tenor, registered as such Holder may request, representing
in the aggregate the remaining number of Preferred Shares represented by such
certificate.  A Holder and any assignee,
by acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated on the face thereof.  Each certificate for Preferred Shares shall
bear the following legend:

 

ANY
TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
COMPANY’S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(d)(viii) THEREOF.  THE NUMBER OF PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON
THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF THE CERTIFICATE OF
DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE.

 

(ix)          Conversion
at the Company’s Election.  On any
date (the “Conversion Election Date”),
so long as (A) the Equity Conditions shall have been satisfied or waived
in writing by the applicable Holder from and including the date of the Company
Conversion Election Notice (as defined below) through and including the Company
Election Conversion Date (as defined below) and (B) on any twenty (20) out
of thirty (30) consecutive Trading Days immediately preceding the date of the
Company Conversion Election Notice, the Weighted Average Price of the Common
Stock exceeds 175% of the Conversion Price (as adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such
period), the Company shall have the right, in its sole discretion, to require
that some or all of the outstanding Preferred Shares be converted (the “Company Conversion Election”) at the
applicable Conversion Rate; provided, however, that the Company
may not consummate more than one (1) Company Conversion in any thirty (30)
Trading Day period.  The Company shall
exercise its right to Company Conversion Election by providing each Holder
written notice (“Company Conversion Notice”)
by facsimile and overnight courier on the Conversion Election Date.  The date on which each of such Holders
actually receives the Company Conversion Election Notice is referred to herein
as the “Company 

 

19

 

Conversion Election Notice Date.”  If the Company elects to require conversion
of some, but not all, of such Preferred Shares then outstanding, the Company
shall require conversion of an amount from each Holder equal to the product of (I) the
total number of Preferred Shares which the Company has elected to convert
multiplied by (II) such Holder’s Allocation Percentage (such amount with
respect to each Holder of such Preferred Shares being referred to herein as its
“Pro Rata Conversion Amount”).  In the event that any initial Holder of the
Preferred Shares shall sell or otherwise transfer any of such Holder’s
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Holder’s Allocation Percentage.  The
Company Conversion Election Notice shall indicate (x) the aggregate number
of such Preferred Shares the Company has selected for conversion, (y) the
date selected by the Company for conversion (the “Company Delivery Date”), which date shall be not less than
twenty (20) Trading Days or more than sixty (60) Trading Days after the Company
Conversion Election Notice Date, and (z) each Holder’s Pro Rata Conversion
Amount.  Subject to the satisfaction of
all the conditions of this Section 2(d)(ix), on the Company Election
Conversion Date each Holder of Preferred Shares selected for conversion will be
deemed to have submitted a Conversion Notice in accordance with Section 2(d)(i) for
a number of Preferred Shares equal to such Holder’s Pro Rata Conversion
Amount.  Notwithstanding the above, any
Holder may convert such shares (including Preferred Shares selected for
conversion hereunder which shall reduce such Holder’s Pro Rata Conversion
Amount) into Common Stock pursuant to Section 2(b) on or prior to the
date immediately preceding the Company Election Conversion Date.  If the Company fails to convert any Conversion
Amount on the applicable Company Election Conversion Date, then each Holder
shall be entitled to the remedies set forth in Section 2(d)(v).

 

(e)   Taxes.

 

(i) Any and all payments made by the
Company hereunder, including any amounts received on a conversion or redemption
of the Preferred Shares and any amounts on account of dividends or deemed
dividends, must be made by it without any Tax Deduction, unless a Tax Deduction
is required by law. If the Company is aware that it must make a Tax Deduction (or
that there is a change in the rate or the basis of a Tax Deduction), it must
notify the affected Holders promptly.

 

(ii) If a Tax Deduction is required by
law to be made by the Company, subject to Section 2(e)(i) above, the amount of
the payment due from the Company will be increased to an amount which (after
making the Tax Deduction including a Tax Deduction applicable to additional
sums payable pursuant to this Section 2(e)) leaves an amount equal to the
payment which would have been due if no Tax Deduction had been required. If the
Company is required to make a Tax Deduction, it must 

 

20

 

make the minimum Tax Deduction allowed by law and must make any payment
required in connection with that Tax Deduction within the time allowed by law.

 

As
soon as practicable after making a Tax Deduction or a payment required in
connection with a Tax Deduction, the Company must deliver to the Holder any
official receipt or form, if any, provided by or required by the taxing
authority to whom the Tax Deduction was paid.

 

(iii) In addition, the Company agrees to
pay in accordance with applicable law any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or in connection with the
execution, delivery, registration or performance of, or otherwise with respect to,
the Preferred Shares (“Other Taxes”).  As soon as practicable after making a payment
of Other Taxes, the Company must deliver to such Holder any official receipt or
form, if any, provided by or required by the taxing authority to whom the Tax
Deduction was paid.

 

(iv) The obligations of the Company
under this Section 2(e) shall survive the Maturity Date of the
Preferred Shares and the payment for the Preferred Shares and all other amounts
payable hereunder.

 

(f)    Adjustments to Conversion Price.  The Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(f).

 

(i) Adjustment of Conversion Price
upon Issuance of Common Stock. 
Subject to the immediately following sentence which relates to issuances
occurring within the first nine months following the Initial Issuance Date, if
and whenever after the Initial Issuance Date, the Company issues or sells, or
in accordance with this Section 2(f)(i) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less than
a price (“Applicable
Price”)  equal to the Conversion Price in effect immediately prior
to such issue or sale (the foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance, the Conversion Price then in
effect shall be reduced to an amount equal to the Adjusted Price.  After the Initial Issuance Date and prior to
the nine (9) month anniversary of the Initial Issuance Date, the “Applicable
Price” with respect to any issuance or sale by the Company of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued or sold by the Company in connection with any Excluded
Security) shall be the Market Price; provided that, without the prior written
consent 

 

21

 

of the Required Holders, during such nine (9) month period, the
Company shall not issue Common Stock (excluding shares of Common Stock deemed
to have been issued or sold by the Company in connection with any Excluded
Security) for which it receives proceeds (net of offering expenses, discounts
and fees) of more than Fifty Million Dollars ($50,000,000) at a gross per share
price below the Market Price.  For purposes
of determining the adjusted Conversion Price under this Section 2(f)(i),
the following shall be applicable:

 

(A)  Issuance of Options. 
If the Company in any manner grants or sells any Options and the lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option is less than the
Applicable Price, then each such share of Common Stock underlying such Option
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share.  For purposes of this Section 2(f)(i)(A),
the “lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise
of any Convertible Securities issuable upon exercise of such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.

 

(B)  Issuance of Convertible Securities.  If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share
of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Applicable Price, then each such share of Common Stock
underlying such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance or sale of
such Convertible Securities for such price per share.  For the purposes of this Section 2(f)(i)(B),
the “lowest price per share for which one share of Common Stock is issuable
upon such conversion or exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or 

 

22

 

sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security.  No further adjustment of the Conversion Price
shall be made upon the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(f)(i), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.

 

(C)  Change in Option Price or Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion,  exchange or exercise of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for Common Stock changes at any
time, the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold. 
For purposes of this Section 2(f)(i)(C), if the terms of any Option
or Convertible Security that was outstanding as of the Subscription Date are
changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.  No
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.

 

(D)  Calculation of Consideration Received.  In case any Option is issued in connection
with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed to have been
issued for a consideration of $0.01.  If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor.  If any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration
consists of publicly traded securities, in which case the amount of
consideration received by the Company 

 

23

 

will be the Closing Sale Price of such
securities on the date of receipt of such securities.  If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be.  The fair value of any consideration other
than cash or publicly traded securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within ten (10) Business Days after the
tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Required Holders. 
The determination of such appraiser shall be deemed binding upon all
parties absent manifest error and the fees and expenses of such appraiser shall
be borne by the Company.

 

(E)   Record Date.  If the
Company takes a record of the holders of Common Stock for the purpose of
entitling them (I) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (II) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be.

 

(ii) Adjustment of Conversion Price
upon Subdivision or Combination of Common Stock.  If the Company at any time after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced.  If the Company at any time after the
Subscription Date combines (by combination, reverse stock split or otherwise)
its outstanding shares of Common Stock into a smaller number of shares and the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.  Notwithstanding
the foregoing, the Reverse Split shall result in no adjustment to the
Conversion Price.

 

(iii) Other Events.  If any event occurs of the type contemplated
by the provisions of this Section 2(f) but not expressly provided for by such 

 

24

 

provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the Holders;
provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f); and provided further
that the Merger and the Reverse Split and all issuances of Common Stock in
connection therewith shall not result in any adjustment to the Conversion
Price.

 

(g)   Notices.

 

(i) Immediately upon any adjustment of
the Conversion Price pursuant to Section 2(f), the Company will give
written notice thereof to each Holder, setting forth in reasonable detail, and
certifying, the calculation of such adjustment. 
In the case of a dispute as to the determination of such adjustment,
then such dispute shall be resolved in accordance with the procedures set forth
in Section 2(d)(iii).

 

(ii) The Company will give written
notice to each Holder at least ten (10) Business Days prior to the date on
which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to
any pro rata subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Fundamental Transaction or
Liquidation Event, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided to such
Holder.

 

(iii) The Company will also give written
notice to each Holder at least ten (10) Business Days prior to the date on
which any Fundamental Transaction or Liquidation Event will take place,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such Holder.

 

(h)   Additional Preferred Shares; Variable Securities; Dilutive
Issuances.  For so long as any
Preferred Shares are outstanding, the Company will not, without the prior
written consent of the Required Holders, issue any Preferred Shares and the
Company shall not issue any other securities that would cause a breach or
default under this Certificate of Designations other than those issued
pursuant to the Merger, the Offering, the Subsequent Offering (if any) or the
Reverse Split.  For so long
as any Preferred Shares remain outstanding, the Company shall not, in any
manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or
exchangeable or exercisable for Common Stock at a conversion, exchange or
exercise price which varies or may vary after issuance with the market price of
the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be 

 

25

 

less than the then applicable Conversion
Price with respect to the Common Stock into which any Preferred Shares are
convertible.

 

(3)   Redemption at Option of Holders.

 

(a)   Triggering Event.  A
“Triggering Event” shall be deemed
to have occurred at such time as any of the following events:

 

(i) the suspension from trading or
failure of the Common Stock to be listed on a Principal Market for a period of
ten (10) consecutive Trading Days or for more than an aggregate of twenty
(20) Trading Days in any 365-day period;

 

(ii) the Company’s (A) failure to
cure a Conversion Failure by delivery of the required number of shares of
Common Stock within ten (10) Business Days after the applicable Conversion
Date or (B) notice, written or oral, to any Holder, including by way of
public announcement, or through any of its agents, at any time, of its
intention not to comply, as required, with a request for conversion of any
Preferred Shares into shares of Common Stock that is tendered in accordance
with the provisions of this Certificate of Designations;

 

(iii) the Company’s failure to pay to
the Holder any amounts when and as due pursuant to this Certificate of
Designations, only if such failure continues for a period of at least five (5) Business
Days;

 

(iv) the entry by a court having
jurisdiction in the premises of (i) a decree or order for relief in
respect of the Company or any Subsidiary of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or (ii) a decree or order adjudging the Company or any Subsidiary
as bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or any Subsidiary under any applicable Federal or State law or (iii) appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days;

 

(v) the commencement by the Company or
any Subsidiary of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of the
Company or any Subsidiary in an involuntary case or proceeding under 

 

26

 

any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or State
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any
Subsidiary or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any Subsidiary in furtherance of any such
action; or

 

(vi) any event of default occurs with
respect to any Indebtedness of the Company, and any applicable grace periods in
such Indebtedness with respect to such event of default shall have expired;
provided that if such event of default is waived by the holders of such
Indebtedness prior to any Holder taking any action pursuant to this Certificate
of Designations, no Triggering Event under this clause (vi) shall be
deemed to have occurred.

 

Notwithstanding the foregoing,  neither  the Merger, nor the Offering or the Subsequent Offering (if
any), nor the Reverse Split, regardless of when the Merger, the Offering or the
Subsequent Offering (if any) occurs, shall be considered a Triggering Event.

 

(b)   Redemption Option Upon Triggering Event.  In addition to all other rights of the
Holders contained herein, after a Triggering Event, each Holder shall have the
right, at such Holder’s option, to require the Company to redeem all or a
portion of such Holder’s Preferred Shares at a price per Preferred Share equal
to the greater of (i) 125% of the Conversion Amount and (ii) the product
of (A) the Conversion Rate in effect at such time as such Holder delivers
a Notice of Redemption at Option of Holder (as defined below) and (B) the
greater of the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding such Triggering Event, the Closing Sale Price of the
Common Stock on the day immediately following such Triggering Event and the
Closing Sale Price of the Common Stock on the date the Holder delivers the
Notice of Redemption at Option of Holder (the “Redemption Price”).

 

(c)   Mechanics of Redemption at Option of Holder.  Within one (1) Business Day after the
occurrence of a qualifying Triggering Event, the Company shall deliver written
notice thereof via facsimile and overnight courier (“Notice of Triggering Event”) to each Holder.  At any time after the earlier of a Holder’s
receipt of a Notice of Triggering Event and such Holder becoming aware of a
Triggering Event, any Holder of Preferred Shares then outstanding may require
the Company to redeem up to all of such Holder’s Preferred Shares by delivering
written notice thereof via facsimile and overnight courier (“Notice of Redemption at Option of Holder”)
to the Company, which Notice of 

 

27

 

Redemption at Option of Holder shall indicate
the number of Preferred Shares that such Holder is electing to redeem.

 

(d)   Payment of Redemption Price.  Upon the Company’s receipt of a Notice(s) of
Redemption at Option of Holder from any Holder, the Company shall within one (1) Business
Day of such receipt notify each other Holder by facsimile of the Company’s
receipt of such notice(s).  The Company
shall deliver on the fifth (5th) Business Day after the Company’s receipt of the first Notice of
Redemption at Option of Holder the applicable Redemption Price (the “Triggering Event Redemption Date”) to all Holders that
deliver a Notice of Redemption at Option of Holder prior to the fifth (5th) Business Day after the
Company’s receipt of the first Notice of Redemption at Option of Holder.  To the extent redemptions required by this Section 3
are deemed or determined by a court of competent jurisdiction to be prepayments
of the Preferred Shares by the Company, such redemptions shall be deemed to be
voluntary prepayments.  If the Company is
unable to redeem all of the Preferred Shares submitted for redemption, the
Company shall (i) redeem a pro rata amount from each Holder based on the
number of Preferred Shares submitted for redemption by such Holder relative to
the total number of Preferred Shares submitted for redemption by all Holders
and (ii) in addition to any remedy such Holder may have under this
Certificate of Designations, pay to each Holder interest at the rate of one and
one-half percent (1.5%) per month (prorated for partial months) in respect of
each unredeemed Preferred Share until paid in full.  The Holders and Company agree that in the
event of the Company’s redemption of any Preferred Shares under this Section 3,
the Holders’ damages would be uncertain and difficult to estimate because of
the parties’ inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity for the
Holders.  Accordingly, any redemption
premium due under this Section 3 is intended by the parties to be, and
shall be deemed, a reasonable estimate of the Holders’ actual loss of its
investment opportunity and not as a penalty.

 

(e)   Void Redemption.  In
the event that the Company does not pay the Redemption Price within the time
period set forth in Section 3(d), at any time thereafter and until the
Company pays such unpaid applicable Redemption Price in full, a Holder shall
have the option to, in lieu of redemption, require the Company to promptly
return to such Holder any or all of the Preferred Shares that were submitted for
redemption by such Holder under this Section 3 and for which the
applicable Redemption Price has not been paid, by sending written notice
thereof to the Company via facsimile (the “Void
Optional Redemption Notice”). 
Upon the Company’s receipt of such Void Optional Redemption Notice, (i) the
Notice of Redemption at Option of Holder shall be null and void with respect to
those Preferred Shares subject to the Void Optional Redemption Notice, (ii) the
Company shall immediately return any Preferred Shares subject to the Void
Optional Redemption Notice, and (iii) the Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the lowest Weighted Average
Price of the Common Stock 

 

28

 

during the period beginning on the date on
which the Notice of Redemption at Option of Holder is delivered to the Company
and ending on the date on which the Void Optional Redemption Notice is
delivered to the Company.

 

(f)    Disputes; Miscellaneous. 
In the event of a dispute as to the determination of the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(d)(iii) above with the term “Redemption Price” being
substituted for the term “Conversion Rate”. 
A Holder’s delivery of a Void Optional Redemption Notice and exercise of
its rights following such notice shall not effect the Company’s obligations to
make any payments which have accrued prior to the date of such notice.  In the event of a redemption pursuant to this
Section 3 of less than all of the Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly cause to be
issued and delivered to the Holder of such Preferred Shares a Preferred Stock
Certificate representing the remaining Preferred Shares which have not been
redeemed, if necessary.

 

(4)   Other Rights of Holders.

 

(a)   Assumption.  The Company shall not enter into or be party to a Fundamental
Transaction unless (i)  the Successor Entity assumes in writing (with the
purchase of at least a majority of the outstanding shares of the Company’s
Common Stock automatically constituting an assumption in writing) all of the
obligations of the Company under this Certificate of Designations and the
Investors Rights Agreement in accordance with the provisions of this Section 4(a) pursuant
to written agreements in form and substance satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each Holder of Preferred Shares
in exchange for such Preferred Shares a security of the
Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Certificate of Designations including,
without limitation, having a stated value and dividend rate equal to the stated
value and dividend rate of the Preferred Shares held by such Holder and having
similar ranking to the Preferred Shares, and satisfactory to the Required
Holders and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on the
Principal Market or an Eligible Market.  Upon the occurrence of any Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Certificate of
Designations referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Certificate of Designations
with the same effect as if such Successor Entity had been named as the Company
herein.  Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion of the Preferred Shares
at any time after the consummation of the
Fundamental Transaction, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) 

 

29

 

issuable upon the
conversion of the Preferred Shares prior to such Fundamental Transaction, such shares of publicly traded common stock (or
their equivalent) of the Successor Entity, as adjusted in accordance with the
provisions of this Certificate of Designations. 
The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion of the Preferred Shares.

 

(b)   Purchase Rights.  If
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock but excluding the
Offering and the Subsequent Offering (if any) (the “Purchase Rights”), then the Holders will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Shares (without taking into account any limitations or restrictions
on the convertibility of the Preferred Shares) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

 

(c)   Asset Sales.

 

(i) Promptly after the
occurrence of an Asset Sale, the Company shall deliver written notice thereof
via facsimile and overnight courier (an “Asset Sale Notice”)
to each of the Holders.  At any time
after the receipt of the Asset Sale Notice, a Holder may require the Company to
redeem, with the Available Asset Sale Proceeds all or any portion of the
Preferred Shares held by such Holder by delivering written notice thereof (the
“Asset  Sale
Redemption Notice”) to the Company, which Asset Sale Redemption
Notice shall indicate the number of such Preferred Shares such Holder is
electing to redeem; provided that if the aggregate number amount of Preferred
Shares to be redeemed from such Holder and the other Holders with the cash
proceeds of an Asset Sale exceed the Available Asset Sale Proceeds for such
Asset Sale, the Company shall redeem the Preferred Shares presented for redemption
on a pro rata basis with such proceeds. 
Each Preferred Share subject to redemption by the Company pursuant to
this Section 8(e) shall be redeemed by the Company at a price equal to at a
price per Preferred Share equal to the greater of (i) the Conversion Amount and
(ii) the product of (A) the Conversion Rate in effect at such time as
such Holder delivers an Asset Sale Redemption Notice and (B) the greater
of the Closing Sale Price of the Common Stock on the Trading Day following such
Asset Sale and the Closing Sale Price of the Common Stock on the date the
Holder delivers the Asset Sale Redemption Notice (the “Asset Sale
Redemption Price”).  The
Company shall deliver on the fifth (5th) Business Day (the “Asset Sale
Redemption Date”) after the Company’s receipt of the first Asset
Sale Redemption 

 

30

 

Notice the applicable Asset Sale Redemption
Price to all Holders that deliver a Asset Sale Redemption Notice prior to such
fifth (5th) Business Day
after the Company’s receipt of the first Asset Sale Redemption Notice.

 

(ii) For so long as any
Preferred Shares are outstanding, the Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, consummate any Asset Sale
unless the Company (or the applicable Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed
of.

 

(5)   Reservation of Shares.

 

(a)                   The Company shall have
sufficient authorized and unissued shares of Common Stock for each of the
Preferred Shares equal to 130% of the number of shares of Common Stock
necessary to effect the conversion at the Conversion Rate with respect to the
Conversion Amount of each such Preferred Share as of the date hereof.  The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be necessary to effect the
conversion of all of the Preferred Shares then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved shall at no time be
less than 130% of the number of shares of Common Stock for which the Preferred
Shares are at any time convertible (without regard to any limitations on
conversions); provided that at no time shall the number of shares of Common
Stock so reserved be less than the number of shares required to be reserved by
reason of the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). 
The initial number of shares of Common Stock reserved for conversions of
the Preferred Shares and each increase in the number of shares so reserved
shall be allocated pro rata among the Holders based on the number of Preferred
Shares held by each Holder at the time of issuance of the Preferred Shares or
increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”).  In the event a Holder shall sell or otherwise
transfer any of such Holder’s Preferred Shares, each transferee shall be
allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor.  Any shares
of Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares (other than pursuant to a transfer of Preferred Shares in
accordance with the immediately preceding sentence) shall be allocated to the
remaining Holders of Preferred Shares, pro rata based on the number of
Preferred Shares then held by such Holders.

 

(b)                   Insufficient
Authorized Shares.  If at any
time while any of the Preferred Shares remain outstanding the Company does not
have a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Preferred
Shares at least a number of shares of Common Stock equal to the Required
Reserve Amount (an “Authorized Share Failure”),
then the 

 

31

 

Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount for
the Preferred Shares then outstanding. 
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than ninety (90) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.

 

(6)   Voting Rights.  Subject to Sections 7 and 10, each Holder
shall be entitled to the whole number of votes equal to the lesser of (i) the
number of shares of Common Stock into which such Holder’s Preferred Shares
would be convertible based on the Conversion Price on the record date for the
vote or consent of stockholders, and shall otherwise have voting rights and
powers equal to the voting rights and powers of the Common Stock and (ii) the
number of shares of Common Stock into which such Holder’s Preferred Shares
would be convertible if the Conversion Price on the record date for the vote or
consent of stockholders is deemed to be the Market Price.  Each Holder shall be entitled to receive the
same prior notice of any stockholders’ meeting as is provided to the holders of
Common Stock in accordance with the bylaws of the Company, as well as prior
notice of all stockholder actions to be taken by legally available means in
lieu of a meeting, and shall vote as a class with the holders of Common Stock
as if they were a single class of securities upon any matter submitted to a
vote of stockholders, except those matters required by law or by the terms
hereof to be submitted to a class vote of the Holders of Preferred Shares, in
which case the Holders of Preferred Shares only shall vote as a separate class.

 

(7)   Limitation on Beneficial
Ownership.  The Company
shall not effect any conversion of Preferred Shares, and no Holder shall have
the right to convert any Preferred Shares, to the extent that after giving
effect to such conversion, the beneficial owner of such shares (together with
such Person’s affiliates) would have acquired, through conversion of Preferred
Shares or otherwise, beneficial ownership of a number of shares of Common Stock
that exceeds the maximum ownership percentage set forth opposite each Holder’s
name on Exhibit E to the Investors Rights Agreement (“Maximum Percentage”) of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion.  The Company shall not give
effect to any voting rights of the Preferred Shares, and any Holder shall not
have the right to exercise voting rights with respect to any Preferred Shares
pursuant hereto, to the extent that giving effect to such voting rights would
result in such Holder (together with its affiliates) being deemed to
beneficially own in excess of the Maximum Percentage of the number of shares of
Common Stock outstanding immediately after giving effect to such exercise,
assuming such exercise as being equivalent to conversion.  For purposes of the foregoing, the number of
shares of Common Stock beneficially owned by a Person and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
Preferred Shares with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (A) conversion of the remaining, nonconverted Preferred
Shares beneficially owned by such Person or any of its 

 

32

 

affiliates and (B) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company (including, without limitation, any notes or warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
in this Section beneficially owned by such Person or any of its
affiliates.  Except as set forth in the
preceding sentence, for purposes of this Section 7, beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. 
For purposes of this Section 7, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most
recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB or Form 8-K,
as the case may be, (2) a more recent public announcement by the Company,
or (3) any other notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding.  For any reason at any time, upon the written
request of any Holder, the Company shall within one (1) Business Day
following the receipt of such notice, confirm orally and in writing to any such
Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the Preferred Shares, by such
Holder and its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported.  By
written notice to the Company, the Holder may from time to time increase or
decrease the Maximum Percentage to any other percentage not in excess of 9.99%
specified in such notice; provided that (i) any such increase will not be
effective until the sixty-first (61st) day after such notice is delivered to the Company,
and (ii) any such increase or decrease will apply only to the Holder
providing such written notice and not to any other Holder.  Notwithstanding the foregoing, if a Holder
has elected “no limit” on Exhibit E to the Investors Rights
Agreement, the limitations set forth in this Section 7 shall not be
applicable to such Holder.

 

(8)   Change of Control Redemption
Right; Liquidation, Dissolution, Winding-Up.

 

(a)   Change of Control.  No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holders (a “Change of
Control Notice”).  At any time during the period (the “Change of Control Period”) beginning after
a Holder’s receipt of a Change of Control Notice and ending on the date that is
twenty (20) Trading Days after the consummation of such Change of Control, such
Eligible Holder may require the Company to redeem all or any portion of such
Holder’s Preferred Shares by delivering written notice thereof (“Change of Control
Redemption Notice”)
to the Company, which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to redeem.  Any Preferred Shares subject to redemption
pursuant to this Section 8 shall be redeemed by the Company in cash at a
price equal to the greater of (i) the product of (A) the Change of
Control Redemption Premium and (B) the Conversion Amount being redeemed
and (ii) (1) the product of (A) the Conversion Amount being
redeemed multiplied by (B) the quotient determined by dividing (I) the
aggregate cash consideration and the aggregate cash value of any non-cash
consideration per share of Common Stock to be paid to the holders of the share
of Common Stock upon consummation of the Change of Control (any such non-cash
consideration 

 

33

 

consisting of marketable securities to be
valued at the higher of (x) the Closing Sale Price of such securities as
of the Trading Day immediately prior to the consummation of such Change of
Control, (y) the Closing Sale Price as of the Trading Day immediately
following the public announcement of such proposed Change of Control and (z) the
Closing Sale Price as of the Trading Day immediately prior to the public
announcement of such proposed Change of Control) by (II) the Conversion
Price (the “Change of Control Redemption
Price”).  The Company shall
make payment of the Change of Control Redemption Price concurrently with the
consummation of such Change of Control if such a Change of Control Redemption
Notice is received prior to the consummation of such Change of Control and
within five (5) Trading Days after the Company’s receipt of such notice
otherwise (the “Change of Control Redemption Date”).  To the extent redemptions required by this Section 8(a) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Preferred Shares by the Company, such redemptions shall be deemed to be
voluntary prepayments.  Notwithstanding
anything to the contrary in this Section 8(a), until the Change of Control
Redemption Price is paid in full, the Conversion Amount submitted for
redemption under this Section 8 may be converted, in whole or in part, by
the Holder into shares of Common Stock, or in the event the Conversion Date is
after the consummation of the Change of Control, shares or equity interests of
the Successor Entity substantially equivalent to the Company’s Common Stock
pursuant to Section 2(c)(i).  The
parties hereto agree that in the event of the Company’s redemption of any
portion of the Preferred Shares under this Section 8(a), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any redemption
premium due under this Section 8(a) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty. 
In the event that the Company does not pay the Change of Control
Redemption Price on the Change of Control Redemption Date, then the Holder
shall have the option to, in lieu of redemption, require the Company to
promptly return to such Holder any or all of the Preferred Shares that were
submitted for redemption by such Holder under this Section 8(a) and
for which the applicable Change of Control Redemption Price (together with any
interest thereon) has not been paid, by sending written notice thereof to the
Company via facsimile (the “Void Change of
Control Redemption Notice”). 
Upon the Company’s receipt of such Void Change of Control Redemption
Notice, (i) the Change of Control Redemption Notice shall be null and void
with respect to those Preferred Shares subject to the Void Change of Control
Redemption Notice, (ii) the Company shall immediately return any Preferred
Shares subject to the Void Change of Control Redemption Notice, and (iii) the
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the
Void Change of Control Redemption Notice is delivered to the Company and (B) the
lowest Weighted Average Price of the Common Stock during the period beginning
on the date on which the Change of Control Redemption Notice is 

 

34

 

delivered to the Company and ending on the
date on which the Void Change of Control Redemption Notice is delivered to the
Company.

 

(b)   Liquidation.  In the event of a Liquidation Event, the
Holders shall be entitled to receive in cash out of the assets of the Company,
whether from capital or from earnings available for distribution to its
stockholders (the “Liquidation Funds”),
before any amount shall be paid to the holders of any of the Capital Stock of
the Company of any class junior in rank to the Preferred Shares in respect of
the preferences as to distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Preferred Share equal
to the Conversion Amount; provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the Holders and holders of shares of
other classes or series of preferred stock of the Company that are of equal
rank with the Preferred Shares as to payments of Liquidation Funds (the “Pari Passu Shares”), if any, then each
Holder and each holder of any such Pari Passu Shares shall receive a percentage
of the Liquidation Funds equal to the full amount of Liquidation Funds payable
to such Holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the
full amount of Liquidation Funds payable to all holders of Preferred Shares and
Pari Passu Shares.  To the extent
necessary, the Company shall cause such actions to be taken by any of its
Subsidiaries so as to enable, to the maximum extent permitted by law, the
proceeds of a Liquidation Event to be distributed to the Holders in accordance
with this Section. All the preferential amounts to be paid to the Holders under
this Section shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any
Liquidation Funds of the Company to the holders of shares of other classes or
series of preferred stock of the Company junior in rank to the Preferred Shares
in connection with a Liquidation Event as to which this Section applies.  The purchase or redemption by the Company of
stock of any class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a Liquidation Event. 
Notwithstanding anything to the contrary in this Section 8, but
subject to Section 7, until the Liquidation Funds are distributed to the
Holders, the Preferred Shares may be converted, in whole or in part, by any
Holder into Common Stock pursuant to Section 2(b).

 

(9)   Ranking; Issuances of Other
Securities.

 

(a)   Preferred Rank.  All shares of Common Stock shall be of junior
rank to all Preferred Shares with respect to the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and winding up of
the Company.  The rights of the shares of
Common Stock shall be subject to the preferences and relative rights of the
Preferred Shares.  Without the prior
express written consent of the Required Holders, the Company shall not
hereafter authorize or issue additional or other Capital Stock that is of
senior or pari-passu rank to the Preferred Shares in respect of the preferences
as to distributions and payments upon a Liquidation Event.  The Company shall be permitted to issue
preferred stock that is junior in rank to the Preferred Shares in respect of
the 

 

35

 

preferences as to dividends and other
distributions, amortization and redemption payments and payments upon the
liquidation, dissolution and winding up of the Company, provided that the
maturity date (or any other date requiring redemption or repayment (whether
through a scheduled amortization, redemption or otherwise) of such preferred
stock) of any such junior preferred stock is not on or before the ninety-first
(91st) day following
the Maturity Date.  In the event of the
merger or consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein (except that the Preferred Shares may not be pari passu with, or junior to, any Capital Stock of the
successor entity) and no merger shall result inconsistent  therewith.

 

(b)   Issuances of Equity-Linked
Securities.  For so long
as any Preferred Shares are outstanding, the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any Indebtedness of it or its Subsidiaries that is, at any time
during its life and under any circumstances, convertible into or exchangeable
or exercisable for shares of Common Stock,
Options, Convertible Securities or other
Capital Stock of the Company.

 

(10)         Limitation on Number of
Conversion Shares. 
Notwithstanding anything to the contrary contained herein, the Company
shall not issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon conversion of the
Preferred Shares without breaching the Company’s obligations under the rules or
regulations of the Principal Market, or the market or exchange where the Common
Stock is then traded (the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company (a) obtains
stockholder approval as required by the applicable rules of the Principal
Market (and any successor rule or regulation) for issuances of Common
Stock in excess of such amount, or (b) obtains a written opinion from
outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Holder on the Initial Issuance Date (the “Purchasers”) shall be issued, in the
aggregate, upon conversion of Preferred Shares, shares of Common Stock in an
amount greater than the product of (i) the Exchange Cap amount multiplied
by (ii) a fraction, the numerator of which is the number of Preferred
Shares owned by such Purchaser on the Initial Issuance Date and the denominator
of which is the aggregate amount of all of the Preferred Shares owned by all of
the Purchasers on the Initial Issuance Date (the “Exchange Cap Allocation”). 
In the event that any Purchaser shall sell or otherwise transfer any of
such Purchaser’s Preferred Shares, the transferee shall be allocated a pro rata
portion of such Purchaser’s Exchange Cap Allocation.  In the event that any Holder shall convert
all of such Holder’s Preferred Shares into a number of shares of Common Stock
which, in the aggregate, is less than such Holder’s Exchange Cap Allocation,
then the difference between such Holder’s Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such Holder shall be
allocated to the respective Exchange Cap Allocations of the remaining Holders
on a pro rata basis in proportion to the number of Preferred Shares then held
by each such Holder.

 

36

 

(11)         Participation.  Subject to the rights of the holders, if any,
of the Pari Passu Shares, the Holders shall, as holders of Preferred Stock, be
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if such Holders had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions.  Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock. 
Following the occurrence of a Liquidation Event and the payment in full
to a Holder of its applicable liquidation preference, such Holder shall cease
to have any rights hereunder to participate in any future dividends or distributions
made to the holders of Common Stock.

 

(12)         Vote to Change the Terms of
or Issue Preferred Shares.  Except where the vote or written consent of
the holders of a greater number of shares is required by law or by another
provision of the Certificate of Incorporation, the affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting
of the Required Holders, voting together as a single class, shall be required
before the Company may: (a) amend or repeal any provision of, or add any
provision to, the Certificate of Incorporation or bylaws, or file any articles
of amendment, certificate of designations, preferences, limitations and
relative rights of any series of preferred stock, if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
restrictions provided for the benefit of the Preferred Shares, regardless of
whether any such action shall be by means of amendment to the Certificate of
Incorporation or by merger, consolidation or otherwise; (b) increase or
decrease (other than by conversion) the authorized number of shares of
Preferred Shares; (c) create or authorize (by reclassification or
otherwise) any new class or series of shares that has a preference over or is
on a parity with the Preferred Shares with respect to dividends or the
distribution of assets on the liquidation, dissolution or winding up of the
Company; (d) purchase, repurchase or redeem any shares of Common Stock
(other than pursuant to equity incentive agreements with employees giving the
Company the right to repurchase shares upon the termination of services at
cost); (e) pay dividends or make any other distribution on the Common
Stock; or (f) whether or not prohibited by the terms of the Preferred
Shares, circumvent a right of the Preferred Shares.

 

(13)         Lost or Stolen Certificates.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however,
the Company shall not be obligated to re-issue preferred stock certificates if
the Holder contemporaneously requests the Company to convert such Preferred
Shares into Common Stock.

 

(14)         Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief.  Except as otherwise specifically set forth
herein, the remedies provided in this Certificate of Designations shall be
cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of
specific performance and/or other injunctive relief).  Except as otherwise specifically set forth
herein, no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such 

 

37

 

remedy.  Except as otherwise specifically set forth
herein, nothing herein shall limit a Holder’s right to pursue actual damages
for any failure by the Company to comply with the terms of this Certificate of
Designations.  The Company covenants to
each Holder that there shall be no characterization concerning this instrument
other than as expressly provided herein. 
Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to
be received by the Holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Holders and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, except as otherwise specifically
set forth herein, the Holders shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.  Notwithstanding anything to
the contrary contained herein, no Holder shall be entitled to consequential,
indirect or incidental damages hereunder. 
However, the foregoing shall not in any way limit a Holder from being
reimbursed for its costs, fees or expenses, including, without limitation,
reasonable attorneys’ fees and disbursements in connection with any of its
rights and remedies hereunder.

 

(15)         Construction.  This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Holders and shall not be
construed against any person as the drafter hereof.

 

(16)         Failure or Indulgence Not
Waiver.  No failure or delay on the
part of a Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege.

 

(17)         Notice.  Whenever notice or other communication is
required to be given under this Certificate of Designations, unless otherwise
provided herein, such notice shall be given in accordance with Section 13(b) of
the Investors Rights Agreement.

 

(18)         Transfer of Preferred Shares.  A Holder may assign some or all of the
Preferred Shares and the accompanying rights hereunder held by such Holder
without the consent of the Company; provided that such assignment is in
compliance with applicable securities laws.

 

(19)         Preferred Share Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holders), a register for the Preferred Shares, in
which the Company shall record the name and address of the persons in whose
name the Preferred Shares have been issued, as well as the name and address of
each transferee.  The Company may treat
the person in whose name any Preferred Share is registered on the register as
the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, but in all events recognizing any properly made transfers.

 

38

 

(20)         Stockholder Matters.  Any stockholder action, approval or consent required,
desired or otherwise sought by the Company pursuant to the rules and
regulations of the Principal Market, the TBOC, this Certificate of Designations
or otherwise with respect to the issuance of the Preferred Shares or the Common
Stock issuable upon conversion thereof may be effected by written consent of
the Company’s stockholders or at a duly called meeting of the Company’s
stockholders, all in accordance with the applicable rules and regulations
of the Principal Market and the TBOC. 
This provision is intended to comply with the applicable sections of the
TBOC permitting stockholder action, approval and consent affected by written
consent in lieu of a meeting.

 

(21)         Disclosure. Upon receipt
or delivery by the Company of any notice in accordance with the terms of this
Certificate of Designations, unless the Company has in good faith determined
that the matters relating to such notice do not constitute material, nonpublic
information relating to the Company or its Subsidiaries, the Company shall within
one (1) Business Day after any such receipt or delivery publicly disclose
such material, nonpublic information on a Current Report on Form 8-K or
otherwise.  In the event that the Company
believes that a notice contains material, nonpublic information relating to the
Company or its Subsidiaries, the Company so shall indicate to the Holders
contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holders shall be allowed to presume that all matters relating
to such notice do not constitute material, nonpublic information relating to
the Company or its Subsidiaries.

 

(22)         SUBORDINATION.

 

(a)           NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS CERTIFICATE OF DESIGNATION OR ANY OTHER
AGREEMENT, DOCUMENT, CERTIFICATE, OR INSTRUMENT GIVEN IN CONNECTION WITH,
RELATED TO OR AFFECTING THE PREFERRED SHARES, the Company’s obligation to make,
and the Holders right to receive, any dividend or distribution (whether in
cash, securities or other property) or any direct or indirect payment of any
kind or character (whether in cash, securities or other property) in
consideration for or otherwise in connection the Preferred Shares, including,
without limitation, any amortization, retirement, purchase, redemption or other
acquisition of any Preferred Share, or any options, warrants or rights to
purchase or acquire any Preferred Shares or Common Stock of the Company
(collectively, the “Restricted Payments”)
are strictly junior and fully subordinated to the right of payment held by the
holders of the Senior Debt (the “Senior Debt Holders”).  If a default (however defined) under any
document, instrument, or other agreement in any way related to the Senior Debt,
whether such document, instrument, or other agreement exists on the Initial Issuance
Date or is entered into after the Initial Issuance Date, exists at the time a
Restricted Payment is to be made or would exist as a result of such Restricted
Payment being made, (i) the Company shall not make, and no Holder is
entitled to receive, any Restricted Payment unless and until the “Payment in
Full of the Senior Debt” (as defined below); and (ii) no Holder shall be
entitled to ask, demand, sue for, take or receive from the Company or any of
its Subsidiaries, directly or indirectly, in cash or other property, or by
set-off or in any other manner (including without limitation from or by way of
collateral) payment of any Restricted Payment unless and until the Payment in
Full of the Senior Debt.

 

39

 

(b)           The subordination of the
rights of the Holders to the Senior Debt Holders shall be effective both before
and after the commencement of any Insolvency Proceeding (as defined
below).  All references in this clause 22
to the Company or any of its Subsidiaries shall include such entity as a
debtor-in-possession and any receiver or trustee for such entity in any
Insolvency Proceeding.

 

(c)           As between the Holders and
the Senior Debt Holders and without releasing or affecting any of its senior
rights as to the Holders, any Senior Debt Holder may, one or more times, in its
sole discretion, without notice to or the consent of any Holder, take any
action with respect to the Company, any of its Subsidiaries or any of the
Senior Debt, including, without limitation, one or more of the following
actions: (i) extend credit to the Company or any of its Subsidiaries in
such amounts as such Senior Debt Holder may determine or withhold credit from
the Company or any of its Subsidiaries;  (ii) release,
renew or modify the obligations of the Company or any of its Subsidiaries or
any other person or entity obligated on any of the Senior Debt; (c) release,
exchange, modify, or surrender in whole or in part such Senior Debt Holder’s
rights with respect to any security for any of the Senior Debt; (d) modify
or alter the term, interest rate or due date of any payment of any of the
Senior Debt; (e) grant any postponements, compromises, indulgences,
waivers, surrenders or discharges or modify the terms of its agreements with
the Company or any of its Subsidiaries; (f) change its manner of doing
business with the Company or any of its Subsidiaries or any other person or
entity; (g) obtain additional security for the Senior Debt; or (h) impute
payments or proceeds of any security furnished for any of the Senior Debt, in
whole or in part, to any of the Senior Debt, or retain the payments or proceeds
as security for the Senior Debt without applying same toward payment of the
Senior Debt.  Each Holder
waives and releases all claims and defenses arising from any such actions by
any holder of Senior Debt, including, without limitation, claims and defenses
relating to the inability to collect any Restricted Payment.  No Senior Debt Holder will be liable for any
action or failure to act under or in connection with any of the documents or
instruments evidencing or securing the Senior Debt, it being understood that
the decision of whether and when to act and the manner of proceeding under such
instruments and documents are within the sole discretion of such Senior Debt
Holders, and shall not be affected in any manner by the existence of the
Company’s obligations hereunder.

 

(d)           For purposes hereof, “Payment in Full of the Senior Debt” means the satisfaction
of all of the following: (i) the passage of 90 days after the indefeasible
and final payment in full in cash of the Senior Debt, (ii) the termination
of all hedging transactions with any Senior Debt Holder, (iii) the
termination or expiration of all commitments of each Senior Debt Holder to advance
funds or issue letters of credit, and (iv) the termination or expiration
and return of all letters of credit issued by any Senior Debt Holder.  For purposes hereof, “Insolvency
Proceeding” means any distribution of all or any of the assets of
any entity to creditors of such entity upon the dissolution, winding up,
liquidation, arrangement, reorganization, adjustment, protection, relief, or
composition of such entity or its debts, whether in any bankruptcy, insolvency,
arrangement, reorganization, receivership, relief or similar proceedings or
upon an assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of such entity or otherwise.

 

40

 

* 
*  *  *  *

 

41

 

 

IN WITNESS WHEREOF, the
Company has caused this Certificate of Designations to be signed by J.P. Bryan,
its Chairman of the Board of Directors, as of the
[      ] day of
[              ],
2010.

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  J.P.
  Bryan

  
	
   

  	
   

  	
  Title:

  	
  Chairman
  of the Board of

  
	
   

  	
   

  	
   

  	
  Directors

  

 

 

EXHIBIT I

 

RESACA EXPLOITATION, INC. CONVERSION NOTICE

 

Reference
is made to the Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Resaca Exploitation, Inc. (the “Certificate of Designations”).  In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the
number of shares of Series A Convertible Preferred Stock, no par value
(the “Preferred Shares”), of Resaca
Exploitation, Inc., a Texas corporation (the “Company”), indicated below into shares of Common Stock, par
value $0.01 per share (the “Common Stock”),
of the Company, as of the date specified below.

 

	
  Date
  of Conversion:

  	
   

  
	
   

  	
   

  
	
  Number
  of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  
	
  Stock
  certificate no(s). of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  
	
  Tax
  ID Number (If applicable):

  	
   

  
					

 

	
  Please
  confirm the following information:

  	
   

  

 

	
  Conversion
  Price:

  	
   

  
	
   

  	
   

  
	
  Number
  of shares of Common Stock to be issued:

  	
   

  
				

 

Please issue the Common
Stock into which the Preferred Shares are being converted in the following name
and to the following address:

 

	
  Issue
  to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorization:

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Account
  Number (if electronic book entry transfer):

  	
   

  
	
   

  	
   

  
	
  Transaction
  Code Number (if electronic book entry transfer):

  	
   

  
										

 

 

[NOTE TO HOLDER — THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER
AGENT]

 

44

 

ACKNOWLEDGMENT

 

The Company hereby
acknowledges this Conversion Notice and hereby directs  [Company
transfer agent] to issue the above indicated number of shares of Common
Stock in accordance with the Irrevocable Transfer Agent Instructions dated
[                  ]
from the Company and acknowledged and agreed to by  [Company transfer
agent].

 

	
   

  	
  RESACA
  EXPLOITATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:Exhibit 10.92

 

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

 

 

 

 

$200,000,000

 

SECOND AMENDED AND RESTATED
CREDIT AGREEMENT

 

Among

 

RESACA EXPLOITATION, INC.

 

as Borrower,

 

THE
LENDERS PARTY HERETO FROM TIME TO TIME

 

as Lenders,

 

and

 

UNION BANK, N.A.

 

as Administrative Agent and as Issuing Lender

 

April         , 2010

 

 

 

 

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

as Joint Lead Arrangers

 

NATIXIS NEW YORK BRANCH

as Syndication Agent

 

ii

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  I

  	
  DEFINITIONS
  AND ACCOUNTING TERMS

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Certain Defined Terms

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.02

  	
  Computation of Time Periods

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 1.03

  	
  Accounting Terms; Changes in GAAP

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 1.04

  	
  Types of Advances

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 1.05

  	
  Miscellaneous

  	
  19

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  	
  CREDIT
  FACILITIES

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Commitment for Advances

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 2.02

  	
  Borrowing Base

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 2.03

  	
  Method of Borrowing

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 2.04

  	
  Reduction of the Commitments

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 2.05

  	
  Prepayment of Advances

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 2.06

  	
  Repayment of Advances

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 2.07

  	
  Letters of Credit

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 2.08

  	
  Fees

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 2.09

  	
  Interest

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 2.10

  	
  Payments and Computations

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 2.11

  	
  Sharing of Payments, Etc

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 2.12

  	
  Breakage Costs

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 2.13

  	
  Increased Costs

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 2.14

  	
  Taxes

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 2.15

  	
  Replacement of Lender

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  CONDITIONS

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Conditions Precedent to Effectiveness

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 3.02

  	
  Conditions Precedent to All Borrowings

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 4.01

  	
  Existence; Subsidiaries

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 4.02

  	
  Power

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 4.03

  	
  Authorization and Approvals

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 4.04

  	
  Enforceable Obligations

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 4.05

  	
  Financial Statements

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 4.06

  	
  True and Complete
  Disclosure

  	
  43

  

 

i

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 4.07

  	
  Litigation; Compliance with Laws

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 4.08

  	
  Use of Proceeds

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 4.09

  	
  Investment Company Act

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 4.10

  	
  Federal Power Act

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 4.11

  	
  Taxes

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 4.12

  	
  Pension Plans

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 4.13

  	
  Condition of Property; Casualties

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 4.14

  	
  No Burdensome Restrictions; No Defaults

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 4.15

  	
  Environmental
  Condition

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 4.16

  	
  Permits, Licenses, Etc

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 4.17

  	
  Gas Contracts

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 4.18

  	
  Liens; Titles, Leases,
  Etc

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 4.19

  	
  Solvency and Insurance

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 4.20

  	
  Hedging Agreements

  	
  47

  
	
   

  	
   

  	
   

  
	
  Section 4.21

  	
  Material Agreements

  	
  47

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V

  	
  AFFIRMATIVE
  COVENANTS

  	
  47

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Compliance with Laws, Etc

  	
  47

  
	
   

  	
   

  	
   

  
	
  Section 5.02

  	
  Maintenance of Insurance

  	
  47

  
	
   

  	
   

  	
   

  
	
  Section 5.03

  	
  Preservation of Corporate Existence, Etc

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 5.04

  	
  Payment of Taxes, Etc

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 5.05

  	
  Visitation Rights

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 5.06

  	
  Reporting Requirements

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 5.07

  	
  Maintenance of Property

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 5.08

  	
  Agreement to Pledge

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 5.09

  	
  Use of Proceeds

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 5.10

  	
  Title Evidence and Opinions

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 5.11

  	
  Further Assurances; Cure of Title Defects

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 5.12

  	
  Hedging Arrangements

  	
  53

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  NEGATIVE
  COVENANTS

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Liens, Etc

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 6.02

  	
  Debts, Guaranties, and Other Obligations

  	
  54

  
	
   

  	
   

  	
   

  
	
  Section 6.03

  	
  Agreements Restricting
  Liens and Distributions

  	
  55

  

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 6.04

  	
  Merger or Consolidation; Asset Sales

  	
  56

  
	
   

  	
   

  	
   

  
	
  Section 6.05

  	
  Restricted Payments

  	
  57

  
	
   

  	
   

  	
   

  
	
  Section 6.06

  	
  Investments

  	
  57

  
	
   

  	
   

  	
   

  
	
  Section 6.07

  	
  Affiliate Transactions

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 6.08

  	
  Compliance with ERISA

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 6.09

  	
  Sale-and-Leaseback

  	
  59

  
	
   

  	
   

  	
   

  
	
  Section 6.10

  	
  Change of Business; Change of Fiscal Year

  	
  59

  
	
   

  	
   

  	
   

  
	
  Section 6.11

  	
  Organizational Documents, Name Change

  	
  59

  
	
   

  	
   

  	
   

  
	
  Section 6.12

  	
  Use of Proceeds; Letters of Credit

  	
  60

  
	
   

  	
   

  	
   

  
	
  Section 6.13

  	
  Gas Imbalances, Take-or-Pay or Other Prepayments

  	
  60

  
	
   

  	
   

  	
   

  
	
  Section 6.14

  	
  Hedging Requirements

  	
  60

  
	
   

  	
   

  	
   

  
	
  Section 6.15

  	
  Additional Subsidiaries; Additional Oil and Gas
  Properties

  	
  60

  
	
   

  	
   

  	
   

  
	
  Section 6.16

  	
  Account Payables

  	
  60

  
	
   

  	
   

  	
   

  
	
  Section 6.17

  	
  Current Ratio

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.18

  	
  Leverage Ratio

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.19

  	
  Interest Coverage Ratio

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.20

  	
  Prepayments of Debt

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.21

  	
  Non-Guarantor Subsidiary

  	
  62

  
	
   

  	
   

  	
   

  
	
  Section 6.22

  	
  Equity Issuance

  	
  62

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  EVENTS
  OF DEFAULT; REMEDIES

  	
  62

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Events of Default

  	
  62

  
	
   

  	
   

  	
   

  
	
  Section 7.02

  	
  Optional Acceleration of Maturity

  	
  64

  
	
   

  	
   

  	
   

  
	
  Section 7.03

  	
  Automatic Acceleration of Maturity

  	
  64

  
	
   

  	
   

  	
   

  
	
  Section 7.04

  	
  Right of Set-off

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 7.05

  	
  Non-exclusivity of Remedies

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 7.06

  	
  Application of Proceeds

  	
  65

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  THE
  ADMINISTRATIVE AGENT AND THE ISSUING LENDER

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Authorization and Action

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 8.02

  	
  Administrative Agent’s Reliance, Etc

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 8.03

  	
  The Administrative Agent and Its Affiliates

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 8.04

  	
  Lender Credit Decision

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 8.05

  	
  Indemnification

  	
  67

  

 

iii

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 8.06

  	
  Successor Administrative Agent and Issuing Lender

  	
  67

  
	
   

  	
   

  	
   

  
	
  Section 8.07

  	
  Collateral Matters

  	
  68

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
  69

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  Amendments, Etc

  	
  69

  
	
   

  	
   

  	
   

  
	
  Section 9.02

  	
  Notices, Etc

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 9.03

  	
  No Waiver; Remedies

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 9.04

  	
  Costs and Expenses

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 9.05

  	
  Binding Effect

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 9.06

  	
  Lender Assignments and Participations

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 9.07

  	
  Indemnification; Waiver

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 9.08

  	
  Execution in Counterparts

  	
  73

  
	
   

  	
   

  	
   

  
	
  Section 9.09

  	
  Survival of Representations, Etc

  	
  73

  
	
   

  	
   

  	
   

  
	
  Section 9.10

  	
  Severability

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.11

  	
  Business Loans

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.12

  	
  Governing Law; Submission to Jurisdiction

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.13

  	
  [Reserved]

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.14

  	
  USA Patriot Act

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.15

  	
  WAIVER OF JURY TRIAL

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 9.16

  	
  ORAL AGREEMENTS

  	
  75

  

 

EXHIBITS:

 

	
  Exhibit A

  	
  -

  	
  Form of
  Assignment and Acceptance

  
	
  Exhibit B

  	
  -

  	
  Form of
  Compliance Certificate

  
	
  Exhibit C

  	
  -

  	
  Form of
  Guaranty

  
	
  Exhibit D

  	
  -

  	
  Form of
  Mortgage

  
	
  Exhibit E

  	
  -

  	
  Form of
  Note

  
	
  Exhibit F

  	
  -

  	
  Form of
  Notice of Borrowing

  
	
  Exhibit G

  	
  -

  	
  Form of
  Notice of Conversion or Continuation

  
	
  Exhibit H

  	
  -

  	
  Form of
  Pledge Agreement

  
	
  Exhibit I

  	
  -

  	
  Form of
  Security Agreement

  
	
  Exhibit J

  	
  -

  	
  Form of
  Transfer Letters

  
	
  Exhibit K

  	
  -

  	
  Form of
  Borrower’s Counsel Opinion

  

 

SCHEDULES:

 

	
  Schedule I

  	
  -

  	
  Pricing
  Grid

  

 

iv

 

TABLE OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  

 

	
  Schedule II  -

  	
  Notice
  Information and Commitments

  
	
  Schedule 4.01  -

  	
  Subsidiaries
  of Borrower

  
	
  Schedule 4.05  -

  	
  Existing
  Debt

  
	
  Schedule 4.07  -

  	
  Litigation

  
	
  Schedule 4.14(a)  -

  	
  MAC
  Documents

  
	
  Schedule 4.20  -

  	
  Hedging
  Contracts

  

 

v

 

SECOND AMENDED AND RESTATED
CREDIT AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE
I

DEFINITIONS
AND ACCOUNTING TERMS

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)           indebtedness of such
Person for borrowed money;

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

“Effective Date”
means April       , 2010.

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
  Eurodollar Rate  = 

  	
  Eurodollar Base Rate

  	
   

  
	
   

  	
  1.00 — Eurodollar Rate
  Reserve Percentage

  	
   

  

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Liquid
Investments” means:

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

ARTICLE II

 

CREDIT FACILITIES

 

Section 2.01           Commitment for
Advances.

 

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

 

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

 

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

 

19

 

Section 2.02           Borrowing Base.

 

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

 

(b)           Calculation of
Borrowing Base.

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

21

 

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

 

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

 

Section 2.03           Method of
Borrowing.

 

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

 

22

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

Section 2.04           Reduction of
the Commitments.

 

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

 

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

 

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

 

24

 

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

 

Section 2.05           Prepayment of
Advances.

 

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

 

(b)           Borrowing Base
Deficiency.

 

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

 

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

 

25

 

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

 

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

 

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

 

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

 

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

 

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

 

26

 

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

 

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

 

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

 

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

 

Section 2.07           Letters of
Credit.

 

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

 

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

 

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

 

27

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

28

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

29

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(g)           Cash Collateral Account.

 

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

 

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

 

30

 

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

 

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

 

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

 

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

 

Section 2.08           Fees.

 

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

 

(b)           Letter of Credit Fees.

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

(c)           [Reserved].

 

(d)           Usury Recapture.

 

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

 

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

 

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

 

Section 2.10           Payments and
Computations.

 

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

 

32

 

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

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

Section 2.13           Increased Costs.

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

Section 2.14           Taxes.

 

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

 

35

 

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

 

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

 

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

 

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

 

36

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

37

 

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

 

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

 

ARTICLE
III

 

CONDITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

38

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

39

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

40

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

41

 

ARTICLE
IV

 

REPRESENTATIONS
AND WARRANTIES

 

The
Borrower represents and warrants as follows:

 

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

 

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

 

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

 

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

 

42

 

Section 4.05           Financial Statements.

 

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

 

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

 

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

 

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

 

Section 4.07           Litigation;
Compliance with Laws.

 

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

 

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

 

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

 

43

 

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

 

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

 

Section 4.10           Reserved.

 

Section 4.11           Taxes.

 

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

 

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

 

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

 

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

 

44

 

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

 

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

 

Section 4.14           No Burdensome
Restrictions; No Defaults.

 

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

 

(b)           No Default has
occurred and is continuing.

 

Section 4.15           Environmental Condition.

 

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

 

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

 

45

 

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

 

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

 

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

 

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

 

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

 

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

 

46

 

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

 

ARTICLE
V

 

AFFIRMATIVE
COVENANTS

 

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

 

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

 

Section 5.02           Maintenance of
Insurance.

 

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

 

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

 

47

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

48

 

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

 

(c)           Oil and Gas Reserve Reports.

 

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

 

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

 

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

 

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

 

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

 

49

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

50

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

51

 

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

 

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

 

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

 

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

 

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

 

52

 

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

 

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

 

ARTICLE
VI

 

NEGATIVE
COVENANTS

 

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

 

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

 

(a)           Liens securing
the Obligations;

 

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

 

53

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

54

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

55

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

56

 

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

 

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

 

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

 

(a)           Liquid
Investments;

 

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

 

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

 

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

 

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

 

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

 

57

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 6.08           Compliance with
ERISA.  The Borrower shall not, nor
shall it permit any of its Subsidiaries to, directly or indirectly, (a) engage
in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction
in connection with which the Borrower, any Subsidiary or any ERISA Affiliate
could be subjected to either a civil penalty assessed pursuant to section
502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of
Subtitle D of the Code; (b) terminate, or permit any Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could result in any liability to the Borrower, any
Subsidiary or any ERISA Affiliate to the PBGC; (c) fail to make, or permit
any Subsidiary or ERISA Affiliate to fail to make, full payment when due of all

 

58

 

amounts
which, under the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required
to pay as contributions thereto; (d) permit to exist, or allow any
Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding
deficiency within the meaning of Section 302 of ERISA or section 412 of
the Code in excess of $1,000,000, whether or not waived, with respect to any
Plan; (e) permit, or allow any Subsidiary or ERISA Affiliate to permit,
the actuarial present value of the benefit liabilities (as “actuarial present
value of the benefit liabilities” shall have the meaning specified in section
4041 of ERISA) under any Plan maintained by the Borrower, any Subsidiary or any
ERISA Affiliate which is regulated under Title IV of ERISA to exceed the
current value of the assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such benefit liabilities by
more than $1,000,000; (f) contribute to or assume an obligation to
contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan; (g) acquire,
or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any
Person that causes such Person to become an ERISA Affiliate with respect to the
Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors,
maintains or contributes to, or at any time in the six-year period preceding
such acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV of
ERISA under which the actuarial present value of the benefit liabilities under
such Plan exceeds the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities; (h) incur, or permit any Subsidiary or ERISA
Affiliate to incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA; (i) contribute to or assume an
obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to
contribute to or assume an obligation to contribute to, any employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former employees of
such entities, that may not be terminated by such entities in their sole
discretion at any time without any material liability; (j) amend or permit
any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in
current liability such that the Borrower, any Subsidiary or any ERISA Affiliate
is required to provide security to such Plan under section 401(a)(29) of the
Code; or (k) permit to exist any occurrence of any Reportable Event (as
defined in Title IV of ERISA), or any other event or condition, which
presents a material (in the opinion of the Majority Lenders) risk of such a
termination by the PBGC of any Plan that could reasonably be expected to result
in a Material Adverse Change.

 

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

 

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

 

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

 

59

 

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

 

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

 

Section 6.14           Hedging
Requirements.  Other than
the Hedge Contracts required to be entered into and maintained pursuant to Section 5.12
hereof or the last sentence of this Section 6.14, the Borrower shall not,
nor shall it permit any of its Subsidiaries to, (a) purchase, assume, or
hold a speculative position in any commodities market or futures market or enter
into any Hydrocarbon Hedge Agreement, Interest Hedge Agreement or similar hedge
arrangement for speculative purposes, (b) be party to or otherwise enter
into any Hedge Contract which (i) is entered into for reasons other than
as a part of its normal business operations as a risk management strategy
and/or hedge against changes resulting from market conditions related to the
Borrower’s operations, (ii) covers notional volumes in excess of 80% of
the anticipated production volumes attributable to “proved, developed and
producing” Proven Reserves of the Borrower and its Subsidiaries during the
period such hedge arrangement is in effect, or (iii) is longer than five
years in duration from the date such Hedge Contract is entered into, or (c) enter
into any Hedge Contract prior to January 1, 2011 which covers production
of natural gas unless the notional volumes of existing Hedge Contracts cover
less than 80% of the anticipated production volumes of natural gas attributable
to “proved, developed and producing” Proven Reserves of the Borrower and its
Subsidiaries.  Furthermore, on or prior
to the 10th Business Day following the Effective Date, the
Borrower shall have entered into and thereafter maintain (or shall have caused
the applicable Subsidiary to have entered into and thereafter maintain) Hedge
Contracts covering at least 75% of the anticipated production volumes
attributable to “proved, developed and producing” Proven Reserves of the
Borrower and its Subsidiaries through [December 31, 2014], as set forth in
the initial Independent Engineering Report delivered under Section 3.01(a)(ix) and
at such prices acceptable to the Administrative Agent.

 

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

 

Section 6.16           Account
Payables.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, allow any
of its trade payables or other accounts payable to be outstanding for more than

 

60

 

90
days (except in cases where any such trade payable is being disputed in good
faith and adequate reserves under GAAP have been established).

 

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

 

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

 

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

 

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

 

61

 

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

 

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

 

ARTICLE
VII

 

EVENTS
OF DEFAULT; REMEDIES

 

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

 

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

 

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

 

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

 

(d)           Cross-Defaults.  (i) The Borrower, any Guarantor or any
of their respective Subsidiaries shall fail to pay any principal of or premium
or interest on its Debt which is outstanding in a principal amount of at least
$1,000,000 individually or when aggregated with all such Debt of the Borrower,
any Guarantor or any of their respective Subsidiaries so in default (but
excluding Debt evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; (ii) any
other event shall occur or condition shall exist under any agreement or
instrument relating to Debt which is outstanding in a principal amount of at
least $1,000,000 individually or when aggregated with all such Debt of the
Borrower, such Subsidiary, or such Guarantor so in default, and shall continue
after the applicable grace 

 

62

 

period,
if any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the maturity
of such Debt; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; provided
that, for purposes of this subsection 7.01(d), the “principal amount” of the
obligations in respect of any Hedging Contracts at any time shall be the
maximum aggregate amount (giving effect to any netting agreements) that would
be required to be paid if such Hedging Contracts were terminated at such time;

 

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

 

(f)            Judgments.  Any judgment or order for the payment of
money in excess of $1,000,000 shall be rendered against the Borrower, any
Guarantor or any of their respective Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 30 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;

 

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

 

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

 

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

 

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

 

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

 

63

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

64

 

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

 

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

 

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

 

Section 7.05           Non-exclusivity
of Remedies.  No remedy conferred
upon the Administrative Agent, the Issuing Lender and the Lenders is intended
to be exclusive of any other remedy, and each remedy shall be cumulative of all
other remedies existing by contract, at law, in equity, by statute or
otherwise.

 

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

 

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

 

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

 

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

 

65

 

ARTICLE
VIII

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

 

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

 

Section 8.02           Administrative
Agent’s Reliance, Etc.  Neither the
Administrative Agent nor any of its directors, officers, agents, or employees
shall be liable for any action taken or omitted to be taken (INCLUDING THE ADMINISTRATIVE AGENT’S OWN NEGLIGENCE) by it
or them under or in connection with this Agreement or the other Loan Documents,
except for its or their own gross negligence or willful misconduct.  Without limitation of the generality of the
foregoing, the Administrative Agent:  (a) may
treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent; (b) may
consult with legal counsel (including counsel for the Borrower), independent
public accountants, and other experts selected by it and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants, or experts; (c) makes no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties, or representations made in or in
connection with this Agreement or the other Loan Documents; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement or any other Loan
Document on the part of the Borrower or its Subsidiaries or to inspect the
Property (including the books and records) of the Borrower or its Subsidiaries;
(e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency, or value of this
Agreement or any other Loan Document; and (f) shall incur no liability
under or in respect of this Agreement or any other Loan Document by acting upon
any notice, consent, certificate, or other instrument or writing (which may be
by telecopier or telex) believed by it to be genuine and signed or sent by the
proper party or parties.

 

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

 

Section 8.04           Lender
Credit Decision.  Each Lender
acknowledges that it has, independently and without reliance upon the Administrative
Agent or any other Lender and based on the Financial Statements and the Interim
Financial Statements and such other documents and information as it has 

 

66

 

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

 

Section 8.05           Indemnification.  THE LENDERS SEVERALLY
AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH
AFFILIATE THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND
AGENTS (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO THEIR
RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY
ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE AGENT’S
AND THE ISSUING LENDER’S OWN NEGLIGENCE), AND INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL LIABILITIES, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE
ADMINISTRATIVE AGENT’S OR THE ISSUING LENDER’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.  WITHOUT LIMITATION OF THE
FOREGOING, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET
EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN
CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES
UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY THE
BORROWER.  To the extent that the indemnity obligations
provided in this Section 8.05 are for the benefit of the Administrative
Agent as the named secured party under the Liens granted under the Security
Instruments, each Lender hereby agrees that if such Lender ceases to be a
Lender hereunder but Obligations owing to such Lender or an Affiliate of such
Lender continue to be secured by such Liens, then such Lender shall continue to
be bound by the provisions of this Section 8.05 until such time as such
Obligations have been satisfied or terminated in full and subject to the terms
of the last sentence of Section 9.09.   
In such event, in determining the pro rata shares under this Section 8.05,
the Lenders shall include the aggregate amount (giving effect to any
netting agreements) that would be owing to such Swap Counterparty if such Hedge
Contracts were terminated at the time
of determination.

 

Section 8.06           Successor
Administrative Agent and Issuing Lender. 
The Administrative Agent or the Issuing Lender may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the Majority Lenders upon receipt
of written notice from the Majority Lenders to such effect.  Upon receipt of notice of any such
resignation or removal, the Majority Lenders shall have the right to appoint a successor
Administrative Agent or Issuing Lender with, if no Event of Default has
occurred and is continuing, the consent of the Borrower, which consent shall
not be unreasonably withheld.  If no
successor Administrative Agent or Issuing Lender shall have been so appointed
by the Majority Lenders with the consent of the Borrower, and shall have 

 

67

 

accepted
such appointment, within 30 days after the retiring Administrative Agent’s or
Issuing Lender’s giving of notice of resignation or the Majority Lenders’
removal of the retiring Administrative Agent or Issuing Lender, then the
retiring Administrative Agent or Issuing Lender may, on behalf of the Lenders
and the Borrower, appoint a successor Administrative Agent or Issuing Lender,
which shall be, in the case of a successor agent, a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000.00 and, in the case
of the Issuing Lender, a Lender; provided that, if the Administrative Agent or
Issuing Lender shall notify the Borrower and the Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (1) the retiring
Administrative Agent or Issuing Lender shall be discharged from its duties and
obligations hereunder and under the other Loan Documents (except that (A) in
the case of any collateral security held by the Administrative Agent on behalf
of the Lenders or the Issuing Lender under any of the Loan Documents, the
retiring Administrative Agent shall continue to hold such collateral security
until such time as a successor Administrative Agent is appointed and (B) the
retiring Issuing Lender shall remain the Issuing Lender with respect to any
Letters of Credit outstanding on the effective date of its resignation or
removal and the provisions affecting the Issuing Lender with respect to such
Letters of Credit shall inure to the benefit of the retiring Issuing Lender
until the termination of all such Letters of Credit) and (2) all payments,
communications and determinations provided to be made by, to or through the
retiring Administrative Agent shall instead be made by or to each Lender and
the Issuing Lender directly, until such time as the Majority Lenders appoint a
successor Administrative Agent or Issuing Lender, as applicable, as provided
for above in this paragraph.  Upon the acceptance
of any appointment as Administrative Agent or Issuing Lender by a successor
Administrative Agent or Issuing Lender, such successor Administrative Agent or
Issuing Lender shall thereupon succeed to and become vested with all the
rights, powers, privileges, and duties of the retiring Administrative Agent or
Issuing Lender, and the retiring Administrative Agent or Issuing Lender shall
be discharged from its duties and obligations under this Agreement and the
other Loan Documents, except that the retiring Issuing Lender shall remain the
Issuing Lender with respect to any Letters of Credit outstanding on the
effective date of its resignation or removal and the provisions affecting the
Issuing Lender with respect to such Letters of Credit shall inure to the
benefit of the retiring Issuing Lender until the termination of all such
Letters of Credit.  After any retiring
Administrative Agent’s or Issuing Lender’s resignation or removal hereunder as
Administrative Agent or Issuing Lender, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent or Issuing Lender under this Agreement and
the other Loan Documents.

 

Section 8.07           Collateral
Matters.

 

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

 

(b)           Each Secured Party
irrevocably authorizes Administrative Agent to release any Lien granted to or
held by the Administrative Agent upon any Collateral: (i) upon termination
of the Commitments, termination or expiration of all Letters of Credit (other
than Letters of Credit as to which 

 

68

 

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

 

(c)           Notwithstanding
anything contained in any of the Loan Documents to the contrary, the Borrower,
the Administrative Agent, and each Secured Party hereby agree that no Secured
Party shall have any right individually to realize upon any of the Collateral
or to enforce the Guaranties, it being understood and agreed that all powers,
rights and remedies hereunder and under the Security Instruments may be
exercised solely by Administrative Agent on behalf of the Secured Parties in
accordance with the terms hereof.  By
accepting the benefit of the Liens granted pursuant to the Security
Instruments, each Secured Party not party hereto hereby agrees to the terms of
this paragraph (c).

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.01           Amendments, Etc.  No amendment or waiver of
any provision of this Agreement, the Notes, or any other Loan Document (other
than the Fee Letter), nor consent to any departure by the Borrower or any
Subsidiary therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Majority Lenders and the Borrower, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment,
waiver, or consent shall, unless in writing and signed by all the Lenders, do
any of the following:  (a) waive any
of the conditions specified in Section 3.01, (b) increase the
Borrowing Base or the Commitments of the Lenders, (c) reduce the principal
of, or interest on, the Notes or any fees or other amounts payable hereunder or
under any other Loan Document, (d) postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder or extend the Maturity Date or the Commitment Termination Date, (e) change
the percentage of Lenders which shall be required for the Lenders or any of
them to take any action hereunder or under any other Loan Document, (f) amend
Section 2.11 or this Section 9.01, (g) amend the definition of “Majority
Lenders,” (h) release any Guarantor from its obligations under any
Guaranty other than as a result of a 

 

69

 

transaction
permitted hereby, (i) permit the Borrower or any Subsidiary to enter into
any merger or consolidation with or into any other Person or amend Section 6.04(a),
or (j) release any Collateral securing the Obligations, except for
releases of Collateral sold as permitted by this Agreement and except for
releases of Collateral as permitted under Section 8.08(b); and provided,
further, that no amendment, waiver or consent shall, unless in writing and
signed by the Administrative Agent or the Issuing Lender in addition to the
Lenders required above to take such action, affect the rights or duties of the
Administrative Agent or the Issuing Lender, as the case may be, under this
Agreement or any other Loan Document.  No
Lender or any Affiliate of a Lender shall have any voting rights under any Loan
Document as a result of the existence of obligations owed to it under Hedge
Contracts.

 

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

 

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

 

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

 

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

 

Section 9.06           Lender
Assignments and Participations.

 

(a)           Assignments.  Any Lender may assign to one or more Eligible
Assignees all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion 

 

70

 

of
its Commitments, the Advances owing to it, the Notes held by it, and the
participation interest in the Letter of Credit Obligations held by it); provided,
however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of such Lender’s rights and obligations assigned under
this Agreement and shall be an equal percentage with respect to both its
obligations owing in respect of the Commitments and the related Advances and
Letters of Credit, (ii) the amount of the Commitments and Advances of such
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall be,
if to an entity other than a Lender, not less than $5,000,000 and shall be an
integral multiple of $1,000,000 in excess thereof, (iii) each such
assignment shall be to an Eligible Assignee, (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance,
together with the Notes subject to such assignment, and (v) each Eligible
Assignee (other than the Eligible Assignee of the Administrative Agent or an
Affiliate of a Lender) shall pay to the Administrative Agent a $3,500
administrative fee.  Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least three
Business Days after the execution thereof, (A) the assignee thereunder
shall be a party hereto for all purposes and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (B) such
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of such Lender’s rights and obligations under this Agreement, such Lender shall
cease to be a party hereto).

 

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

 

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

 

71

 

in
the Register as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time
to time upon reasonable prior notice.

 

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

 

(e)           Participations.  Each Lender may sell participations to one or
more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitments, the Advances owing to it, its participation
interest in the Letter of Credit Obligations, and the Notes held by it); provided,
however, that (i) such Lender’s obligations under this Agreement
(including, without limitation, its Commitments to the Borrower hereunder)
shall remain unchanged, (ii) such Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii) such
Lender shall remain the holder of any such Notes for all purposes of this
Agreement, (iv) the Borrower, the Administrative Agent, and the Issuing
Lender and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender’s rights and obligations under this
Agreement, and (v) such Lender shall not require the participant’s consent
to any matter under this Agreement, except for change in the principal amount
of the Notes, reductions in fees or interest, releasing all or substantially
all of any Collateral, permitting the Borrower or any Subsidiary to enter into
any merger or consolidation with or into any other,  postponement of any date fixed for any
payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, or extensions of the Maturity Date or the Commitment
Termination Date.  The Borrower hereby
agrees that participants shall have the same rights under Sections 2.12,
2.13, 2.14(c), and 9.07 as a Lender to the extent of their respective
participations.

 

Section 9.07           Indemnification;
Waiver.

 

(a)           Indemnification.  THE BORROWER SHALL, AND DOES HEREBY
INDEMNIFY, THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT THEREOF), EACH LENDER
AND THE ISSUING LENDER, AND EACH OFFICER, DIRECTOR, EMPLOYEE, AGENT,
ATTORNEY-IN-FACT AND AFFILIATE  OF
ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”)
AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES AND RELATED EXPENSES (INCLUDING THE FEES, CHARGES AND
DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE), INCURRED BY ANY INDEMNITEE OR
ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY THE BORROWER OR ANY
SUBSIDIARY OF THE BORROWER ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE
BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER,
THE CONSUMMATION OF THE TRANSACTIONS

 

72

 

CONTEMPLATED HEREBY OR
THEREBY, OR, IN THE CASE OF THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT,
OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY-IN-FACT AND AFFILIATE THEREOF) THE
ADMINISTRATION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, (II) ANY
ADVANCE OR LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS
THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR
PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH
SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY
ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY THE
BORROWER OR ANY GUARANTOR, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY
THERETO, IN ALL CASES, WHETHER OR NOT
CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY
OR SOLE NEGLIGENCE OF THE INDEMNITEE; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH
LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A
COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

 

(b)           Waiver of Damages.  To the fullest extent permitted by applicable
law, the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any other Loan Document or
any agreement or instrument contemplated hereby, the transactions contemplated
hereby or thereby, any Advance or Letter of Credit or the use of the proceeds
thereof.  No Indemnitee referred to in
subsection (a) above shall be liable for any damages arising from the use
by unintended recipients of any information or other materials distributed by
it through telecommunications, electronic or other information transmission
systems in connection with this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby.

 

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

 

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

 

73

 

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

 

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

 

Section 9.12           Governing
Law; Submission to Jurisdiction. 
This Agreement, the Notes and the other Loan Documents shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Texas.  Without limiting the intent of
the parties set forth above, (a) Chapter 346 of the Texas Finance Code, as
amended (relating to revolving loans and revolving tri-party accounts (formerly
Tex.  Rev. Civ.  Stat. 
Ann.  Art.  5069, Ch. 
15)), shall not apply to this Agreement, the Notes, or the transactions
contemplated hereby and (b) to the extent that any Lender may be subject
to Texas law limiting the amount of interest payable for its account, such
Lender shall utilize the indicated (weekly) rate ceiling from time to time in
effect.  Each Letter of Credit shall be
governed by either the Uniform Customs and Practice for Documentary Credits
(2007 Revision), International Chamber of Commerce Publication No. 600, or
the International Standby Practices (ISP98), International Chamber of Commerce
Publication No. 590 (and any subsequent revisions thereof approved by a
Congress of the International Chamber of Commerce and adhered to by the Issuing
Lender).  The Borrower hereby irrevocably
submits to the jurisdiction of any Texas state or federal court sitting in
Dallas, Texas in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, and the Borrower hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such court.  The Borrower
hereby unconditionally and irrevocably waives, to the fullest extent it may
effectively do so, any right it may have to the defense of an inconvenient
forum to the maintenance of such action or proceeding.  The Borrower hereby agrees that service of
copies of the summons and complaint and any other process which may be served
in any such action or proceeding may be made by mailing or delivering a copy of
such process to such Borrower at its address set forth in this Agreement.  The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.  Nothing in this Section shall
affect the rights of any Lender to serve legal process in any other manner
permitted by the law or affect the right of any Lender to bring any action or
proceeding against the Borrower or its Property in the courts of any other
jurisdiction.

 

Section 9.13           [Reserved].

 

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

 

Section 9.15           WAIVER OF JURY TRIAL.  THE BORROWER, THE LENDERS, THE ISSUING LENDER
AND THE ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED
BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY, AND 

 

74

 

IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

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

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

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

 

75

 

EXECUTED
as of the date first above written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  RESACA
  EXPLOITATION, INC. a Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

Signature
page to Second Amended and Restated Credit Agreement

(Resaca
Exploitation, Inc.)

 

 

	
   

  	
  ADMINISTRATIVE
  AGENT/LENDERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION
  BANK, N.A.,

  
	
   

  	
  as
  Administrative Agent, Issuing Lender and Lender

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Paul
  Cornell

  
	
   

  	
   

  	
  Senior Vice President

  

 

Signature
page to Second Amended and Restated Credit Agreement

(Resaca
Exploitation, Inc.)

 

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  NATIXIS
  NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Donovan
  Broussard

  
	
   

  	
   

  	
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

Signature
page to Second Amended and Restated Credit Agreement

(Resaca
Exploitation, Inc.)

 

 

SCHEDULE I

 

PRICING GRID

 

Applicable Margins

 

	
  Utilization Level*

  	
   

  	
  Reference Rate

  Advances

  	
   

  	
  Eurodollar Rate

  Advances

  	
   

  	
  Commitment Fee

  	
   

  
	
  Level I

  	
   

  	
  1.50

  	
  %

  	
  2.50

  	
  %

  	
  0.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level II

  	
   

  	
  1.75

  	
  %

  	
  2.75

  	
  %

  	
  0.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level III

  	
   

  	
  2.00

  	
  %

  	
  3.00

  	
  %

  	
  0.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level IV

  	
   

  	
  2.25

  	
  %

  	
  3.25

  	
  %

  	
  0.50

  	
  %

  

 

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

 

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

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

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

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

 

 

SCHEDULE II

NOTICE INFORMATION AND COMMITMENTS

 

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

 

Administrative Agent/Issuing Lender:

 

Union
Bank, N.A.

Lincoln
Plaza

500
N. Akard Street, Suite 4200

Dallas,
Texas  75201

Attention:

Facsimile:
(214) 922-4209

 

with a copy to:

Union
Bank, N.A.

1331
Lamar Street, Suite 1360

Houston,
Texas 77010

Attention:
Paul E. Cornell

Facsimile:
(713) 286-3051

 

Borrower:

 

Resaca
Exploitation, Inc.

1331
Lamar Street

Houston,
TX 77010-3122

Attention:

Facsimile:
(713) 650-1246

 

	
  Lenders:

  	
   

  	
  Commitments

  	
   

  
	
  Union Bank, N.A.

  	
   

  	
  $

  	
  100,000,000.00

  	
   

  
	
  Natixis New York Branch

  	
   

  	
  $

  	
  100,000,000.00

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  200,000,000.00

  	
   

  

 

 

SCHEDULE 4.01

 

SUBSIDIARIES OF BORROWER

 

[borrower to provide]

 

1

 

SCHEDULE 4.05

 

EXISTING DEBT

 

[borrower to provide]

 

1

 

Schedule 4.07

 

LITIGATION

 

[borrower to provide]

 

1

 

SCHEDULE 4.14(a)

 

AGREEMENTS WHICH COULD CREATE A MATERIAL ADVERSE
CHANGE

 

[borrower to provide]

 

Certificate
of Designation

 

Merger
Agreement

 

 

SCHEDULE 4.20

 

HEDGING CONTRACTS

 

[Union Bank 
to provide]

 

1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00171-of-00352.parquet"}]]