Document:

Exhibit
10.1

 

CREDIT AGREEMENT

AMONG

BREITBURN
OPERATING L.P.

AND

ALAMITOS COMPANY,

ALAMITOS COMPANY LLC,

BREITBURN ENERGY PARTNERS L.P.,

BREITBURN OPERATING GP, LLC

PHOENIX PRODUCTION COMPANY, AND

PREVENTIVE MAINTENANCE SERVICES,
LLC

AS GUARANTORS

WELLS FARGO BANK, NATIONAL ASSOCIATION,

AS LEAD ARRANGER, ADMINISTRATIVE AGENT, AND ISSUING
LENDER

CITIBANK, N.A.,

AS SYNDICATION AGENT

UNION BANK OF CALIFORNIA, N.A.,

AS DOCUMENTATION AGENT

AND THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,

AS LENDERS

 

DATED AS OF  OCTOBER
10, 2006

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  I. DEFINITIONS

  	
   

  	
  1

  
	
  1.01

  	
   

  	
  Certain Defined Terms

  	
   

  	
  1

  
	
  1.02

  	
   

  	
  Other Interpretive Provisions

  	
   

  	
  17

  
	
  1.03

  	
   

  	
  Accounting Principles

  	
   

  	
  18

  
	
  ARTICLE
  II. THE CREDIT

  	
   

  	
  18

  
	
  2.01

  	
   

  	
  Amounts and Terms of the
  Commitments

  	
   

  	
  18

  
	
  2.02

  	
   

  	
  Procedure for Borrowings

  	
   

  	
  18

  
	
  2.03

  	
   

  	
  Conversion and Continuation
  Elections

  	
   

  	
  19

  
	
  2.04

  	
   

  	
  Optional Prepayments

  	
   

  	
  20

  
	
  2.05

  	
   

  	
  Borrowing Base Determinations,
  Mandatory Prepayments of Loans

  	
   

  	
  20

  
	
  2.06

  	
   

  	
  Repayment

  	
   

  	
  21

  
	
  2.07

  	
   

  	
  Fees

  	
   

  	
  21

  
	
  2.08

  	
   

  	
  Computation of Fees and
  Interest

  	
   

  	
  22

  
	
  2.09

  	
   

  	
  Payments by the Company;
  Borrowings Pro Rata

  	
   

  	
  22

  
	
  2.10

  	
   

  	
  Issuing the Letters of Credit

  	
   

  	
  23

  
	
  2.11

  	
   

  	
  Payments by the Lenders to the
  Administrative Agent

  	
   

  	
  26

  
	
  2.12

  	
   

  	
  Sharing of Payments, Etc.

  	
   

  	
  26

  
	
  ARTICLE
  III. TAXES, YIELD PROTECTION AND ILLEGALITY

  	
   

  	
  27

  
	
  3.01

  	
   

  	
  Taxes

  	
   

  	
  27

  
	
  3.02

  	
   

  	
  Illegality

  	
   

  	
  28

  
	
  3.03

  	
   

  	
  Increased Costs and Reduction
  of Return

  	
   

  	
  29

  
	
  3.04

  	
   

  	
  Funding Losses

  	
   

  	
  29

  
	
  3.05

  	
   

  	
  Inability to Determine Rates

  	
   

  	
  29

  
	
  3.06

  	
   

  	
  Certificates of Lenders

  	
   

  	
  30

  
	
  3.07

  	
   

  	
  Substitution of Lenders

  	
   

  	
  30

  
	
  3.08

  	
   

  	
  Survival

  	
   

  	
  30

  
	
  ARTICLE
  IV. SECURITY

  	
   

  	
  30

  
	
  4.01

  	
   

  	
  The Security

  	
   

  	
  30

  
	
  4.02

  	
   

  	
  Agreement to Deliver Security
  Documents

  	
   

  	
  30

  
	
  4.03

  	
   

  	
  Perfection and Protection of
  Security Interests and Liens

  	
   

  	
  31

  
	
  4.04

  	
   

  	
  Offset

  	
   

  	
  31

  
	
  4.05

  	
   

  	
  Subsidiary Guaranty

  	
   

  	
  31

  
	
  ARTICLE
  V. CONDITIONS PRECEDENT

  	
   

  	
  32

  
	
  5.01

  	
   

  	
  Conditions of Initial Credit
  Extensions

  	
   

  	
  32

  

 

 i
 

 

 

	
  5.02

  	
   

  	
  Conditions to All Loans

  	
   

  	
  34

  
	
  ARTICLE
  VI. REPRESENTATIONS AND WARRANTIES

  	
   

  	
  35

  
	
  6.01

  	
   

  	
  Organization, Existence and
  Power

  	
   

  	
  35

  
	
  6.02

  	
   

  	
  Corporate Authorization; No
  Contravention

  	
   

  	
  35

  
	
  6.03

  	
   

  	
  Governmental Authorization

  	
   

  	
  35

  
	
  6.04

  	
   

  	
  Binding Effect

  	
   

  	
  35

  
	
  6.05

  	
   

  	
  Litigation

  	
   

  	
  35

  
	
  6.06

  	
   

  	
  No Default

  	
   

  	
  35

  
	
  6.07

  	
   

  	
  ERISA Compliance

  	
   

  	
  36

  
	
  6.08

  	
   

  	
  Margin Regulations

  	
   

  	
  36

  
	
  6.09

  	
   

  	
  Title to Properties

  	
   

  	
  36

  
	
  6.10

  	
   

  	
  Oil and Gas Reserves

  	
   

  	
  37

  
	
  6.11

  	
   

  	
  Initial Reserve Report

  	
   

  	
  37

  
	
  6.12

  	
   

  	
  Gas Imbalances

  	
   

  	
  37

  
	
  6.13

  	
   

  	
  Taxes

  	
   

  	
  37

  
	
  6.14

  	
   

  	
  Financial Condition

  	
   

  	
  38

  
	
  6.15

  	
   

  	
  Environmental Matters

  	
   

  	
  38

  
	
  6.16

  	
   

  	
  Regulated Entities

  	
   

  	
  39

  
	
  6.17

  	
   

  	
  No Burdensome Restrictions

  	
   

  	
  39

  
	
  6.18

  	
   

  	
  Copyrights, Patents,
  Trademarks and Licenses, etc

  	
   

  	
  39

  
	
  6.19

  	
   

  	
  Subsidiary

  	
   

  	
  39

  
	
  6.20

  	
   

  	
  Insurance

  	
   

  	
  39

  
	
  6.21

  	
   

  	
  Derivative Contracts

  	
   

  	
  39

  
	
  6.22

  	
   

  	
  Full Disclosure

  	
   

  	
  39

  
	
  6.23

  	
   

  	
  Solvency

  	
   

  	
  40

  
	
  ARTICLE
  VII. AFFIRMATIVE COVENANTS

  	
   

  	
  40

  
	
  7.01

  	
   

  	
  Financial Statements

  	
   

  	
  40

  
	
  7.02

  	
   

  	
  Certificates; Other Production
  and Reserve Information

  	
   

  	
  41

  
	
  7.03

  	
   

  	
  Notices

  	
   

  	
  43

  
	
  7.04

  	
   

  	
  Preservation of Company
  Existence, Etc

  	
   

  	
  43

  
	
  7.05

  	
   

  	
  Maintenance of Property

  	
   

  	
  44

  
	
  7.06

  	
   

  	
  Title Information

  	
   

  	
  44

  
	
  7.07

  	
   

  	
  Additional Collateral

  	
   

  	
  45

  
	
  7.08

  	
   

  	
  Insurance

  	
   

  	
  45

  
	
  7.09

  	
   

  	
  Payment of Obligations

  	
   

  	
  45

  
	
  7.10

  	
   

  	
  Compliance with Laws

  	
   

  	
  45

  

 

 ii
 

 

 

	
  7.11

  	
   

  	
  Compliance with ERISA

  	
   

  	
  46

  
	
  7.12

  	
   

  	
  Inspection of Property and
  Books and Records

  	
   

  	
  46

  
	
  7.13

  	
   

  	
  Environmental Laws

  	
   

  	
  46

  
	
  7.14

  	
   

  	
  New Subsidiary/Unrestricted
  Subsidiary

  	
   

  	
  47

  
	
  7.15

  	
   

  	
  New Subsidiary Guarantors

  	
   

  	
  47

  
	
  7.16

  	
   

  	
  Use of Proceeds

  	
   

  	
  47

  
	
  7.17

  	
   

  	
  Operating Accounts

  	
   

  	
  47

  
	
  7.18

  	
   

  	
  Phase I Reports

  	
   

  	
  47

  
	
  7.19

  	
   

  	
  Further Assurances

  	
   

  	
  47

  
	
  ARTICLE
  VIII. NEGATIVE COVENANTS

  	
   

  	
  48

  
	
  8.01

  	
   

  	
  Limitation on Liens

  	
   

  	
  48

  
	
  8.02

  	
   

  	
  Disposition of Assets

  	
   

  	
  49

  
	
  8.03

  	
   

  	
  Consolidations and Mergers

  	
   

  	
  49

  
	
  8.04

  	
   

  	
  Loans and Investments

  	
   

  	
  50

  
	
  8.05

  	
   

  	
  Limitation on Indebtedness

  	
   

  	
  50

  
	
  8.06

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  51

  
	
  8.07

  	
   

  	
  Margin Stock

  	
   

  	
  51

  
	
  8.08

  	
   

  	
  Contingent Obligations

  	
   

  	
  51

  
	
  8.09

  	
   

  	
  Restricted Payments

  	
   

  	
  51

  
	
  8.10

  	
   

  	
  Derivative Contracts

  	
   

  	
  52

  
	
  8.11

  	
   

  	
  Change in Business and
  Corporate Structure

  	
   

  	
  53

  
	
  8.12

  	
   

  	
  Accounting Changes

  	
   

  	
  53

  
	
  8.13

  	
   

  	
  ERISA Compliance

  	
   

  	
  53

  
	
  8.14

  	
   

  	
  Interest Coverage Ratio

  	
   

  	
  54

  
	
  8.15

  	
   

  	
  Leverage Ratio

  	
   

  	
  54

  
	
  8.16

  	
   

  	
  Current Ratio

  	
   

  	
  54

  
	
  ARTICLE
  IX. EVENTS OF DEFAULT

  	
   

  	
  54

  
	
  9.01

  	
   

  	
  Event of Default

  	
   

  	
  54

  
	
  9.02

  	
   

  	
  Remedies

  	
   

  	
  56

  
	
  9.03

  	
   

  	
  Rights Not Exclusive

  	
   

  	
  57

  
	
  ARTICLE
  X. ADMINISTRATIVE AGENT

  	
   

  	
  57

  
	
  10.01

  	
   

  	
  Appointment and Authorization

  	
   

  	
  57

  
	
  10.02

  	
   

  	
  Duties and Obligations of Administrative Agent

  	
   

  	
  57

  
	
  10.03

  	
   

  	
  Action by Administrative Agent

  	
   

  	
  58

  
	
  10.04

  	
   

  	
  Reliance by Administrative Agent

  	
   

  	
  58

  
	
  10.05

  	
   

  	
  Sub-agents

  	
   

  	
  59

  

 

 iii
 

 

 

	
  10.06

  	
   

  	
  Administrative Agent as Lender

  	
   

  	
  59

  
	
  10.07

  	
   

  	
  No Reliance

  	
   

  	
  59

  
	
  10.08

  	
   

  	
  Administrative Agent May File Proofs of Claim

  	
   

  	
  59

  
	
  10.09

  	
   

  	
  Authority of Administrative Agent to Release Collateral
  and Liens

  	
   

  	
  60

  
	
  10.10

  	
   

  	
  The Arrangers, the Syndication Agent and the
  Documentation Agent

  	
   

  	
  60

  
	
  10.11

  	
   

  	
  Successor Administrative Agent

  	
   

  	
  60

  
	
  10.12

  	
   

  	
  Withholding Tax

  	
   

  	
  61

  
	
  ARTICLE
  XI. MISCELLANEOUS

  	
   

  	
  62

  
	
  11.01

  	
   

  	
  Amendments and Waivers

  	
   

  	
  62

  
	
  11.02

  	
   

  	
  Notices

  	
   

  	
  63

  
	
  11.03

  	
   

  	
  No Waiver; Cumulative Remedies

  	
   

  	
  64

  
	
  11.04

  	
   

  	
  Costs and Expenses

  	
   

  	
  64

  
	
  11.05

  	
   

  	
  Indemnity

  	
   

  	
  64

  
	
  11.06

  	
   

  	
  Payments Set Aside

  	
   

  	
  65

  
	
  11.07

  	
   

  	
  Successors and Assigns

  	
   

  	
  65

  
	
  11.08

  	
   

  	
  Assignments, Participations,
  etc.

  	
   

  	
  65

  
	
  11.09

  	
   

  	
  Interest

  	
   

  	
  67

  
	
  11.10

  	
   

  	
  Indemnity and Subrogation

  	
   

  	
  68

  
	
  11.11

  	
   

  	
  Collateral Matters; Derivative Contracts

  	
   

  	
  68

  
	
  11.12

  	
   

  	
  USA Patriot Act Notice

  	
   

  	
  69

  
	
  11.13

  	
   

  	
  Automatic Debits of Fees

  	
   

  	
  69

  
	
  11.14

  	
   

  	
  Notification of Addresses,
  Lending Offices, Etc.

  	
   

  	
  69

  
	
  11.15

  	
   

  	
  Counterparts

  	
   

  	
  69

  
	
  11.16

  	
   

  	
  Severability

  	
   

  	
  69

  
	
  11.17

  	
   

  	
  No Third Parties Benefited

  	
   

  	
  70

  
	
  11.18

  	
   

  	
  Governing Law, Jurisdiction
  and Waiver of Jury Trial

  	
   

  	
  70

  
	
  11.19

  	
   

  	
  ARBITRATION

  	
   

  	
  71

  
	
  11.20

  	
   

  	
  Entire Agreement

  	
   

  	
  72

  
	
  11.21

  	
   

  	
  NO ORAL AGREEMENTS

  	
   

  	
  72

  

 

 iv
 

 

 

	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 2.01

  	
   

  	
  Commitments

  
	
  Schedule 4.01

  	
   

  	
  Security Documents

  
	
  Schedule 6.05

  	
   

  	
  Litigation

  
	
  Schedule 6.07

  	
   

  	
  ERISA Compliance

  
	
  Schedule 6.15

  	
   

  	
  Environmental Matters

  
	
  Schedule 6.19

  	
   

  	
  Subsidiaries

  
	
  Schedule 6.21

  	
   

  	
  Derivative Contracts

  
	
  Schedule 8.01

  	
   

  	
  Liens

  
	
  Schedule 8.05

  	
   

  	
  Indebtedness

  
	
  Schedule 8.08

  	
   

  	
  Contingent Obligations

  
	
  Schedule 11.02

  	
   

  	
  Lending Offices; Addresses for
  Notices

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Notice of Borrowing

  
	
  Exhibit B

  	
   

  	
  Form of Notice of
  Conversion/Continuation

  
	
  Exhibit C

  	
   

  	
  Form of Compliance Certificate

  
	
  Exhibit D

  	
   

  	
  Form of Assignment and
  Acceptance Agreement

  
	
  Exhibit E

  	
   

  	
  Form of Note

  
	
  Exhibit F

  	
   

  	
  Form of Pricing Grid
  Certificate

  
	
  Exhibit G

  	
   

  	
  Form of Continuing Guaranty
  Agreement

  
	
  Exhibit H

  	
   

  	
  Form of Company Security
  Agreement and Pledge

  

 

 v

 

THIS CREDIT
AGREEMENT is dated as of
October 10, 2006, among BREITBURN OPERATING L.P.,
a Delaware limited partnership (the “Company”), ALAMITOS
COMPANY, a California corporation, ALAMITOS
COMPANY LLC, a Delaware limited liability company, BREITBURN ENERGY PARTNERS, L.P., a Delaware limited
partnership, BREITBURN OPERATING GP, LLC, a
Delaware limited liability company, PHOENIX PRODUCTION COMPANY,
a Wyoming corporation, and PREVENTIVE MAINTENANCE
SERVICES, LLC, a Colorado limited liability company (collectively “Guarantors”), each of
the financial institutions from time to time party hereto (individually, a “Lender” and
collectively, the “Lenders”),  WELLS FARGO BANK, NATIONAL
ASSOCIATION, as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the “Administrative Agent”),
as lead arranger for the Lenders (in such capacity, “Lead Arranger”), and
as Issuing Lender (in such capacity, “Issuing Lender”),
CITIBANK, N.A., as syndication agent
for the Lenders (“Syndication
Agent”) and UNION BANK OF CALIFORNIA,
N.A., as documentation agent for the Lenders (“Documentation Agent”).

In consideration of the
representations, warranties, covenants and agreements contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company, Guarantors, Administrative Agent, Issuing
Lender and the Lenders hereby agree as follows:

ARTICLE I.

DEFINITIONS

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

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

“Administrative Agent” has the meaning
specified in the introductory clause hereto.

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

“Affected
Lender” has the meaning specified in Section
3.07.

“Affiliate” means, as to any Person, any
other Person which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. A Person shall be deemed to
control another Person if the controlling Person possesses the power to direct
or cause the direction of the management and policies of the other Person,
whether through the ownership of voting securities, by contract, or otherwise.

 1
 

 

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

“Agreement” means this Credit Agreement.

“Applicable Margin” means, with
respect to Base Rate Loans and LIBOR Loans, the respective margins therefor as determined under the Pricing Grid.

“Assignee” has the meaning specified in Subsection 11.08(a).

“Assignment
and Acceptance” has the meaning specified in Subsection 11.08(a).

“Attorney Costs” means and includes all
reasonable fees and disbursements of any law firm or other external counsel,
the allocated cost of internal legal services and all disbursements of internal
counsel.

“Availability Period” has the meaning
specified in Subsection
2.01(b).

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

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

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

“Base Rate Loan” means a Loan that bears
interest based at the Base Rate plus the Applicable Margin.

“BEC
Credit Agreement” means that certain Credit Agreement of even
date herewith, by and among BreitBurn Energy Company, L.P., a Delaware limited
partnership, its subsidiaries as guarantors, Administrative Agent as
administrative agent and the lenders party thereto.

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

“Borrowing Base” means at the particular
time in question, the amount provided for in Section 2.05 provided, however, in no
event shall the Borrowing Base ever exceed the Maximum Loan Amount.

 2
 

 

“Borrowing
Base Deficiency” means at any time, the Effective Amount exceeds
the Borrowing Base then in effect.

“Borrowing
Base Period” means the
period from the Effective Date to the initial Scheduled Borrowing Base
Determination Date, and thereafter, each six-month period between Scheduled
Borrowing Base Determination Dates.

“Borrowing Date” means any date
on which a Borrowing occurs under Section 2.02.

“BreitBurn Energy
Corporation” means BreitBurn Energy Corporation, a California
corporation and member of the Company.

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

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

“Capital Lease” means, when used with
respect to any Person, any lease in respect of which the obligations of such
Person constitute Capitalized Lease Obligations.

“Capitalized Lease Obligations” means,
when used with respect to any Person, without duplication, all obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations shall have been or should be, in
accordance with GAAP, capitalized on the books of such Person.

“Cash Equivalents” means:  (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof and backed by the
full faith and credit of the United States and having maturities of not more
than twelve (12) months from the date of acquisition; (b) certificates of
deposit, time deposits, eurodollar time deposits, or bankers’ acceptances
having in each case a tenor of not more than twelve (12) months from the date
of acquisition issued by, and demand deposits with, any U.S. commercial bank or
any branch or agency of a non-U.S. commercial bank licensed to conduct business
in the U.S. having combined capital and surplus of not less than $500,000,000,
whose long term securities are rated at least A (or then equivalent grade) by
S&P and A2 (or then equivalent grade) by Moody’s at the time of
acquisition; (c) commercial paper of an issuer rated at least A-1 by S&P or
P-1 by Moody’s at the time of acquisition, and in either case having a tenor of
not more than twelve (12) months; (d) debt securities which are registered
under the Securities Act of 1933, as amended (the “Securities
Act”) (and not “restricted securities”
in the Company’s hands as defined in Rule 144 under the Securities Act), or
adjustable rate preferred stock traded on a national securities exchange and
issued by a corporation duly incorporated under the laws of a state of the
United States, or issued by any state, county or municipality located in the
United States of America, provided, however, that such debt securities are
rated A2 by Moody’s and A or better by S&P at the time of acquisition, and
such debt securities have a maturity not in excess of twelve (12) months from
the date of creation thereof; (e) repurchase agreements with a term of not more
than seven (7) days for underlying securities of the

 3
 

 

types described in clauses (a) and (b) above; and (f)
money market mutual or similar funds having assets in excess of $100,000,000.

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

“Change of Control” means (a) Provident Energy Trust shall cease to
own, directly or indirectly, the majority of the issued and outstanding voting
shares of either General Partner or BreitBurn GP LLC on a fully diluted basis
assuming the conversion and exercise of all outstanding convertible securities
(whether or not such securities are then currently convertible or exercisable);
(b) General Partner shall cease to own, directly or indirectly, all of the
general partner interest (including without limitation, all outstanding
securities convertible to general partner interests) of the Company; or (c)
Parent shall cease to own, directly or indirectly, all of the limited
partnership interest of the Company; or (d) a sale of all or substantially all
of the assets of the Loan Parties taken as a whole to any Person or group of
Persons; or (e) the liquidation or dissolution of Parent or the Company; or (f)
the first day on which a majority of the Board of Directors of either General
Partner or BreitBurn GP LLC are not Continuing Directors. “Continuing Directors”
means any member of the board of directors (or managers, in the case of a
limited liability company) of General Partner or BreitBurn GP LLC, as
applicable, who (A) is a member of such board of directors or managers as of
the date of this Agreement or (B) was nominated for election or elected to such
board of directors or managers with the affirmative vote of two-thirds of the
Continuing Directors who were members of such board of directors or managers at
the time of such nomination or election (not including as board nominees any
directors which the board is obligated to nominate pursuant to shareholders’
agreements, voting trust arrangements or similar arrangements).

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

“Collateral” means all property of any
kind which is subject to a Lien in favor of Administrative Agent or which under
the terms of any Security Document is purported to be subject to such Lien.

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

“Commitment Fee” means the variable fee
as determined by the Pricing Grid payable pursuant to Subsection 2.07(a).

“Company” has the meaning specified in
the introductory paragraph hereto.

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

“Consolidated
Interest Expense” means, with respect to the Loan Parties, for
any fiscal period, the aggregate amount of all costs, fees and expenses paid by
the Loan Parties in such fiscal period which are classified as interest expense
on the consolidated financial statements of the Loan Parties, all as determined
in conformity with GAAP.

 4
 

 

“Consolidated Net Income” means, for any
period, the net income (or net loss) of the Loan Parties for such period
determined in accordance with GAAP; provided, the effect, if any, resulting
from the application of FAS 133 shall be excluded from the calculation of net
income (or net loss.

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

“Continuing
Directors” has the meaning specified in the definition of “Change of Control.”

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

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

“Credit Extension” means and includes the
making of any Loans or issuance of any Letter of Credit (including the
continuation of any existing Letter of Credit) hereunder.

“Current Assets” means, at any time, the current assets
of the Loan Parties at such time, plus,
the Available Borrowing Base at such time, less, for purposes of this definition, any non-cash gains
for any Derivative Contract resulting from the requirements of FAS 133 at such
time.

 5
 

 

“Current Liabilities” means, at any time,
the current liabilities of the Loan Parties at such time, less the sum of (a) current
maturities of the Company’s Obligations to the extent such payments are not
past due and (b) non-cash losses or charges on any Derivative Contract
resulting from the requirements of FAS 133 at such time.

“Default” means any event or circumstance
which, with the giving of notice, the lapse of time, or both, would (if not
cured or otherwise remedied during such time) constitute an Event of Default.

“Default Rate” has the meaning specified
in Subsection
2.06(b)(iii).

“Derivative Contract” means all futures contracts, forward
contracts, swap, cap or collar contracts, option contracts, hedging contracts
or other derivative contracts or similar agreements covering oil and gas
commodities or prices or financial, monetary or interest rate instruments.

“Dispositions” has the meaning specified
in Section 8.02.

“Documentation Agent” has the meaning
specified in the introductory clause hereto.

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

“EBITDA”
means, for any period,
the sum of Consolidated Net Income for the preceding twelve months (or for any
period ending prior to September 30, 2007, the pro forma Consolidated Net
Income for the preceding twelve months) plus, without duplication, the
following expenses or charges to the extent deducted from Consolidated Net
Income in such twelve month period (or pro forma Consolidated Net Income for
any period ending prior to September 30, 2007, as applicable): exploration
expense, interest expense, depletion, depreciation, amortization, unrealized
loss on Derivative Contracts which relate to hedging, loss on sale of assets,
cumulative effect of accounting change, and income taxes minus,
without duplication, the following gains or credits to the extent added to
Consolidated Net Income in such twelve month period (or pro forma Consolidated
Net Income for any period ending prior to September 30, 2007, as applicable):
unrealized gain on Derivative Contracts which relate to hedging, gain on sale
of assets, and cumulative effect of accounting changes. Provided that all
calculations of EBITDA, for any applicable period during which a permitted
acquisition or disposition is consummated, shall be determined on a pro forma
basis (such calculation to be acceptable to, and approved by, Administrative
Agent) as if such acquisition or disposition was consummated on the first day
of such applicable period.

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

“Effective Date” means the date on which
all conditions precedent set forth in Sections 5.01 and 5.02 are satisfied or
waived by Administrative Agent.

“Eligible Assignee” means (a) a
commercial bank organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least $100,000,000;
(b) a commercial bank organized under the laws of any other country which is a
member of the Organization for Economic Cooperation and Development, or a
political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000, provided that such bank is acting
through a branch or agency located in the United States; (c) a Person with a
combined capital and surplus of at least $100,000,000 that is primarily engaged
in the business of commercial banking and that is (i) a Subsidiary of a bank,
(ii) a Subsidiary of a Person of which a bank is a Subsidiary, or (iii) a
Person of which a bank is

 6
 

 

a Subsidiary; (d) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
and having total assets in excess of $100,000,000; and (e) any other Person
approved by the Administrative Agent.

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

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

“Equity” means all shares, options,
warrants, general or limited partnership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, limited
liability company, partnership or equivalent entity whether voting or
nonvoting, including, without limitation, common stock, preferred stock, or any
other “equity security” (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended).

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

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

“ERISA Event” means (a) a Reportable
Event with respect to a Pension Plan; (b) a withdrawal by Loan Party or
any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during
a plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by the Loan Party or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate (other than pursuant to Section 4041(b) of
ERISA), the treatment of a Plan amendment as a termination under Section
4041(c) or 4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or condition
which might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

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

“Exchange Act” means the Securities and
Exchange Act of 1934, and regulations promulgated thereunder.

“FAS
133” means Statement No. 133 of the Financial Accounting
Standards Board to Derivative Contracts.

 7
 

 

“FDIC” means the Federal Deposit
Insurance Corporation, and any Governmental Authority succeeding to any of its
principal functions.

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

“Fee Letter” shall have the meaning
specified in Subsection
2.07(c) hereof.

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

“GAAP” means generally accepted
accounting principles set forth from time to time in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the U.S. accounting profession), which are
applicable to the circumstances as of the date of determination.

“General
Partner” means BreitBurn Operating GP, LLC, a Delaware limited
liability company.

“Governmental Authority” means any nation
or government, any state or other political subdivision thereof, any central
bank (or similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

“Guarantors” means, collectively, the
entities identified in the preamble hereto as Guarantors, together with any
Subsidiary of a Loan Party which is required to execute a Guaranty under Section 7.15.  “Guarantor”
means, individually, any one of the Guarantors.

“Guaranties” means, collectively, each
Continuing Guaranty Agreement, substantially in the form of Exhibit G hereto,
executed by the Guarantors in favor of Administrative Agent, as same may be
amended, supplemented or otherwise modified from time to time. “Guaranty” means, individually, any
one of the Guaranties.

“Guaranty Obligation” has the meaning
specified in the definition of “Contingent Obligation.”

“Highest Lawful Rate” means, as of a
particular date, the maximum nonusurious interest rate that under applicable
federal and Texas law may then be contracted for, charged or received by the
Lenders in connection with the Obligations.

“Hydrocarbon Interests” means leasehold
and other interests in or under oil, gas and other liquid or gaseous
hydrocarbon leases wherever located, mineral fee interests, overriding royalty
and

 8
 

 

royalty interests, net profit interests, production
payment interests relating to oil, gas or other liquid or gaseous hydrocarbons
wherever located including any reserved or residual interest of whatever
nature.

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

“Indemnified Liabilities” has the meaning
specified in Section
11.05.

“Indemnified Person” has the meaning
specified in Section
11.05.

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

“Independent
Engineer” has the meaning specified in Section
6.11.

“Initial Reserve Report” has the meaning
specified in Section
6.11.

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

“Interest Payment Date” (a) as to any
Base Rate Loan, means the last Business Day of each month prior to the
Termination Date, and (b) as to any LIBOR Loan, the last day of each Interest
Period applicable to such Loan, provided, however, that if any
Interest Period for a LIBOR Loan exceeds three months, the date that falls
three months after the beginning of such Interest Period, and the date that
falls three months after each Interest Payment Date thereafter for such
Interest Period, is also an Interest Payment Date.

“Interest Period” means, as to any LIBOR
Loan, the period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or continued
as LIBOR Loan, and ending on the date one, two, three or six months thereafter
as selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation; provided that: 
(a) if any Interest Period would otherwise end on a day that is not a
Business Day, that Interest Period shall be extended to the following Business
Day unless, in the case of a LIBOR Loan, the result of such

 9
 

 

extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall end on the
preceding Business Day; (b) any Interest Period pertaining to an LIBOR Loan
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar month
at the end of such Interest Period; and (c) no Interest Period for any Loan
shall extend beyond the Termination Date.

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

“IPO”
means the initial public offering of the Parent, as more fully described in
the  S-1 Filing.

“IPO
Date” means the date on which the IPO occurs.

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

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

“Issuing Lender” has the meaning
specified in the introductory clause hereto.

“LC Application” means an application or
agreement for a standby Letter of Credit in such form as shall be acceptable to
the Issuing Lender in its sole discretion, and duly executed by the Company
pursuant to Section
2.10(a).

“LC Collateral” means any amounts held by
the Administrative Agent as security for LC Obligations of the Company.

“LC Collateral Account” means a blocked
deposit account held by the Administrative Agent.

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

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

“Lead Arranger” has the meaning specified
in the introductory clause hereto.

“Lenders” has the meaning specified in
the introductory clause hereto.

“Lending Office” means, as to any Lender,
the office or offices of such Lender specified as its “Lending
Office” or “Domestic Lending Office”
or “Offshore Lending Office”, as the case
may be, on Schedule
11.02, or such other office or offices as such Lender may from
time to time notify the Company and the Administrative Agent.

 10
 

 

“Letter of Credit” means any stand-by
letter of credit issued by the Issuing Lender pursuant to this Agreement and
upon an LC Application.

“Letter
of Credit Fee” means the fee specified in Subsection
2.07(b).

“LIBOR” means a per annum rate of
interest (rounded upwards, if necessary, to the nearest 1/100th%) equal to the
rate at which Administrative Agent is offered deposits by major banks in
dollars in the aggregate amount of the relevant Loans and for a period
comparable to the applicable Interest Period in the London interbank market at
approximately 11:00 a.m. (London time), three (3) Business Days prior to the
beginning of the relevant Interest Period. The determination and calculation of
the LIBOR and each component thereof by Administrative Agent shall be
conclusive and binding, absent manifest error.

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

“Lien” means any security interest,
mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit
arrangement, encumbrance, lien (statutory or other) or preferential arrangement
of any kind or nature whatsoever in respect of any property (including those
created by, arising under or evidenced by any conditional sale or other title
retention agreement and the interest of a lessor under a Capital Lease), any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial Code
or any comparable law and any contingent or other agreement to provide any of
the foregoing, but not including (a) the interest of a lessor under a lease on
Oil and Gas Properties and (b) the interest of a lessor under an Operating
Lease.

“Loan” means an extension of credit by a
Lender to the Company under Article II.

“Loan
Documents” means this Agreement, the Notes, each Guaranty, the
Security Documents, each LC Application and Letter of Credit and all other
documents delivered to the Administrative Agent or any Lender in connection
herewith, including without limitation, the Fee Letter and any commitment
letters.

“Loan Parties” means collectively the Company, the
General Partner and each of the Guarantors. “Loan
Party” means individually, any of the Company or a Guarantor.

“Majority Lenders” means, at any time,
the Administrative Agent and the Lenders holding at least fifty percent (50%)
of the sum of the Effective Amount or, if there is no Effective Amount, the
Administrative Agent and the Lenders holding at least fifty percent (50%) of
the sum of the Commitments of all of the Lenders.

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

“Material Adverse Effect” means (a) a
material adverse change in, or a material adverse effect upon, the operations,
business, properties or financial condition of the Loan Parties taken as a
whole, or as to the Company, including without limitation, any material adverse
change in commodity prices or reserve estimates of the Oil and Gas Properties of
the Loan Parties taken as a whole; (b) a material impairment of the ability of
any Loan Party to perform under any material Loan Document and

 11
 

 

to avoid any Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against any Loan
Party of any material Loan Document.

“Matured LC Obligation” means the
aggregate amount of payments theretofore made by the Issuing Lender in respect
to Letters of Credit and not theretofore reimbursed by the Company to the
Issuing Lender or deemed Loans pursuant to Subsection 2.10(d).

“Maximum Loan Amount” means the amount of $400,000,000.00.

“Monthly Status Report” means a status
report prepared monthly by the Company in form, scope and content acceptable to
the Administrative Agent, setting forth as of such month then ended (a)
detailing production from the Oil and Gas Properties, the volumes of Oil and
Gas produced and saved, the volumes of Oil and Gas sold, gross revenue, net
income, related leasehold operating expenses, severance taxes, other taxes,
capital costs and any production imbalances incurred during such period and
(b) information concerning any Derivative Contracts entered into by the
Company or its Subsidiaries, and (c) such additional information with
respect to any of the Oil and Gas Properties as may be reasonably requested by
Administrative Agent.

“Mortgages” means the mortgages from the
Loan Parties, as applicable, in favor of Administrative Agent, for the benefit
of the Lenders described on Schedule 4.01 hereto, and all supplements, assignments,
amendments and restatements thereto (or any agreement in substitution therefor)
as same may be released in whole or in part from time to time which are
executed and delivered to Administrative Agent for benefit of the Lenders pursu­ant
to Article IV
of this Agreement.

“Mortgaged Properties” means such Oil and
Gas Properties upon which the Loan Parties have granted the Administrative
Agent for the benefit of the Lenders a Lien pursuant to the Mortgages.

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

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

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

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

“Obligations” means all advances, debts,
liabilities, obligations, covenants and duties arising under any Loan Document
owing by the Company to any Lender, the Administrative Agent, or any
Indemnified Person, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising, including all net Indebtedness owed to the Lenders or their
Affiliates with respect to Derivative Contracts (except to the extent excluded
under Section 11.11).

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

 12
 

 

“Oil and Gas Liens” means liens reserved
under oil and gas leases, overriding royalty agreements, net profits
agreements, royalty trust agreements, farm-out agreements, division orders,
contracts for the sale, purchase, exchange, transportation, gathering or
processing of oil, gas or other hydrocarbons, unitizations and pooling
designations, declarations, orders and agreements, development agreements,
Operating Agreements, production sales contracts, area of mutual interest
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or geophysical permits or agreements, and other agreements that are
customary in the oil and gas business and are entered into by any Loan Party in
the ordinary course of business, provided in all instances that such Liens are
limited to the assets that are the subject of the relevant agreement.

“Oil and Gas Properties” means
Hydrocarbon Interests now owned by the Loan Parties and contracts executed in
connection there­with and all tenements, hereditaments, appurtenances, and
properties belonging, affixed or incidental to such Hydrocarbon Interests,
including, without limitation, any and all property, real or per­sonal, now
owned by the Loan Parties and situated upon or to be situated upon, and used,
built for use, or useful in connection with the operating, working or
developing of such Hydrocarbon Interests, including, without limitation, any
and all petroleum and/or natural gas wells, build­ings, structures, field
separators, liquid extractors, plant com­pressors, pumps, pumping units, field
gathering systems, tank and tank batteries, fixtures, valves, fittings,
machinery and parts, engines, boilers, liters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, taping, tubing and rods,
surface leases, rights-of-way, easements and servitudes, and all additions,
substitutions, replace­ments for, fixtures and attachments to any and all of
the foregoing owned directly or indirectly by the Loan Parties.

“Operating Agreements” mean those
agreements now or hereafter executed by any Loan Party and other working
interest owners of the Oil and Gas Properties in connection with the operation
of the Oil and Gas Prop­erties.

“Operating Lease” means an operating
lease determined in accordance with GAAP.

“Organization Documents” means (a) for any corporation: the articles
of incorporation, the bylaws, any certificate of determination or instrument
relating to the rights of the shareholders of such corporation, any shareholder
rights agreement, and all applicable resolutions of the board of directors (or
any committee thereof) of such corporation; (b) for any limited liability
company: the articles of organization, the regulations or operating agreement,
certificate of organization and all applicable resolutions of the members of
such company; and (c) for any limited partnership: the limited partnership agreement and all Organization Documents for its general
partner, as any of the foregoing have been amended or supplemented from time to
time.

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

“Parent” means BreitBurn
Energy Partners, L.P., a Delaware limited partnership.

“Participant” has the meaning specified
in Subsection 11.08(d).

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

 13
 

 

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

“Permitted Liens” has the meaning
specified in Section
8.01.

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

“Plan” means an employee benefit plan (as
defined in Section 3(3) of ERISA) which is subject to ERISA, other than a
Multiemployer Plan, which any Loan Party sponsors, maintains, or to which it
makes, is making, or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding five (5) plan years.

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

	
  Effective
  Amount/

  	
   

  	
  Applicable Margin

  	
   

  	
   

  	
   

  	
   

  
	
  Borrowing
  Base

  Amount

  	
   

  	
  LIBOR

  Rate

  	
   

  	
  Base Rate

  	
   

  	
  Commitment

  Fee

  	
   

  	
  Letter of Credit

  Fee

  
	
   

  	
   

  	
  (bps)

  	
   

  	
  (bps)

  	
   

  	
  (bps)

  	
   

  	
  (bps)

  
	
  3 85%

  	
   

  	
  187.50

  	
   

  	
  87.50

  	
   

  	
  50.00

  	
   

  	
  187.50

  
	
  < 85% 3
  66%

  	
   

  	
  175.00

  	
   

  	
  75.00

  	
   

  	
  37.50

  	
   

  	
  175.00

  
	
  < 66% 3
  33%

  	
   

  	
  150.00

  	
   

  	
  50.00

  	
   

  	
  37.50

  	
   

  	
  150.00

  
	
  < 33%

  	
   

  	
  125.00

  	
   

  	
  25.00

  	
   

  	
  30.00

  	
   

  	
  125.00

  

 

The Pricing Grid for any date shall be determined
by reference to the ratio of the Effective Amount and Borrowing Base as of the
last day of the fiscal quarter most recently ended and any change (a) shall
become effective upon the delivery to the Administrative Agent of a Pricing
Grid Certificate of a Responsible Officer of the Company (which certificate
shall be delivered simultaneously with (i) the delivery of each Notice of
Borrowing, any notice required under Section 2.04, Notice of
Conversion/Continuation or a request for issuance of a Letter of Credit and
(ii) any change in the amount of the Borrowing Base), and (b) shall apply (i)
in the case of the Base Rate Loans, to Base Rate Loans outstanding on such
delivery date or made on and after such delivery date and (ii) in the case of
the LIBOR Loans, to LIBOR Loans made, continued or converted on and after such
delivery date. Notwithstanding the foregoing, at any time during which the
Company has failed to deliver the Pricing Grid Certificate when due, the ratio
of Effective Amount to the Borrowing Base shall be deemed, solely for the
purposes of this definition, to be greater than 85% until such time as the
Company shall deliver such certificate.

 14

 

“Pricing Grid Certificate” means a
Pricing Grid Certificate substantially in the form of Exhibit F hereto.

“Principal Business” means the business
of (a) the exploration for, and development, acquisition, production, and
upstream marketing and transportation of Oil and Gas; (b) the business of
participating in the Unrestricted Subsidiary for the processing of Oil and Gas
from the Seal Beach Field, Orange County, California; and (c) the business of
providing services in connection with the production of Oil and Gas.

“Production Sales Contracts” mean those
agreements now or hereafter executed in connection with the sale of Oil and Gas
attributable to the Oil and Gas Properties.

“Property” means any interest in any kind
of property or asset, whether real, personal or mixed, tangible or intangible.

“Pro Rata Share” means, as to any Lender
at any time, the percentage set forth opposite its name on Schedule 2.01 hereto,
as modified by any Assignment and Acceptance.

“Reference Lender” means Wells Fargo
Bank, National Association.

“Regulation U” and “Regulation X” means
Regulation U and Regulation X, respectively, of the FRB from time to time in
effect and shall include any successor or other regulations or official
interpretations of the FRB relating to the subject matter addressed therein.

“Remedial Work” has the meaning assigned
to such term in Section
7.13.

“Replacement
Lender” has the meaning specified in Section
3.07.

“Reportable Event” means, any of the
events set forth in Section 4043(b) of ERISA or the regulations thereunder,
other than any such event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the PBGC.

“Required Lenders” means, at any time,
the Administrative Agent and the Lenders holding at least sixty-six and
two-thirds percent (662⁄3%) of the sum of the Effective Amount or, if there
is no Effective Amount, the Administrative Agent and the Lenders holding at
least sixty-six and two-thirds percent (662⁄3%) of the sum of the
Commitments of all of the Lenders.

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

“Reserve Report” means a report, in form,
scope and content acceptable to the Lenders, covering proved developed and
proved undeveloped Oil and Gas reserves attributable to the Oil and Gas
Properties owned by the Company and its Subsidiaries and setting forth with
respect thereto, (a) the total quantity of proved developed and proved
undeveloped reserves (separately classified as to producing, shut-in, behind
pipe, and undeveloped), (b) the estimated future net revenues and cumulative
estimated future net revenues, (c) the present discounted value of future net
revenues, and (d) such other information and data with respect to such Oil and
Gas Properties as the Administrative Agent may reasonably request.

 15
 

 

“Responsible Officer” means any CEO or
co-CEO, president, chief financial officer or treasurer of a Person that is a
corporate entity.

“S-1
Filing” means the Parent’s certain SEC Form S-1 filing dated May
12, 2006, as same my be amended or supplemented subject to the satisfaction of
the Lenders.

“Scheduled Borrowing Base Determination”
means a redetermination of the Borrowing Base in accordance with Subsection 2.05(a) on each Scheduled
Borrowing Base Determination Date.

“Scheduled Borrowing Base Determination Date” means
December 1 and June 1 of each calendar year, commencing on December 1, 2006.

“SEC” means the Securities and Exchange
Commission, or any Governmental Authority succeeding to any of its principal
functions.

“Security Agreements” means collectively,
each agreement in substantially the form of Exhibit H executed by a Loan Party in
favor of Administrative Agent for the benefit of the Lenders.

“Security Documents” means the Mortgages,
the Security Agreements and related financing statements as same may be amended
from time to time and any and all other instruments now or hereafter executed
in connection with or as security for the payment of the Indebtedness.

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

“Special Borrowing Base Determination”
has the meaning specified in Subsection 2.05(b).

“Subsidiary” of a Person means any
corporation, limited liability company, association, partnership, joint venture
or other business entity of which more than 50% of the voting stock or other
equity interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof, but such term shall not
include an Unrestricted Subsidiary. Unless the context otherwise clearly
requires, references herein to a “Subsidiary” refer to a subsidiary of the
Company or Parent as applicable.

“Surety Instruments” means all letters of
credit (including standby), banker’s acceptances, bank guaranties, shipside
bonds, surety bonds and similar instruments.

“Syndication Agent” has the meaning
specified in the introductory clause hereto.

“Taxes” means any and all present or
future taxes, levies, imposts, deductions, charges or withholdings thereto
imposed upon or related to the transactions under this Agreement, and all
liabilities

 16
 

 

with respect to this transaction, excluding, in the case
of each Lender and the Administrative Agent, (a) such taxes (including income
taxes or franchise taxes) as are imposed on or measured by each Lender’s net
income, gross receipts or capital by the jurisdiction (or any political
subdivision thereof) under the laws of any applicable jurisdiction, (b) such
withholding taxes as are in effect and would apply to a payment to such Lender
or Administrative Agent at the time such person becomes a party to this
Agreement, for the avoidance of doubt whether as an original Lender or as an
Assignee (or designated a new Lending Office), and (c) such taxes as would not
have been imposed but for the failure of such Lender to comply with the
certification requirements described in Section 10.12 hereof.

“Termination Date” means the earlier of
(a) October 10, 2010, or (b) the date on which the Lenders’ Commitments
terminate in accordance with the provisions of this Agreement.

“Total Indebtedness” means, at any date,
all Indebtedness of the Loan Parties, on a consolidated basis, excluding;
however, all net obligations with respect to Derivative Contracts entered into
in accordance with Section 8.10.

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

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

“Unrestricted
Subsidiary” means Seal Beach Gas Processing Joint Venture, a
California joint venture between Alamitos Company, a California corporation and
Hellman Properties, a California partnership.

“Wells Fargo Bank” means Wells Fargo
Bank, National Association, and any Lender successor in interest thereto.

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

 17
 

 

parties, and are
the products of all parties. 
Accordingly, they shall not be construed against the Lenders or the
Administrative Agent merely because of the Administrative Agent’s or Lenders’
involvement in their preparation.

1.03         Accounting Principles. 
Unless the context otherwise clearly requires, all accounting terms not
expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP,
consistently applied.  References to “consolidated,” when it precedes any accounting term, means
such term as it would apply to the Loan Parties on a consolidated basis,
determined in accordance with GAAP.

ARTICLE II.

THE CREDIT

2.01         Amounts and Terms of the Commitments.

(a)           Each Lender severally agrees, on the terms and
conditions set forth herein, to make loans to the Company (each such loan, a “Loan”) from time to
time on any Business Day during the period from the Effective Date to the
Termination Date, so long as (a) with respect to any Lender, such Loans then
requested to be made by such Lender do not exceed such Lender’s Pro Rata Share
of the aggregate amount of all Loans then requested from the Lenders, and (b)
the aggregate amount of all the Lenders’ Loans and the LC Obligation outstanding
at any time does not exceed the Borrowing Base in effect at such time. The
obligation of the Company to repay to each Lender the aggregate amount of all
Loans made by such Lender, together with interest accruing in connection
therewith, shall be evidenced by a promissory note from the Company payable to
the order of such Lender (herein called such Lender’s “Note” and
collectively, the “Notes”).  The amount of principal owing on any Lender’s
Note at any given time shall be the aggregate amount of all Loans theretofore
made by such Lender minus all payments of principal theretofore received
by such Lender on such Note.  Interest on
each Note shall accrue and be due and payable as provided herein and
therein.  Subject to the terms and
conditions hereof, until the Termination Date, Company may borrow, repay, and
reborrow hereunder.

(b)           Subject to the terms and conditions of Section 2.10 below
and relying upon the representations and warranties herein set forth, the
Issuing Lender for the account of the Lenders agrees to issue Letters of Credit
as support for Derivative Contracts covering Oil and Gas commodities and other
purposes approved by the Administrative Agent upon the request of the Company
at any time and from time to time on and after the Effective Date and up to,
but excluding, the Termination Date (the “Availability Period”). No Letter of Credit
will be issued in a face amount which, after giving effect to the issuance of
such Letter of Credit, would cause either the LC Obligation to exceed $5,000,000
or the Effective Amount to exceed the Borrowing Base then in effect. If any
Letter of Credit has been drawn upon and the amount so drawn has not been
reimbursed to the Issuing Lender, the Commitment of each Lender shall be deemed
to be utilized for all purposes hereof in an amount equal to such Lender’s Pro
Rata Share of the LC Obligations.

2.02         Procedure for Borrowings.

(a)           Each Borrowing of Loans shall be made upon the Company’s
irrevocable written notice delivered to the Administrative Agent in the form of
a Notice of Borrowing duly completed; which notice must be received by the
Administrative Agent prior to 10:00 a.m. (San Francisco, California time) (i)
three (3) Business Days prior to the requested Borrowing Date, in the case of
LIBOR Loans; and (ii) one (1) Business Day prior to the requested Borrowing
Date, in the case of Base Rate Loans.

 18
 

 

(b)           Each Notice of Borrowing shall specify (i) the amount of
the Borrowing, which shall be in an aggregate minimum amount (A) for Base Rate
Loans equal to the lesser of (y) $500,000 or any multiple integrals of $100,000 in excess thereof or (z) the unadvanced portion of the
Available Borrowing Base and (B) for LIBOR Loans $3,000,000 or any multiple
integrals of $1,000,000 in excess thereof (if the Available Borrowing Base as
of such Borrowing Date will be less than $3,000,000, then the Company may not
request a LIBOR Loan); (ii) the requested Borrowing Date, which shall be a
Business Day; (iii) the Interest Rate Type of Loans comprising the Borrowing;
and (iv) for LIBOR Loans the duration of the Interest Period applicable to such
Loans.  If the Notice of Borrowing fails
to specify the duration of the Interest Period for any Borrowing comprised of
LIBOR Loans, such Interest Period shall be three months.

(c)           The number of tranches outstanding of Base Rate Loans
and LIBOR Loans, whether under a Borrowing, conversion or continuation, shall
not exceed five (5) at any one time.

(d)           The Administrative Agent will promptly notify each
Lender of its receipt of any Notice of Borrowing and of the amount of such
Lender’s Pro Rata Share of that Borrowing.

(e)           Provided the applicable conditions in Article V are met,
each Lender will make the amount of its Pro Rata Share of each Borrowing
available to the Administrative Agent for the account of the Company at the
Administrative Agent’s Payment Office by 9:00 a.m. (San Francisco,
California time) on the Borrowing Date requested by the Company in funds
immediately available to the Administrative Agent.  The proceeds of all such Loans will then be
made available to the Company by the Administrative Agent to the Company’s
operating account with the Administrative Agent or by wire transfer in
accordance with written instructions provided to the Administrative Agent by
the Company of like funds as received by the Administrative Agent.

2.03         Conversion and Continuation Elections.

(a)           During the period from the Effective Date to the
Termination Date, the Company may, upon irrevocable written notice to the
Administrative Agent in accordance with Subsection 2.03(b):  (i) elect, as of any Business Day, in the
case of Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of LIBOR Loans, to convert any such Loans into Loans of any
other Interest Rate Type; or (ii) elect as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods expiring on such
day; provided, that if at any time a LIBOR Loan in respect of any
Borrowing is reduced, by payment, prepayment, or conversion of part thereof to
less than $3,000,000, such LIBOR Loan shall automatically convert into a Base
Rate Loan.

(b)           The Company shall deliver a Notice of
Conversion/Continuation to be received by the Administrative Agent not later
than 10:00 a.m. (San Francisco, California time) at least (i) three (3)
Business Days in advance of the Conversion/Continuation Date, if the Loans are
to be converted into or continued as LIBOR Loans; and (ii) one (1) Business Day
in advance of the Conversion/Continuation Date, if the Loans are to be
converted into Base Rate Loans, specifying: (A) the proposed
Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted
or continued; (C) the Interest Rate Type of Loans resulting from the proposed
conversion or continuation; and (D) other than in the case of conversions into
Base Rate Loans, the duration of the requested Interest Period.

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

 19
 

 

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

2.04         Optional Prepayments. 
Subject to Section
3.04, the Company may, at any time or from time to time,

(a)           prepay Base Rate Loans, without premium or penalty, upon
irrevocable notice to the Administrative Agent of not less than one (1)
Business Day, ratably as to each Lender, in whole or in part, in aggregate minimum
principal amounts of $1,000,000 or multiple integrals thereof (unless the
outstanding principal amount of all Base Rate Loans is less than $1,000,000,
then such prepayments shall be equal to such outstanding principal amount) and

(b)           prepay LIBOR Loans, without premium or penalty (but
subject to Section 3.04)
upon irrevocable notice to the Administrative Agent not less than three (3) Business Days, ratably as to each Lender, prepay Loans, in
whole or in part, in aggregate minimum principal amounts of $1,000,000 or
multiple integrals thereof plus all interest and expenses then
outstanding.  Such notice of prepayment
shall specify the date and amount of such prepayment and the Interest Rate
Type(s) of Loans to be prepaid.  The
Administrative Agent will promptly notify each Lender of its receipt of any
such notice, and of such Lender’s Pro Rata Share of such prepayment.  The payment amount specified in such notice
shall be due and payable on the date specified therein, together with accrued
interest to each such date on the amount prepaid and any amounts required
pursuant to Section 3.04.

2.05         Borrowing Base Determinations,
Mandatory Prepayments of Loans.

(a)           Scheduled
Borrowing Base Determinations.   At all times prior
to the Termination Date the Effective Amount shall not exceed the Borrowing
Base then in effect.  From and after the
Effective Date, the initial Borrowing Base hereunder shall be $90,000,000.00,
until redetermined pursuant to the terms of this Section 2.05.  Upon notice to the Company, the Borrowing
Base shall be redetermined for each Borrowing Base Period on each Scheduled
Borrowing Base Determination Date, and each such redetermination shall be
effective as of the date set forth in such notice of redetermination.  The Borrowing Base shall be determined based
upon the loan collateral value assigned to the Oil and Gas Properties owned by
the Company and its Subsidiaries and such other credit factors (including
without limitation the assets, liabilities, cash flow, business, properties,
prospects, management and ownership of the Loan Parties) which the Lenders deem
significant.  The Lenders’ determination
of the Borrowing Base shall be in their sole discretion and shall not be
subject to review or challenge under Sections 11.18 and 11.19 hereof.  Upon each redetermination of the Borrowing
Base, the Administrative Agent shall
recommend to the Lenders a new Borrowing Base and the Lenders in accordance
with their customary policies and procedures for extending credit to Oil and
Gas reserve-based customers shall (by unanimous agreement in the case of
Borrowing Base increases and by agreement of the Required Lenders in the case
of Borrowing Base decreases or affirmations) establish the redetermined
Borrowing Base.  If the Company does not
furnish the Reserve Reports or all such other information and data by the date
required, the Lenders may nonetheless determine a new Borrowing Base.  It is expressly understood that the Lenders
shall have no obligation to determine the Borrowing Base at any particular amount,
either in relation to the Maximum Loan Amount or otherwise.

(b)           Special
Borrowing Base Determinations.  In addition to
Scheduled Borrowing Base Determinations pursuant to Subsection 2.05(a),
the Company and the Lenders may each request one

 20
 

 

(1) additional
redetermination of the Borrowing Base during each Borrowing Base Period (“Special Borrowing Base Determination”).
In the event the Company requests a Special Borrowing Base Determination
pursuant to this Subsection
2.05(b), the Company shall deliver written notice of such
request to the Lenders which shall include: (i) Reserve Report(s) prepared as
of a date not more than thirty (30) calendar days prior to the date of such
request, for the benefit of the Lenders, and (ii) such other information as the
Lenders shall request prepared as of a date not more than thirty (30)
calendar  days prior to the date of such
request.  Likewise, in the event the
Lenders exercise their option for a Special Borrowing Base Determination, the Administrative Agent shall give the
Company notice of the redetermined Borrowing Base.

(c)           Mandatory Prepayment of Loans.  If on any date
a Borrowing Base Deficiency shall exist at the time of a Borrowing Base
redetermination, then the Company shall, within thirty (30) days notice from
Administrative Agent to the Company, exercise any one or combination of the
following:  (i) make a mandatory
principal prepayment in an amount equal to the amount of the Borrowing Base
Deficiency, after giving effect to any action taken under (ii) hereof; or
(ii) pledge, or cause its Subsidiaries to pledge, additional unencumbered
collateral of sufficient value and character (as determined by the Lenders in
their sole discretion) that when added to the existing Collateral shall cause
the Borrowing Base to equal or exceed the Effective Amount, after giving effect
to any action taken under (i) hereof.

2.06         Repayment.

(a)           Principal.  The Company shall repay to the
Administrative Agent (for the Lenders in their respective Pro Rata Shares) the
Effective Amount outstanding on the Termination Date on which date all
principal amounts outstanding, plus all accrued but unpaid interest and
outstanding expenses hereunder or under the Loan Documents, if not sooner paid,
shall be due and payable in full.

(b)           Interest.

(i)          Each Loan shall bear interest on the aggregate
outstanding principal amount thereof from the applicable Borrowing Date or date
of conversion or continuation pursuant to Section 2.03, as the case may be, at a rate
per annum equal to the lesser of (A) the LIBOR or the Base Rate, as the case
may be, plus the Applicable Margin, or (B) the Highest Lawful Rate.

(ii)         Interest on each Loan shall be paid in arrears on each
Interest Payment Date.  Interest shall
also be paid on the date of any prepayment of Loans under Subsection 2.04(b) or
2.05(c)
(except in the case of Base Rate Loans) for the portion of the Loans so prepaid
and upon payment (including prepayment) in full thereof and, during the
existence of any Event of Default, interest shall be paid on demand of the
Administrative Agent.

(iii)        Notwithstanding Subsection 2.06(b)(i), while any Event of
Default exists, the Company shall pay interest (after, as well as before, entry
of judgment thereon, to the extent permitted by law) on the principal amount of
all outstanding Loans, at a rate per annum equal to the lesser of (A) the
Highest Lawful Rate and (B) the Base Rate plus three percent (3%) (the “Default Rate”).

2.07         Fees.

(a)           Commitment Fee. The Company shall pay to the Administrative Agent, for the account of the Lenders, an aggregate
commitment fee calculated on the average daily amount of the

 21
 

 

Available
Borrowing Base at a per annum rate equal to the amount set forth on the Pricing
Grid.  Such commitment fee shall accrue
from the Effective Date to the Termination Date and shall be due and payable
quarterly in arrears on the first Business Day of the first month of each
quarter commencing on October 1, 2006, through the Termination Date, with the
final payment to be made on the Termination Date; provided that, in
connection with any reduction or termination of Commitments, the accrued
commitment fee calculated for the period ending on such date shall also be paid
on the date of such reduction or termination, with the following quarterly
payment being calculated on the basis of the period from such reduction or
termination date to the following quarterly payment date. The commitment fee
provided in this subsection shall accrue at all times after the Effective Date
up to the Termination Date, including at any time during which one or more
conditions in Section
5.02 are not met.

(b)           Letter of Credit Fee. The Company agrees to pay (i) to Issuing Lender (for the ratable
account of the Lenders in their respective Pro Rata Shares), a fee for each
Letter of Credit, to be paid quarterly in arrears following the Issuance of
such Letter of Credit (including the initial Issuance and any renewal,
extension or increase in the amount thereof) in the amount equal to the greater
of (A) $500.00 and (B) the product equal to the Letter of Credit rate set forth
on the Pricing Grid multiplied by the undrawn amount available under
such Letter of Credit (such fee shall be deemed to be fully earned and owing
upon the Issuance of such Letter of Credit, and no refund shall be due in the event
such Letter of Credit is terminated prior to its expiry date), and (ii)
to the Issuing Lender for its account a fee for the issuance of each Letter of
Credit (including the initial Issuance and
any renewal, extension or increase in the amount thereof), at the
Issuance of such Letter of Credit, in an amount equal to the greater of (A)
$500.00 and (B) one-eighth of one percent (0.125%) multiplied by the
aggregate amount available under each Letter of Credit (such fees shall be
prorated for any period less than a full year but shall not be refunded in the
event any such Letter of Credit is terminated prior to its expiry date) and
(iii) Issuing Lender’s usual and customary fees for amendment to transfer of or
negotiation of the terms of each Letter of Credit.  The Administrative
Agent shall pay to each Lender its Pro Rata Share of the Letter of Credit Fee
paid pursuant to Subsection
2.07(b)(i). The Administrative
Agent shall pay to the Issuing Lender the Letter of Credit fees paid pursuant
to Subsection 2.07(b)(ii)
and (iii).

(c)           Agency
Fees.  The Company shall
pay fees to the Administrative Agent
for the Administrative Agent’s own
account, as required by that certain letter agreement (“Fee Letter”) between
the Company and the Administrative Agent dated as of June 12, 2006, relating
hereto.

2.08         Computation of Fees and Interest.

(a)           All
computations of interest for Base Rate Loans shall be made on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed. All other
computations of fees and interest shall be made on the basis of a 360-day year
and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year). Interest and fees shall accrue during
each period during which interest or such fees are computed from the first day
thereof to the last day thereof.

(b)           Each
determination of an interest rate by the Administrative
Agent shall be conclusive and binding on the Company and the Lenders in the
absence of manifest error.

2.09         Payments by the Company; Borrowings Pro
Rata.

(a)           All payments to be made by the Company shall be made
without set-off, recoupment or counterclaim.  All payments by the Company shall be made in
immediately available funds to the Administrative Agent by credit to the Company’s
operating account at the Administrative Agent’s

 22
 

 

Payment Office for the account of the Administrative Agent or the Lender
to whom such payment is owed, and shall be made in dollars and in immediately
available funds, no later than 10:00 a.m. (San Francisco,
California time) on the date specified herein. 
Except to the extent otherwise provided herein, (i) each payment by
the Company of fees shall be made pro rata in accordance with their respective
Pro Rata Shares, (ii) each payment of principal of Loans shall be made for
the account of the Lenders pro rata in accordance with their respective
outstanding principal amount of Loans, and (iii) each payment of interest
on Loans shall be made for the account of the Lenders pro rata in accordance with
their respective shares of the aggregate amount of interest due and payable to
the Lenders.  Notwithstanding the
foregoing, to the extent money is received by the Administrative Agent pursuant
to the exercise of remedies under the Security Documents such money shall be
applied to the pro rata payment of obligations secured by such Security
Document.

(b)           The Administrative Agent will promptly distribute to
each Lender its applicable share of such payment in like funds as
received.  Any payment received by the Administrative
Agent later than 10:00 a.m. (San
Francisco, California time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.  When the Administrative Agent
collects or receives money on account of the Obligations or otherwise pursuant
to the Security Documents if such money is insufficient to pay all such
Obligations, such money shall be applied first to any reimbursements due
Administrative Agent under Section
11.05 or 11.06.

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

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

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

2.10         Issuing the Letters of Credit.

(a)           Subject
to the terms and conditions set forth herein, the Company may request the
Issuing Lender to issue Letters of Credit for its own account or for any of its
Subsidiaries, in a form reasonably acceptable to the Administrative Agent and
the Issuing Lender, at any time and from time to time during the Availability
Period; provided that the Company may not request the issuance,
amendment, renewal or extension of Letters of Credit hereunder if the Effective
Amount exceeds the Borrowing Base at such time or would exceed the Borrowing
Base as a result thereof.

(b)           In order to effect the issuance of a Letter of Credit,
the Company shall submit a Notice of Borrowing and a LC Application in writing
by telecopy to the Administrative Agent (who shall

 23
 

 

promptly notify the Issuing Lender) not later than 1:00 p.m., Houston,
Texas time, three (3) Business Days before the requested date of issuance of
such Letter of Credit. Each such Notice of Borrowing and LC Application shall
be (i) signed by the Company, (ii) specify the Business Day on which such
Letter of Credit is to be issued, (iii) specify the purpose for the requested
Letter of Credit, (iv) specify the availability for Letters of Credit under (A)
the Borrowing Base and (B) the $5,000,000 aggregate LC Obligation limitation,
as of the date of issuance of such Letter of Credit, and (v) specify the expiry
date thereof, which shall not be later than the earlier of (A) twelve (12)
months from the date of issuance of such Letter of Credit and (B) seven (7)
Business Days prior to the Termination Date.

(c)           Upon satisfaction of the applicable terms and conditions
set forth in Article V,
the Issuing Lender shall issue such Letter of Credit to the specified
beneficiary not later than the close of business, Houston, Texas time, on the
date so specified. The Administrative Agent shall provide the Company and each
Lender with a copy of each Letter of Credit so issued.  Each such Letter of Credit shall (i) provide
for the payment of drafts, presented for honor thereunder by the beneficiary in
accordance with the terms thereon, at sight when accompanied by the documents
described therein and (ii) unless otherwise expressly agreed by the Issuing
Lender and the Company at the time such Letter of Credit is issued, be subject
to the rules of the “International Standby
Practices 1998” or such later version as may be published by the
Institute of International Banking Law and Practice (the “ISP
1998”), or any successor entity, and shall, as to matters not
governed by the ISP 1998, be governed by, and construed and interpreted in
accordance with, the laws of the State of Texas.

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

(e)           Upon the presentment of any draft for honor under any
Letter of Credit by the beneficiary thereof which the Issuing Lender determines
is in compliance with the conditions for payment thereunder, the Issuing Lender
shall promptly notify the Company, the Administrative Agent and each Lender of
the intended date of honor of such draft and the Company hereby promises and
agrees, at the Company’s option, to either (i) pay to the Administrative Agent
for the account of the Issuing Lender, by 2:00 p.m., Houston, Texas time, on
the date payment is due as specified in such notice, the full amount of such
draft in immediately available funds or (ii) request a Loan pursuant to the
provisions of Subsection
2.01(a) and
Section 2.02 of this Agreement in the full amount of such draft,
which request shall specify that the Borrowing Date is to be the date payment
is due under the Letter of Credit as specified in the Issuing Lender’s
notice.  If the Company fails timely to
make such payment because a Loan cannot be made pursuant to Subsection 2.01(a)
and/or Section 5.02,
each Lender shall, notwithstanding any other provision of this Agreement
(including the occurrence and continuance of a Default or an Event of Default),
make available to the Administrative Agent for the benefit of the Issuing
Lender an amount equal to its Pro Rata Share of the presented draft on the day
the Issuing Lender is required to honor such draft.  If such amount is not in fact made available
to the Administrative Agent by such Lender on such date, such Lender shall pay
to the Administrative Agent for the account of the Issuing Lender, on demand
made by the Issuing Lender, in addition to such amount, interest thereon at the
Federal Funds Rate for the first two days following demand and thereafter until
paid at the Base Rate.  Upon receipt by
the Administrative Agent from the Lenders of the full amount of such draft,
notwithstanding any other provision of this Agreement (including the occurrence
and continuance of a Default or an Event of

 24
 

 

Default) the full amount of such draft shall automatically and without
any action by the Company, be deemed to have been a Base Rate Loan as of the
date of payment of such draft.  Nothing
in this Subsection
2.05(d) or elsewhere in this Agreement shall diminish the
Company’s obligation under this Agreement to provide the funds for the payment
of, or on demand to reimburse the Issuing Lender for payment of, any draft
presented to, and duly honored by, the Issuing Lender under any Letter of
Credit, and the automatic funding of a Loan as in this paragraph provided shall
not constitute a cure or waiver of the Event of Default for failure to provide
timely such funds as in this paragraph agreed.

(f)            In order to induce the issuance of Letters of Credit by
the Issuing Lender and the purchase of participations therein by the other
Lenders, the Company agrees with Administrative Agent, Issuing Lender and the
other Lenders that neither Administrative Agent nor any Lender (including
Issuing Lender) shall be responsible or liable (except as provided in the
following sentence) for amounts paid by Issuing Lender, as provided in Subsection 2.10(e), on account of
drafts so honored under the Letters of Credit, and the Company’s unconditional
obligation to reimburse the Issuing Lender through the Administrative Agent for
such amounts shall not be affected by, any circumstance, act or omission
whatsoever (whether or not known to the Administrative Agent or any Lender
(including the Issuing Lender) other than a circumstance, act or omission
resulting from the gross negligence or willful misconduct of the Administrative
Agent or any Lender, including the Issuing Lender. The Company agrees that any
action taken or omitted to be taken by the Administrative Agent or any Lender
(including the Issuing Lender) under or in connection with any Letter of Credit
or any related draft, document or Property shall be binding on the Company and
shall not put the Administrative Agent or any Lender (including the Issuing
Lender) under any resulting liability to the Company, unless such action or
omission is the result of the gross negligence or willful misconduct of the
Administrative Agent or any such Lender (including the Issuing Lender).  The Company hereby waives presentment for
payment (except the presentment required by the terms of any Letter of Credit)
and notice of dishonor, protest and notice of protest with respect to drafts
honored under the Letters of Credit.  The
Issuing Lender agrees promptly to notify the Company whenever a draft is
presented under any Letter of Credit, but failure to so notify the Company
shall not in any way affect the Company’s obligations hereunder.  Subject to Section 3.07, if while any Letter of
Credit is outstanding, any law, executive order or regulation is enforced, adopted
or interpreted by any public body, governmental agency or court of competent
jurisdiction so as to affect any of the Company’s obligations or the
compensation to any Lender in respect of the Letters of Credit or the cost to
such Lender of establishing and/or maintaining the Letters of Credit (or any
participation therein), such Lender shall promptly notify the Company thereof
in writing and within ten (10) Business Days after receipt by the Company of
such Lender’s request (through the Administrative Agent) for reimbursement or
indemnification or within thirty (30) days after receipt of a notice in respect
of Taxes or Other Taxes, the Company shall reimburse or indemnify such Lender,
as the case may be, with respect thereto so that such Lender shall be in the
same position as if there had been no such enforcement, adoption or
interpretation, unless the Company notifies the Administrative Agent of its
good faith contest to, and dispute of, the requested amount.  The foregoing agreement of the Company to
reimburse or indemnify the Lenders shall apply in (but shall not be limited to)
the following situations:  an imposition
of or change in reserve, capital maintenance or other similar requirements or
in excise or similar taxes or monetary restraints, except a change in franchise
taxes imposed on such Lender or in tax on the net income of such Lender.

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

 25
 

 

(h)           If the Obligations, or any part thereof, are declared or
otherwise become immediately due and payable pursuant to Article IX of this
Agreement (for the purposes of this paragraph, the “Matured Obligations”), then all LC
Obligations shall become immediately due and payable without regard for actual drawings
or payments on the Letters of Credit, and the Company shall be obligated to pay
to the Administrative Agent immediately an amount equal to the LC
Obligations.  All amounts made due and
payable by the Company under this Subsection 2.10(h) may be applied as the
Issuing Lender and the Lenders elect to any of the various LC Obligations; provided,
however, that such amounts applied by the Issuing Lender and the Lenders
to the LC Obligations shall be (i) first applied to the Matured LC Obligations,
and (ii) second held by the Administrative Agent for the benefit of the Issuing
Lender and the Lenders as LC Collateral in the LC Collateral Account until all
remaining Matured Obligations have been satisfied.  This Subsection 2.10(h) shall not limit or impair any
rights which the Administrative Agent, the Issuing Lender or any of the Lenders
may have under any other document or agreement relating to any Letter of Credit
or LC Obligation, including without limitation, any LC Application. The Company
hereby grants a security interest in and lien on the LC Collateral Account to
the Administrative Agent for and on behalf of the Lenders as security for the
Obligations.  The Company agrees to
execute and deliver from time to time such documentation as the Administrative
Agent may reasonably request to further assure such security interest.

2.11         Payments by
the Lenders to the Administrative Agent.

(a)           Unless the Administrative Agent receives notice from a
Lender on or prior to the Effective Date or, with respect to any Borrowing
after the Effective Date, at least one (1) Business Day prior to the date of
such Borrowing, that such Lender will not make available as and when required
hereunder to the Administrative Agent for the account of the Company the amount
of that Lender’s Pro Rata Share of the Borrowing, the Administrative Agent may
assume that each Lender has made such amount available to the Administrative
Agent in immediately available funds on the Borrowing Date and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, make available to the Company on such date a corresponding
amount.  If and to the extent any Lender
shall not have made its full amount available to the Administrative Agent in
immediately available funds and the Administrative Agent in such circumstances
has made available to the Company such amount, that Lender shall on the
Business Day following such Borrowing Date make such amount available to the
Administrative Agent, together with interest at the Federal Funds Rate for the
first two days during such period and thereafter at the Base Rate.  A notice of the Administrative Agent
submitted to any Lender with respect to amounts owing under this Subsection 2.11(a)
shall be conclusive, absent manifest error. 
If such amount is so made available, such payment to the Administrative
Agent shall constitute such Lender’s Loan on the date of Borrowing for all
purposes of this Agreement.  If such
amount is not made available to the Administrative Agent on the Business Day
following the Borrowing Date, the Administrative Agent will notify the Company
of such failure to fund and, upon demand by the Administrative Agent, the
Company shall pay such amount to the Administrative Agent for the
Administrative Agent’s account, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such Borrowing.

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

2.12         Sharing of
Payments, Etc.  If any Lender shall obtain on
account of the Obligations made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or

 26
 

 

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

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01         Taxes.

(a)           Any and all payments by the Company to each Lender or
the Administrative Agent under this Agreement and any other Loan Document shall
be made free and clear of, and without deduction or withholding for any Taxes.
In addition, the Company shall pay all Other Taxes.

(b)           The Company agrees to indemnify and hold harmless each
Lender and the Administrative Agent for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section) paid by the Lender or the Administrative Agent and
any liability (including penalties, interest, additions to tax and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. 
Payment under this indemnification shall be made within thirty (30) days
after the date the Lender or the Administrative Agent makes written demand
therefor.

(c)           If the Company shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Agent, then: (i) the sum payable
shall be increased as necessary so that after making all required deductions
and withholdings (including deductions and withholdings applicable to
additional sums payable under this Section) such 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 or withholdings been made; (ii) the Company shall make
such deductions and withholdings; and (iii) the Company shall pay the full
amount deducted or withheld to the relevant taxing authority or other authority
in accordance with applicable law.

(d)           Upon request of the Administrative Agent, the Company
shall furnish the Administrative Agent the original or a certified copy of a
receipt evidencing payment by the Company of Taxes or Other Taxes under Subsection 3.01(c),
or other evidence of payment satisfactory to the Administrative Agent.

 27
 

 

(e)           If the Company is required to pay additional amounts to
any Lender or the Administrative Agent pursuant to this Section 3.01, then
upon written request of the Company such Lender shall use reasonable efforts
(consistent with legal and regulatory restrictions) to change the jurisdiction
of its Lending Office and take such other steps, in each case, so as to
eliminate any such additional payment by the Company which may thereafter
accrue, if such change or step, as applicable, in the judgment of such Lender
is not otherwise disadvantageous to such Lender.

(f)            If
the Company pays any additional amounts under this Section
3.01 to a Lender and such Lender determines that it has actually
received or realized in connection therewith any refund or reduction of, or
credit against, its tax liability in or with respect to the taxable year in
which the additional amount is paid (a “Tax Benefit”), such Lender shall pay to the
Company an amount that such Lender shall determine is equal to the net benefit
after tax, which was obtained by such Lender in such year as a consequences of
such Tax Benefit.  If the Company
determines in good faith that a reasonable basis exists for contesting any
Taxes or Other Taxes with respect to which the Company has paid any additional
amounts under this Section 3.01 or for
which  indemnification has been demanded
hereunder, the relevant Lender or Administrative Agent, as applicable, may, in
its discretion, not to be unreasonably withheld, cooperate with the Company in
challenging such Taxes or Other Taxes at the Company’s expense if so requested
by the Company in writing.

3.02         Illegality.

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

(b)           If a Lender determines that it is unlawful to maintain
any LIBOR Loan, the Company shall, upon its receipt of notice of such fact and
demand from such Lender (with a copy to the Administrative Agent), convert such
LIBOR Loans of that Lender then outstanding, together with interest accrued thereon
and amounts required under Section
3.04 into a Base Rate Loan without regard to conditions
precedent described in Subsection
5.02(b), either on the last day of the Interest Period thereof,
if the Lender may lawfully continue to maintain such LIBOR Loans to such day,
or immediately, if the Lender may not lawfully continue to maintain such LIBOR
Loan.  If the Company is required to so
prepay any LIBOR Loan, then concurrently with such prepayment, the Company shall
borrow from the affected Lender, in the amount of such repayment, a Base Rate
Loan.

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

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

 28

 

3.03         Increased Costs and Reduction of Return.

(a)           If any Lender determines, after the Effective Date,
that, due to either (i) the introduction of or any change (other than any
change by way of imposition of or increase in reserve requirements included in
the calculation of the LIBOR) in or in the interpretation of any law or
regulation or (ii) the compliance by that Lender 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 such
Lender of agreeing to make or making, funding or maintaining any LIBOR Loans, (except
for any such increased cost resulting from taxes of any kind, including Taxes
and Other Taxes, as to which Section 3.01 shall govern) then the Company shall be liable for, and shall from time to time, upon
demand (with a copy of such demand to be sent to the Administrative Agent), pay
to the Administrative Agent for the account of such Lender, additional amounts
as are sufficient to compensate such Lender for such increased costs.

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

3.04         Funding Losses. 
The Company shall reimburse each Lender and hold each Lender harmless
from any loss or expense excluding consequential losses which the Lender may
sustain or incur as a consequence of: (a) the failure of the Company to make on
a timely basis any payment of principal of any LIBOR Loan; (b) the failure of
the Company to borrow, continue or convert a Loan after the Company has given
(or is deemed to have given) a Notice of Borrowing or a Notice of
Conversion/Continuation (including by reason of the failure to satisfy any condition
precedent thereto); (c) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.04; (d) the prepayment (including
pursuant to Section 2.05
or 2.06)
or other payment (including after acceleration thereof) of an LIBOR Loan on a
day that is not the last day of the relevant Interest Period; or (e) the
automatic conversion under Section
2.03 of any LIBOR Loan to a Base Rate Loan on a day that is not
the last day of the relevant Interest Period; including any such loss or
expense arising from the liquidation or reemployment of funds obtained by it to
maintain its LIBOR Loans or from fees payable to terminate the deposits from
which such funds were obtained.  For purposes
of calculating amounts payable by the Company to the Lenders under this Section
and under Subsection
3.03(a), each LIBOR Loan made by a Lender (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed
to have been funded at the LIBOR used in determining the LIBOR for such LIBOR
Loan by a matching deposit or other borrowing in the interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such
LIBOR Loan is in fact so funded.

3.05         Inability to Determine Rates. 
If Administrative Agent determines that for any reason adequate and
reasonable means do not exist for determining the LIBOR for any requested
Interest Period with respect to a proposed LIBOR Loan, or that the LIBOR
applicable pursuant to Subsection
2.06(b) for any requested Interest Period with respect to a
proposed LIBOR Loan does not adequately and fairly

 29
 

 

reflect the cost
to the Lender of funding such Loan, the Administrative Agent will promptly so
notify the Company and each Lender. 
Thereafter, the obligation of the Lenders to make or maintain LIBOR
Loans hereunder shall be suspended until the Administrative Agent upon the
instruction of the Lenders revokes such notice in writing; such written
revocation  to be promptly given up
determination that such circumstances no longer exist.  Upon receipt of such notice, the Company may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it.  If the Company does not
revoke such Notice, the Lenders shall make, convert or continue the Loans, as
proposed by the Company, in the amount specified in the applicable notice
submitted by the Company, but such Loans shall be made, converted or continued
as Base Rate Loans instead of LIBOR Loans.

3.06         Certificates of Lenders. 
Any Lender claiming reimbursement or compensation under this Article III shall
deliver to the Company (with a copy to the Administrative Agent) a certificate
setting forth in reasonable detail the amount payable to the Lender hereunder
and such certificate shall be conclusive and binding on the Company in the
absence of manifest error provided, however, that such Lender shall only be
entitled to collect amounts incurred within 180 days of such notice.

3.07         Substitution of Lenders. Upon the receipt by the Company from
any Lender (an “Affected
Lender”) of a claim for compensation under this Article III, the
Company may:  (a) obtain a replacement
Lender or financial institution satisfactory to the Administrative Agent (a “Replacement Lender”)
to acquire and assume all or a ratable part of all of such Affected Lender’s
Loans and Commitment; or (b) request one more of the other Lenders to acquire
and assume all or part of such Affected Lender’s Loans and Commitment but none
of the Lenders shall have any obligation to do so.  Any such designation of a Replacement Lender
under (a) shall be subject to the prior written consent of the Administrative
Agent which consent shall not be unreasonably withheld or delayed.

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

ARTICLE IV.

SECURITY

4.01         The Security. 
The Obligations will be secured by the Security Documents described in Schedule 4.01 and any
additional Security Documents hereafter delivered by the Loan Parties and
accepted by the Administrative Agent.

4.02         Agreement to Deliver Security Documents. 
The Loan Parties agree to deliver to further secure the Obligations
whenever requested by the Administrative Agent in its sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
reasonably satisfactory to the Administrative Agent for the purpose of
granting, confirming, and perfecting first and prior liens or security
interests in all Oil and Gas Properties now owned or hereafter acquired by the
Loan Parties, as applicable, subject to Permitted Liens.  The Loan Parties also agree to deliver where
applicable, to deliver whenever requested by the Lenders, title opinions from
legal counsel acceptable to the Lenders or such other evidence of title
satisfactory to the Lenders with respect to the Mortgaged Properties designated
by the Lenders, based upon abstract or record examinations to dates acceptable
to the Lenders and (a) stating that the Loan Party, as applicable, has good and
defensible title to such properties and interests, free and clear of all Liens
except Permitted Liens, (b) confirming that such Oil and Gas Properties are
subject to Security Documents securing the Obligations that constitute and
create legal, valid and duly perfected deed of trust or mortgage liens in such
Oil and Gas Properties and assignments of and security interests in the Oil and
Gas attributable to

 30
 

 

such Oil and Gas
Properties and the proceeds thereof, in each case subject only to Permitted
Liens, and (c) covering such other matters as the Lenders may reasonably
request.

4.03         Perfection and Protection of Security
Interests and Liens.  The Loan Parties will from time
to time deliver to the Administrative Agent any financing statements,
amendment, assignment and continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) by each Loan Party, as applicable, in form and substance reasonably
satisfactory to the Administrative Agent, which the Administrative Agent
reasonably requests for the purpose of perfecting, confirming, or protecting
any Liens or other rights in Collateral securing any Obligations.

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

4.05         Subsidiary Guaranty.

(a)           Each Subsidiary of a Loan Party now existing or created,
acquired or coming into existence after the date hereof, including without
limitation, each of the Guarantors, shall pursuant to Section 7.15, promptly
upon request by the Administrative Agent, execute and deliver to the
Administrative Agent an absolute and unconditional guaranty of the timely
repayment, and the due and punctual performance, of the Obligations of the
Company hereunder, which Guaranty shall be substantially in the form and
substance of Exhibit G. The Company
and its Subsidiaries will cause each of their Subsidiaries to deliver to the
Administrative Agent, simultaneously with its delivery of such a Guaranty,
written evidence satisfactory to the Administrative Agent and its counsel that
such Subsidiary has taken all organizational action necessary to duly approve
and authorize its execution, delivery and performance of such Guaranty and any
other documents which it is required to execute.

(b)           Each Loan Party is mutually dependent on each other in
the conduct of their respective businesses, with the credit needed from time to
time by each often being provided by another or by means of financing obtained
by one such Affiliate with the support of the other for their mutual benefit
and the ability of each to obtain such financing is dependent on the successful
operations of the other. The board of directors, managers or general partner,
where applicable, of each Guarantor has determined that such Guarantor’s
execution, delivery and performance of this Agreement may reasonably be
expected to directly or indirectly benefit such Guarantor and is in the best
interests of such Guarantor.

(c)           The direct or indirect value of the consideration received
and to be received by such Guarantor in connection herewith is reasonably worth
at least as much as the liability and obligations

 31
 

 

of each Guarantor hereunder, and the incurrence of such liability and
obligations in return for such consideration may reasonably be expected to
benefit such Guarantor, directly or indirectly.

(d)           Neither the Company nor any Guarantor is insolvent on
the date hereof (that is, the sum of each Person’s absolute and contingent
liabilities, including the Obligations, does not exceed the fair market value
of such Person’s assets, including any rights of contribution, reimbursement or
indemnity).  Each Loan Party  has capital which is adequate for the
businesses in which such Person is engaged and intends to be engaged. None of
the Company nor any Guarantor has incurred (whether hereby or otherwise), nor
does the Company or Guarantor intend to incur or believe that it will incur,
liabilities which will be beyond its ability to pay as such liabilities mature.

ARTICLE V.

CONDITIONS PRECEDENT

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

(a)           Credit Agreement and Notes.  This Agreement,
the Notes, the Guaranties, the Security Documents and the other Loan Documents
executed by each party thereto;

(b)           Resolutions; Incumbency; Organization Documents, Good
Standing. A
certificate of the Secretary or Assistant Secretary of each Loan Party, or in
the event that such Loan Party is a limited
partnership, such Person’s general partner, certifying as of the Effective
Date: (i) Resolutions of its board of directors or members, authorizing the
transactions contemplated hereby; (ii) the names and genuine signatures of the
Responsible Officers of such Person, authorized to execute, deliver and
perform, as applicable, this Agreement, the Notes, the Guaranties, the Security
Documents, and all other Loan Documents to be delivered by such Person; (iii)
the Organization Documents of such Person as in effect as of the Effective
Date; (iv) the good standing certificate for such Person, from its state of
incorporation, formation or organization, as applicable, evidencing its
qualification to do business in such state as of a date no more than thirty
(30) days prior to the Effective Date; and (v) as applicable, certificate(s) of
authority for such Person from foreign states wherein such Person conducts
business, evidencing such Person’s qualification to do business in such state
as of a date no more than thirty (30) days prior to the Effective Date;

(c)           Payment of Fees.  Evidence of payment by the
Company of all accrued and unpaid fees, costs and expenses owed pursuant to
this Agreement to the extent then due and payable on the Effective Date,
including any such costs, fees and expenses arising under or referenced in Sections 2.07 and 11.04;

(d)           Certificate.  A certificate signed by a
Responsible Officer, dated as of the Effective Date, stating that (i) the
representations and warranties contained in Article VI are true and correct in all
material respects on and as of such date, as though made on and as of such
date; (ii) no

 32
 

 

litigation is pending or threatened against any of the Loan Parties in
which there is a reasonable probability of an adverse decision which would
result in a Material Adverse Effect; and (iii) there has occurred no event or
circumstance that has resulted or could reasonably be expected to result in a
Material Adverse Effect;

(e)           Insurance Certificates.  Insurance certificates in form
and substance reasonably satisfactory to the Administrative Agent, from the
Company’s insurance carriers reflecting the current insurance policies required
under Section 7.08
including any necessary endorsements to reflect the Administrative Agent as
additional insured and loss payee for the ratable benefit of the Lender;

(f)            Corporate Due Diligence. Due diligence review satisfactory to the Administrative Agent including
but not limited to review of and satisfaction with the legal structure of the
Loan Parties, and consolidated pro-forma financial statements;

(g)           Reserve Engineering. The Lenders shall have completed, to their satisfaction, an
independent engineering review of the Oil and Gas Properties;

(h)           Environmental. Copies of all environmental assessments, reports and other
information in the possession or control of the Loan Parties, with contents and
findings satisfactory to Administrative Agent and the Lenders with respect to
the Mortgaged Properties;

(i)            Title.  The Loan Parties shall have good
and defensible title, on at least 80% of the net present value of the Oil and
Gas Properties (the net present value of which has been determined by a
discount factor of 10%) subject to no other liens, other than Permitted Liens,
evidenced by current opinions of title or other title information satisfactory
to the Administrative Agent and the Lenders and substantially all of such Oil
and Gas Properties shall be covered by the Mortgages;

(j)            Material Contracts. Copies of all material contracts entered into by the Loan
Parties to the extent requested by Administrative Agent or the Lenders;

(k)           Equity Pledge.  To the extent certificated, the
Loan Parties shall have delivered to Administrative Agent original certificates
for all Equity held by such Loan Party, pledged under the Security Documents,
together with undated, blank stock powers for each certificate, representing
all issued and outstanding Equity of each such Person;

(l)            Opinion of Counsel. Opinions of Latham & Watkins LLP and Bright and Brown, as counsel
for the Loan Parties, an opinion of Tom Throne, as local Wyoming counsel for
the Company and Phoenix Production Company, and
an opinion of Ballard, Spahr, Andrews & Ingersoll, LLP, as local Colorado
counsel for the Company and Preventive Maintenance Service LLC, covering such
matters as Administrative Agent may require and in form and substance
satisfactory to Administrative Agent dated as of the Effective Date, and a
reliance letter from Vinson & Elkins LLP, as securities counsel for the
Parent, allowing Administrative Agent and Lenders to rely on the opinion from
Vinson & Elkins LLP issued to Parent’s underwriter in connection with the
IPO, in form and substance satisfactory to Administrative Agent dated as of the
Effective Date;

(m)          Assumption.  The Company shall have
consummated (i) the assumption of a portion of BreitBurn Energy Company L.P.’s
principal obligations under the “Prior Credit Agreement”
as defined in the BEC Credit Agreement and (ii) the assumption of certain of
BreitBurn Energy Company L.P.’s “Existing Lender Derivative
Contracts” as defined in the BEC Credit Agreement, each on terms
reasonably satisfactory to Administrative Agent.

 33
 

 

(n)           IPO.  Parent shall have consummated
its IPO on or before October 31, 2006, on terms and conditions substantially in
conformity with the S-1 Filing, with no material change in the pro forma
financial statements as of December 31, 2005, and with at least $99,700,000 in
net proceeds resulting from such IPO.

(o)           BEC Credit Agreement. Evidence satisfactory to Administrative Agent that all conditions
precedent under the BEC Credit Agreement have been satisfied and the
transactions contemplated therein are capable of consummation simultaneously
with the consummation of the transactions hereunder.

(p)           Operating Accounts.  The Loan Parties shall maintain
all of their principal depository and operating accounts with the
Administration Agent.

(q)           Other Documents.  Such other approvals, opinions,
documents or materials as the Administrative Agent or any Lender may reasonably
request.

5.02         Conditions to All Loans. 
The obligation of each Lender to make any Loan (including its initial
Loan) or to continue or convert any Loan under Section 2.03 (but specifically excluding
the conversion of LIBOR Loans on the last day of the Interest Period therefor
into Base Rate Loans or the continuation of Base Rate Loans) is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date or Conversion/Continuation Date and immediately after giving effect to
such Borrowing or Conversion/Continuation:

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

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

(c)           Continuation of Covenants. Each Loan Party  shall be in
compliance with the covenants in Articles VII and VIII;

(d)           No Material Adverse Effect. No Material Adverse Effect shall have occurred or
shall exist from such Borrowing or continuation or conversion; and

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

Each Notice of Borrowing or Notice of
Conversion/Continuation submitted by the Company hereunder shall constitute a
representation and warranty by Each Loan Party , as of the date of each such
notice and as of each Borrowing Date or Conversion/Continuation Date, as
applicable, that the conditions in Section 5.02 are satisfied.

 34
 

 

ARTICLE VI.

REPRESENTATIONS AND WARRANTIES

Each of the Loan Parties
represent and warrant to the Administrative Agent and each Lender that:

6.01         Organization, Existence and Power. Each Loan Party: (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation; (b) has the power and authority and all material
governmental licenses, authorizations, consents and approvals to own its
assets, carry on its business and to execute, deliver, and perform its
obligations under the Loan Documents; (c) is duly qualified as a foreign
corporation and is licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification or license, except where failure to
do so would not reasonably be expected to have a Material Adverse Effect; and
(d) is in compliance in all material respects with all Requirements of Law.

6.02         Corporate Authorization; No
Contravention. The execution, delivery and performance by each Loan Party of this
Agreement and each other Loan Document to which such Person is a party, have been
duly authorized by all necessary organizational action, and do not and will
not: (a) contravene the terms of any of that Person’s Organization Documents;
(b) conflict with or result in any breach or contravention of, or the creation
of any Lien under, any document evidencing any Contractual Obligation to which
such Person is a party that would be prior to the Liens granted to the
Administrative Agent for the benefit of the Lenders or otherwise that would
constitute a Material Adverse Effect or any order, injunction, writ or decree
of any Governmental Authority to which such Person or its property is subject;
or (c) violate any Requirement of Law, that would constitute a Material Adverse
Effect,  including, without limitation,
any California Requirement of Law promulgated with respect to preparedness and
damage prevention associated with earthquakes.

6.03         Governmental Authorization. 
No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by, or enforcement
against, any Loan Party of this Agreement or any other Loan Document to which
it is a party, except for filings necessary to obtain and maintain perfection
of Liens; routine filings related to the Loan Parties and the operation of
their business; and such filings as may be necessary in connection with Lenders’
exercise of its remedies hereunder.

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

6.05         Litigation. 
Unless specifically disclosed in Schedule 6.05 attached hereto, there are no
actions, suits, proceedings, claims or disputes pending, or to the knowledge of
the Loan Parties, threatened or contemplated, at law, in equity, in arbitration
or before any Governmental Authority, against any Loan Party, or any of their
respective Properties which: (a) purport to affect or pertain to this Agreement
or any other Loan Document, or any of the transactions contemplated hereby or
thereby; or (b) if determined adversely to such Loan Party would reasonably be
expected to have a Material Adverse Effect. To the knowledge of each Loan
Party, no injunction, writ, temporary restraining order or any order of any
nature has been issued by any court or other Governmental Authority purporting
to enjoin or restrain the execution, delivery or performance of this Agreement
or any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.

6.06         No Default. 
No Default or Event of Default exists or would be reasonably expected to
result from the incurring of any Obligations by the Loan Parties.  As of the Effective Date, no Loan Party

 35
 

 

is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, would reasonably be expected
to have a Material Adverse Effect, or that would, if such default had occurred
after the Effective Date, create an Event of Default under Subsection 9.01(e). Each Loan Party is in compliance with all requirements of
any Governmental Authority applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other authorizations
granted by Governmental Authorities necessary for the ownership of its Property
and the present conduct of its business, except in each case where the failure
to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

6.07         ERISA Compliance. 
Except as specifically disclosed in Schedule 6.07:

(a)           Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law.  Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter from
the IRS and to the knowledge of the Company, nothing has occurred which would
cause the loss of such qualification. Each Loan Party and each ERISA Affiliate
has made all required contributions to any Plan subject to Section 412 of the
Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan.

(b)           There are no pending or, to the knowledge of any Loan Party, threatened
claims, actions or lawsuits, or action by any Governmental Authority, with
respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. 
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect.

(c)           (i) No ERISA Event has occurred or is reasonably expected to occur; (ii)
no Pension Plan has any Unfunded Pension Liability; (iii) no Loan Party nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA);  (iv) no Loan Party nor any ERISA Affiliate
has incurred, or reasonably expects to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) no Loan Party nor any ERISA Affiliate has engaged
in a transaction that could be subject to Section 4069 or 4212(c) or ERISA.

6.08         Margin Regulations. 
The proceeds of the Loans shall be used solely for the purposes set
forth in and permitted by Section
7.16. No Loan Party is generally engaged in the business of
purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.

6.09         Title to Properties. 
Subject to Permitted Liens, the Loan Parties shall each have good and
defensible title to all of their respective Oil and Gas Properties evaluated in
the most recently delivered Reserve Report, and except for such defects in
title as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, and each Loan Party shall have good title to
all other Oil and Gas Properties necessary or used in the ordinary conduct of
their respective businesses. After
giving full effect to the Permitted Liens, any Loan Party specified as the
owner under the most recently delivered Reserve
Report owns the net interests in production attributable to the Oil and Gas
Properties as reflected in the most
recently delivered Reserve Report, and the ownership of such Properties
shall not in any material respect obligate such Loan Party to bear the costs
and expenses relating to the maintenance, development and operations of each
such Property in an amount in excess of the working interest of each Property
set forth in the most recently delivered
Reserve Report that is not

 36
 

 

offset by a corresponding proportionate
increase in such Loan Party’s net revenue interest in such Property. No consents or rights of first refusal exist or
remain outstanding with respect to such Loan Party’s interest in the Mortgaged
Properties assigned to it pursuant to any Acquisition of Oil and Gas Properties
other than Permitted Liens.  As of the
Effective Date, the property of the Loan Parties is subject to no Liens, other
than Permitted Liens.

6.10         Oil and Gas Reserves. 
Each Loan Party is and will hereafter be, in all material respects, the
owner of the Oil and Gas that it purports to own from time to time in and under
its Oil and Gas Properties, together with the right to produce the same.  The Oil and Gas Properties are not subject to
any Lien other than as set forth in the financial statements referred to in Section 6.14, as
disclosed to the Lenders in writing prior to the date of this Agreement and
Permitted Liens.  All Oil and Gas have
been and will hereafter be produced, sold and delivered in accordance in all
material respects with all applicable laws and regulations of govern­mental
authority; each of the Loan Parties has complied in all material respects and
will hereafter use commercially reasonable efforts to comply with all material
terms of each oil, gas and mineral lease and any other agreement comprising its
Oil and Gas Properties; and all such oil, gas and mineral leases and other
agreements have been and will hereafter be maintained in full force and
effect.  Provided, however that nothing
in this Section 6.10
shall prevent any Loan Party from abandoning any well or forfeiting,
surrendering, releasing or defaulting under any lease in the ordinary course of
business which is not disadvantageous in any way to the Lenders and which, in
the opinion of such Loan Party, is in its best interest, and such Loan Party is
and will hereafter be in compliance with all obligations hereunder.  All of the Loan Party’s Operating Agreements
and Operating Leases with respect to its Oil and Gas Properties are and will
hereafter be enforceable in all material respects in accordance with their
terms except as such may be modified by applicable bankruptcy law or an order
of a court in equity.

6.11         Initial Reserve Report. 
The Company has heretofore delivered to the Lenders a true and complete
copy of a report, dated effective as of December 21, 2005, prepared by
Netherland, Sewell and Associates, Inc. (the “Initial Reserve Report”) relating to an
evaluation of the Oil and Gas attribut­able to certain of the Mortgaged
Properties described therein.  To
the  knowledge of the Company, (a) the
assumptions stated or used in the preparation of the Initial Reserve Report are
reasonable, (b) all information furnished by the Company to Netherland, Sewell
and Associates, Inc. (the “Independent Engineer”)
for use in the preparation of the Initial Reserve Report was accurate in all
material respects, (c) there has been no material adverse change in the amount
of the estimated Oil and Gas shown in the Initial Reserve Report since the date
thereof, except for changes which have occurred as a result of production in
the ordinary course of business, and (d) the Initial Reserve Report does not
omit any material statement or information necessary to cause the same not to
be misleading to the Lenders.

6.12         Gas Imbalances. There are no gas imbalances, take or
pay or other prepayments with respect to any of the Oil and Gas Properties
which would require the Loan Parties to deliver Oil and Gas produced from any
of the Oil and Gas Properties at some future time without then or thereaf­ter
receiving full payment therefor
exceeding 50,000 Mcf of gas (on an Mcf equivalent basis) in the aggregate.

6.13         Taxes.  The Loan
Parties have filed all federal tax returns and reports required to be filed,
and have paid all federal taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided
in accordance with GAAP. The Loan Parties have filed all state and other
non-federal tax returns and reports required to be filed, and have paid all
state and other non-federal taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets prior
to delinquency thereof, except those which are being contested in good faith by
appropriate proceedings and

 37
 

 

for which
adequate reserves have been provided in accordance with GAAP.  To the knowledge of the Loan Parties, there
is no proposed tax assessment against any Loan Party that would, if made,
reasonably be expected to have a Material Adverse Effect.

6.14         Financial Condition.

(a)           The Company has
heretofore furnished to the Lenders the pro forma financial statements set
forth in the S-1 Filing. Such financial statements present fairly, in all
material respects, the financial position and results of operations and cash
flows of the Parent, the Company and its Subsidiaries and Unrestricted
Subsidiaries as of such dates and for such periods in accordance with GAAP
subject to year-end audit adjustments and the absence of footnotes in the case
of the unaudited quarterly financial statements.

(b)           Since
March 31, 2006, there has been no event, development or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect and the
business of the Parent and the Loan Parties have been conducted only in the
ordinary course consistent with past business practices.

6.15         Environmental Matters. 
Except as described on Schedule 6.15 hereto
or as could not be reasonably expected to have a Material Adverse Effect (or with
respect to (c) and (d) below, where the failure to take such actions could not
be reasonably expected to have a Material Adverse Effect):

(a)           neither
any Property of any Loan Party, nor the operations conducted thereon, violate
Environmental Laws.

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

(c)           all
notices, permits, licenses, exemptions, and approvals, if any, required to be
obtained or filed under any Environmental Law in connection with the operation
or use of any and all Property by each Loan Party, including, without
limitation, past or present treatment, storage, disposal or release of a hazardous
substance, oil and gas waste or hazardous waste into the environment, have been
duly obtained or filed or requested, and each Loan Party is in compliance with
the material terms and conditions of all such notices, permits, licenses,
exemptions and approvals.

(d)           all
hazardous substances, hazardous waste and oil and gas waste, if any, generated
by the Company or any of its Subsidiaries at any and all Property of any Loan
Party have in the past been transported, treated and disposed of in compliance
with Environmental Laws then in effect, and, to the knowledge of such Loan
Party, transport carriers and treatment and disposal facilities known by such
Loan Party to have been used by it are not the subject of any existing action,
investigation or inquiry by any Governmental Authority under any Environmental
Laws.

(e)           no
hazardous substances, hazardous waste or oil and gas waste, have been disposed
of or otherwise released by any Loan Party on or to any Property of such Loan
Party except in compliance with Environmental Laws.

 38
 

 

(f)            no
Loan Party has any known pending assessment, investigation, monitoring, removal
or remedial obligations under applicable Environmental Laws in connection with
any release or threatened release of any hazardous substance, hazardous waste
or oil and gas waste into the environment by any Loan Party.

6.16         Regulated Entities. 
None of the Loan Parties, or any Person controlling the Company or the
Guarantors, is an “Investment Company”
within the meaning of the Investment Company Act of 1940. None of the Loan
Parties, or any Person controlling the Company or the Guarantors, is subject to
regulation under the Federal Power Act, the Interstate Commerce Act, any state
public utilities code, or any other Federal or state statute or regulation limiting
its ability to incur Indebtedness.

6.17         No Burdensome Restrictions. No Loan Party is a party to or bound
by any Contractual Obligation, or subject to any restriction in any
Organization Document, or any Requirement of Law, which would reasonably be
expected to have a Material Adverse Effect.

6.18         Copyrights, Patents, Trademarks and
Licenses, etc. Each Loan Party owns or is licensed or otherwise have the right to use
all of the material patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights that are
reasonably necessary for the operation of their respective businesses, without
material conflict with the rights of any other Person.  To the 
knowledge of any Loan Party, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or
now contemplated to be employed, by any Loan Party infringes in a material
respect upon any rights held by any other Person.  Except as specifically disclosed in Schedule 6.05, no
claim or litigation regarding any of the foregoing is pending or threatened,
and no patent, invention, device, application, principle or any statute, law,
rule, regulation, standard or code is pending or, to the knowledge of any Loan
Party, proposed, which, in either case, could reasonably be expected to have a
Material Adverse Effect.

6.19         Subsidiary. The Company has no Subsidiary,
Unrestricted Subsidiary or other material equity investment other than those
specifically disclosed in Schedule
6.19 hereto. The Company owns the percentage interest of all
issued and outstanding Equity in each Subsidiary, Unrestricted Subsidiary or
other material equity investment described on Schedule 6.19. Parent owns one hundred
percent (100%) of the issued and outstanding equity in the Company. The Company may update and replace Schedule
6.19 from time to time to reflect changes resulting from
transactions or other events permitted hereunder.

6.20         Insurance. The Properties of each Loan Party is
insured with financially sound and reputable insurance companies not Affiliates
of the Company, in such amounts, with such deductibles and covering such risks
as are customarily carried by companies engaged in similar businesses and
owning similar properties in localities where the Company or such other Loan
Party operates.

6.21         Derivative Contracts.  As of the date hereof Schedule 6.21 sets
forth, a true and complete list of all Derivative Contracts of the Loan
Parties, 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.

6.22         Full Disclosure. 
None of the representations or warranties made by any Loan Party in the
Loan Documents as of the date such representations and warranties are made or
deemed made, and none of the statements contained in any exhibit, report,
written statement or certificate furnished by or on behalf of any Loan Party in
connection with the Loan Documents, taken as whole, contains any untrue
statement of a material fact known to any Loan Party, or omits any material
fact known to any Loan Party,

 39
 

 

required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when
made or delivered.

6.23         Solvency. The Loan Parties, taken as a whole, and individually,
are Solvent.

ARTICLE VII.

AFFIRMATIVE COVENANTS

So long as the Issuing Lender or
any Lender shall have any Commitment hereunder, or any Loan, Letter of Credit
or other Obligation shall remain unpaid or unsatisfied, unless the Lenders
waive compliance in writing:

7.01         Financial Statements. 
Each of the Loan Parties shall maintain, for itself and each of its
Subsidiaries, on a consolidated basis, a system of accounting established and
administered in accordance with GAAP and deliver, or cause to be delivered, to
Administrative Agent, with sufficient copies for each Lender:

(a)           no later than fifteen (15) days following the
date required by applicable SEC rules (without giving effect to any extensions
available thereunder) for the filing of such financial statements after the end
of each fiscal year of Parent:

(i)          the audited
consolidated balance sheet and related statements of income, partners equity
and cash flows of  Parent as of the end
of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all (A) reported on by a nationally recognized independent public
accounting firm (the “Independent
Auditor”) (without a “going concern”
or like qualification or exception and without any qualification or exception
as to the scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition,
results of operations and cash flows of Parent and its consolidated
Subsidiaries (including each Unrestricted
Subsidiary) on a consolidated basis in accordance with GAAP consistently
applied, and (B) certified by a Responsible
Officer as fairly presenting in all material respects, the financial
condition, results of operations and cash flows of Parent and its consolidated
Subsidiaries (including each Unrestricted
Subsidiary) on a consolidated basis in accordance with GAAP consistently
applied;

(ii)           unaudited
annual consolidating balance sheet and
consolidating statement of income for Parent and its consolidated Subsidiaries
(including each Unrestricted Subsidiary) as of the end of such year, certified by a Responsible Officer as fairly presenting in
all material respects, the financial condition, results of operations of Parent
and its consolidated Subsidiaries (including
each Unrestricted Subsidiary) on a consolidated basis in accordance with
GAAP consistently applied; and

(iii)        the
unaudited consolidated balance sheet and related statements of income, partners
equity and cash flows of the Company as of the end of and for such year,
setting forth in each case in comparative form the figures for the previous
final year, and unaudited consolidating balance sheets and statements of
income, all certified by a Responsible
Officer as fairly presenting in all material respects, the financial
condition, results of operations and cash flows of the Company and its
consolidated Subsidiaries (including each
Unrestricted Subsidiary) on a consolidated basis in accordance with GAAP
consistently applied, subject to the absence of footnotes.

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(b)           no
later than fifteen (15) days following the date required by applicable SEC
rules (without giving effect to any extensions available thereunder) for the
filing of such financial statements after the end of each of the first three
fiscal quarters of each fiscal year of Parent:

(i)          the unaudited consolidated balance sheet and related
statements of income, partners equity and cash flows of Parent as of the end of
and for such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of ), the previous fiscal year, all certified by a Responsible Officer as fairly presenting in all material
respects, the financial condition, results of operations and cash flows of
Parent and its consolidated Subsidiaries (including
each Unrestricted Subsidiary) on a consolidated basis in accordance with
GAAP consistently applied, subject to the absence of footnotes; and

(ii)         the unaudited consolidated balance sheet and related
statements of income, partners equity and cash flows of the Company as of the
end of and for such fiscal quarter and the then elapsed portion of the fiscal
year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by a Responsible Officer as fairly presenting in all material
respects, the financial condition, results of operations and cash flows of the
Company and its consolidated Subsidiaries (including
each Unrestricted Subsidiary) on a consolidated basis in accordance with
GAAP consistently applied, subject to the absence of footnotes.

7.02         Certificates; Other Production and
Reserve Information.  The Company shall furnish to the
Administrative Agent, with sufficient copies for each Lender:

(a)           As soon as available, but not later than 45 days after
the close of each month, a Monthly Status Report in a form reasonably
acceptable to the Lenders, as of the last day of the immediately preceding
month;

(b)           Concurrently
with any delivery of financial statements under Subsections 7.01(a) and (b), a certificate of
a Responsible Officer, in form and substance satisfactory to the Administrative
Agent, setting forth as of the last Business Day of such fiscal quarter or
fiscal year, a true and complete list of all Derivative Contracts of each Loan
Party, the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark-to-market value
therefor, any new credit support agreements relating thereto not listed on Schedule 8.05, any
margin required or supplied under any credit support document, and the counterparty
to each such agreement;

(b)           Concurrently with the delivery of the statements
referred to in Subsection
7.01(b) and within sixty (60) days following the end of the
Company’s fiscal year, a Pricing Grid Certificate executed by a Responsible
Officer;

(c)           Concurrently with the delivery of the statements and
reports referred to in Subsections
7.01(a) and (b),
and 7.02(a)
a Compliance Certificate executed by a Responsible Officer;

(d)           Annually commencing April 15, 2007, dated as of January
1st of such year, a Reserve Report
prepared by the Independent Engineer or other independent petroleum engineer
reasonably acceptable to Administrative Agent and the Company, and annually,
commencing October 15, 2006, dated as of July 1st of such year, a
Reserve Report prepared by personnel of the Company and certified by a
Responsible Officer of the Company as true and correct in all material
respects. Each Reserve Report shall be in form and substance reasonably
satisfactory to the Lenders. With the delivery

 41
 

 

of each Reserve
Report, the Company shall provide to the Administrative Agent and the Lenders a
certificate from a Responsible Officer certifying that in all material
respects: (i) the information contained in the Reserve Report and any other
information delivered in connection therewith is true and correct, (ii) the
Loan Parties own good and defensible title to the Oil and Gas Properties
evaluated in such Reserve Report and such Properties are free of all Liens
except for Liens permitted by Section 8.01, (iii) except as set forth on an exhibit to
the certificate, on a net basis there are no gas imbalances, take or pay or
other prepayments in excess of the volume specified in Section 6.12 with
respect to their Oil and Gas Properties evaluated in such Reserve Report that
would require any Loan Party to deliver Oil and Gas either generally or
produced from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor, (iv) none of their proved Oil and
Gas Properties have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its proved Oil and Gas Properties sold and in
such detail as reasonably required by the Administrative Agent, (v) attached to
the certificate is a list of all marketing agreements entered into subsequent
to the most recently delivered Reserve Report and (vi) attached thereto is a
schedule of the Oil and Gas Properties evaluated by such Reserve Report that
are Mortgaged Properties and demonstrating the percentage of the present value
that such Mortgaged Properties represent;

(e)           Promptly
after the furnishing thereof, copies of all periodic and other financial
reports and other financial materials (not otherwise required to be delivered
within a specific timeframe pursuant to the terms hereof) distributed by Parent
to Provident Energy Trust or any of its Subsidiaries;

(f)            Promptly
after the furnishing thereof, copies of any financial statement, report or notice
furnished to or by any Person pursuant to the terms of any preferred stock
designation, indenture, loan or credit or other similar agreement, other than
this Agreement and not otherwise required to be furnished to the Lenders
pursuant to any other provision of this Section 7.02;

(g)           Promptly
within 15 days after filing with the SEC copies of each report or Form 8-K (or
any successors substitute forms that the Parent is required to file with the
SEC).

(h)           Concurrently
with the delivery of any Reserve Report to the Administrative Agent pursuant to
Subsection 7.02(e),
or after an Event of Default, upon request, a list of all Persons purchasing
Oil and Gas from any of the Loan Parties;

(i)            Prompt
written notice, and in any event within three (3) Business Days, of the
occurrence of any Casualty Event;

(j)            Prompt
written notice (and in any event within thirty (30) days prior thereto) of any
change (i) in any Loan Party’s organizational name or in any trade name used to
identify such Person in the conduct of its business or in the ownership of its
Properties, (ii) in the location of any Loan Party’s chief executive office or
principal place of business, (iii) in any Loan Party’s identity or
organizational structure or in the jurisdiction in which such Person is incorporated
or formed, (iv) in any Loan Party’s jurisdiction of organization or such Person’s
organizational identification number in such jurisdiction of organization, and
(v) in any Loan Party’s federal taxpayer identification number, if any;

(k)           Promptly upon the request of the Administrative Agent,
such copies of all geological, engineering and related data contained in any of
Loan Parties’ files or readily accessible to the Loan Party relating to the Oil
and Gas Properties as may reasonably be requested;

(l)            On request by the Administrative Agent, based upon the
Administrative Agent’s or Lenders’ good faith belief that any Loan Party’s
title to the Mortgaged Properties or the Administrative

 42

 

Agent’s lien thereon is subject to claims of third parties, or if
required by regulations to which the Administrative Agent or any of the Lenders
is subject, title and mortgage lien evidence satisfactory to the Administrative
Agent covering such Mortgaged Property as may be designated by the
Administrative Agent, covering such Loan Party’s title thereto and evidencing
that the Obligations are secured by liens and security interests as provided in
this Agreement and the Security Documents;

(m)          As soon as available, and in any event within 90 days
after the end of each fiscal year, a business and financial plan for Parent (in
form reasonably satisfactory to the Administrative Agent), prepared by a
Responsible Officer, setting forth for the fiscal year most recently ended,
quarterly financial projections and budgets for the Parent, and for four fiscal
years thereafter yearly financial projections and budgets; and

(n)           Promptly, such additional information regarding the
business, financial or corporate affairs of the Loan Parties as the
Administrative Agent, at the reasonable request of any Lender, may from time to
time request.

7.03         Notices.  The Company
shall promptly notify the Administrative Agent:

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

(b)           of any matter that has resulted or may reasonably be
expected to result in a Material Adverse Effect, including (i) breach or
non-performance of, or any default under, a Contractual Obligation of Parent,
the Company or any Subsidiary; (ii) any dispute, litigation, investigation,
proceeding or suspension between Parent, the Company or any Subsidiary and any
Governmental Authority; (iii) the commencement of, or any material development
in, any litigation, proposed legislation, ordinance or regulation of a
Governmental Authority, or proceeding affecting Parent, the Company or any
Subsidiary; including pursuant to any applicable Environmental Laws; or (iv)
revocation, cancellation or failure to renew any license, permit or franchise
where such revocation, failure or loss could reasonably be expected to have a
Material Adverse Effect;

(c)           of any material change in accounting policies or
financial reporting practices by Parent, the Company or any of its
Subsidiaries; or

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

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

7.04         Preservation of Company Existence, Etc. 
Each Loan Party shall:

(a)           preserve and maintain in full force and effect its legal
existence, and maintain its good standing under the laws of its state or
jurisdiction of formation, provided however, that the wind-up of any Subsidiary
shall be permitted either to the extent assets of such Subsidiary are not
transferred to any party other than the Company or another Subsidiary;

(b)           preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its

 43
 

 

business except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect;

(c)           use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill except where the
failure to do so would not reasonably be expected to have a Material Adverse
Effect; and

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

7.05         Maintenance of Property. 
Each Loan Party  shall maintain
and preserve all its Property which is used or useful in its business in good
working order and condition, ordinary wear and tear excepted and to use the
standard of care typical in the industry in the operation and maintenance of
its facilities except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect provided, however, that nothing in
this Section 7.05
shall prevent such Loan Party from abandoning any well or forfeiting,
surrendering, releasing or defaulting under any lease in the ordinary course of
business which is not materially disadvantageous in any way to the Lenders and
which, in its opinion, is in the best interest of such Loan Party, and each
such Loan Party is and will hereafter be in compliance with all obligations
hereunder.

7.06         Title Information.

(a)           On
or before the delivery to the Administrative Agent and the Lenders of each
Reserve Report required by Subsection
7.02(e), the Company will deliver title information in form and
substance acceptable to the Administrative Agent covering enough of the Oil and
Gas Properties evaluated by such Reserve Report that were not included in the
immediately preceding Reserve Report, so that the Administrative Agent shall
have received together with title information previously delivered to the
Administrative Agent, satisfactory title information on at least 80% of the
total net present value (determined by a
discount factor of 10%) of the proved Oil and Gas Properties evaluated
by such Reserve Report.

(b)           If
the Company has provided title information for additional Properties under Subsection 7.06(a),
the Company shall, within 60 days of notice from the Administrative Agent that
title defects or exceptions exist with respect to such additional Properties,
either (i) cure any such title defects or exceptions (including defects or
exceptions as to priority) which are not permitted by Section 8.01 raised
by such information, (ii) substitute acceptable Mortgaged Properties with no
title defects or exceptions except for Permitted Liens having an equivalent
value or (iii) deliver title information in form and substance reasonably
acceptable to the Administrative Agent so that the Administrative Agent shall
have received, together with title information previously delivered to the Administrative
Agent, satisfactory title information on at least 80% of the net present value (determined by a discount factor of 10%) of
the Oil and Gas Properties evaluated by such Reserve Report.

(c)           If
the Company is unable to cure any title defect requested by the Administrative
Agent or the Lenders to be cured within the 60-day period or the Company does
not comply with the requirements to provide acceptable title information
covering 80% of the net present value (determined
by a discount factor of 10%) of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but
instead the Administrative Agent and/or the Majority Lenders shall have the
right to exercise the following remedy in their sole discretion from time to
time, and any failure to so exercise this remedy at any time shall not be a
waiver as to future exercise of the remedy by the

 44
 

 

Administrative
Agent or the Lenders.  To the extent that
the Administrative Agent or the Majority Lenders are not reasonably satisfied
with title to any Mortgaged Property after the 60-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards “the 80% requirement”,
and the Administrative Agent may send a notice to the Company and the Lenders
that the then outstanding Borrowing Base shall be reduced by an amount as
determined by the Majority Lenders to cause the Company to be in compliance
with the requirement to provide acceptable title information on 80% of the net
present value (determined by a discount
factor of 10%) of the Oil and Gas Properties.  This new Borrowing Base shall become
effective immediately after receipt of such notice.

7.07         Additional Collateral.  In connection with
each redetermination of the Borrowing Base, the Company shall review the
Reserve Report and the list of current Mortgaged Properties (as described in Subsection  7.02(e)) to ascertain
whether the Mortgaged Properties represent at least 80% of the total net
present value (determined by a discount
factor of 10%) of the Oil and Gas Properties evaluated in the most
recently completed Reserve Report after giving effect to exploration and
production activities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties do
not represent at least 80% of such total net present value, then the Company
shall, and shall cause each Loan Party to, grant, within thirty (30) days of
delivery of the certificate required under Subsection 7.02(e), to the Administrative
Agent or its designee as security for the Obligations a first-priority Lien
interest on additional Oil and Gas Properties not already subject to a Lien of
the Security Documents such that after giving effect thereto, the Mortgaged
Properties will represent at least 80% of such total net present value.  All such Liens will be created and perfected
by and in accordance with the provisions of deeds of trust, security agreements
and financing statements or other Security Documents, all in form and substance
reasonably satisfactory to the Administrative Agent or its designee and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes.

7.08         Insurance.  Each Loan Party shall maintain, with
financially sound and reputable independent insurers, insurance with respect to
its properties and business against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar business, of such
types and in such amounts as are customarily carried under similar
circumstances by such other Persons except where the failure to do so would not
reasonably be expected to have a Material Adverse Effect. The loss payable
clauses or provisions in said insurance policy or policies insuring any of the
Collateral for the Loan shall be endorsed in favor of and made payable to the
Administrative Agent as its interests may appear and such policies shall name
the Administrative Agent and the Lenders as “additional
insured” and provide that the insurer will give at least 30 days
prior notice of any cancellation to the Administrative Agent.

7.09         Payment of Obligations. 
Each Loan Party  shall pay and
discharge prior to delinquency, all their respective obligations and
liabilities, including: (a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by such Loan Party; (b) all lawful
claims which, if unpaid, would by law become a Lien upon its Property; and (c)
all Indebtedness, as and when due and payable, but subject to any subordination
provisions contained in any instrument or agreement evidencing such
Indebtedness; except in each of (a), (b) and (c), where the failure to do so
would not reasonably be expected to have a Material Adverse Effect.

7.10         Compliance with Laws. 
Each Loan Party  shall comply in
all material respects with all Requirements of Law of any Governmental
Authority having jurisdiction over it or its business (including Environmental
Laws, the Federal Fair Labor Standards Act and any California Requirement of
Law promulgated with respect to earthquakes), except (a) such as may be
contested in good faith or as to

 45
 

 

which a bona fide
dispute may exist or (b) where the failure to do so would not reasonably be
expected to have a Material Adverse Effect.

7.11         Compliance with ERISA.
Each Loan Party shall, and shall cause each of its ERISA Affiliates to: (a)
maintain each Plan in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law; (b) cause each
Plan which is qualified under Section 401(a) of the Code to maintain such
qualification; and (c) make all required contributions to any Plan subject to
Section 412 of the Code.

7.12         Inspection of Property and Books and
Records.  Each Loan Party shall maintain proper books
of record and account, in which full, true and correct entries in conformity
with GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of such Loan Party. Each Loan
Party  shall permit, representatives and
independent contractors of the Administrative Agent or any Lender to visit and
inspect any of their respective properties, to examine their respective
company, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective managers, directors, officers, and independent public
accountants, all at the expense of the Loan Parties and at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to such Loan Party; provided, however,
when an Event of Default exists the Administrative Agent or any Lender may do
any of the foregoing at the expense of the Company at any time during normal
business hours and without advance notice.

7.13         Environmental Laws.

(a)           Each Loan Party 
shall conduct its operations and keep and maintain its property in
compliance with all Environmental Laws and maintain all environmental, health
and safety permits, licenses and authorizations necessary for its operations
and will maintain such in full  force and
effect  except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect.
Each Loan Party shall promptly commence and diligently prosecute to completion,
any assessment, evaluation, investigation, monitoring, containment, cleanup,
removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial
Work”) in the event any Remedial Work is required or reasonably
necessary under applicable Environmental Laws because of or in connection with
the actual or suspected past, present or future disposal or other release of
any oil, oil and gas waste, hazardous substance or solid waste on, under, about
or from any of the Loan Parties’ Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect.

(b)           Each Loan Party 
shall establish and implement, such
procedures as may be reasonably necessary to continuously determine and assure
that the Loan Party’s obligations under this Section 7.13 are timely and fully
satisfied, which failure to establish and implement could reasonably be
expected to have a Material Adverse Effect

(c)           Each
Loan Party will promptly furnish to the Administrative Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by such Loan Party, or of
which it has notice, pending or threatened against such Loan Party, by any
Governmental Authority with respect to any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its Properties or the
operation of its business, except where any such alleged violations or
incidents of non-compliance would not, individually or in the aggregate, result
in a penalty, assessment, fine or other cost or liability exceeding $100,000.

 46
 

 

(d)           Each
Loan Party will promptly furnish to the Administrative Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by such Loan Party in connection with its ownership or use of its
Properties or the conduct of its business, relating to potential responsibility
with respect to any investigation or clean-up of hazardous materials at any
location, except where any such alleged responsibility would not, individually
or in the aggregate, result in a penalty, assessment, fine or other cost or
liability exceeding $100,000.

7.14         New Subsidiary/Unrestricted Subsidiary. If, at any time after the date of this Agreement, (a) any
new Subsidiary is acquired or created, or (b) any new Unrestricted Subsidiary
is permitted by the Lenders, as to any Loan Party, then such Loan Party shall
execute and deliver a Security Agreement to the Administrative Agent, whereby
such Loan Party pledges all of its Equity in such Subsidiary or Unrestricted
Subsidiary.

7.15         New Subsidiary Guarantors. If, at any time after the date of
this Agreement, there exists any Subsidiary of a Loan Party that is not a
Guarantor hereunder, then such Loan Party shall cause each such Subsidiary to
execute and deliver a Guaranty to the Administrative Agent.

7.16         Use of Proceeds. The Company shall use the proceeds
of the Loans (a) to refinance a portion of BreitBurn Energy Company, L.P.’s
Indebtedness to the extent secured by Oil and Gas Properties assigned to the
Company or its Subsidiaries, as applicable, by BreitBurn Energy Company, L.P.,
(b) for standby letters of credit up to the sub-facility amount of $5,000,000,
(c) for working capital purposes (including capital expenditures made for the
exploration and development of Oil and Gas Properties) of the Company, (d) for
general company purposes of the Company, and (e) for acquisitions permitted
under Section 8.04 and Restricted
Payments permitted under Section 8.09.
The Company shall use the Letters of Credit as support for Derivative Contracts
and for other general company purposes of the Company and its Subsidiaries.

7.17         Operating Accounts. The Loan Parties shall maintain with
Administrative Agent all primary operating and depository accounts.

7.18         Phase I Reports. 
As soon as available, and in any case within fifteen (15) days prior to
closing any Acquisition of Oil and Gas Properties by it, such Loan Party shall
deliver to the Lenders a Phase I report covering such Oil and Gas Properties to
be acquired in form and substance satisfactory to the Administrative Agent.

7.19         Further Assurances.

(a)           Each Loan Party 
will promptly cure any defects in the creation and issuance of the Notes
and the execution and deliv­ery of this Agreement, the Security Documents or
any other instruments referred to or mentioned herein or therein.  The Company at its expense will promptly do
all acts and things, and will execute and file or record, all instruments
reasonably requested by the Administrative Agent, to establish, perfect,
maintain and continue the perfected security interest of the Administrative Agent in or the Lien of the
Administrative Agent on the Mortgaged Properties.  Upon request by the Administrative Agent,
each Loan Party  shall promptly execute
such additional Security Documents covering any new Oil and Gas Properties
reflected on the Monthly Status Reports or any new Subsidiaries of the Loan
Parties.  The Company will pay the
reasonable costs and expenses of all filings and recordings and all searches deemed necessary by the Administrative
Agent to establish and determine the validity and the priority of the Liens
created or intended to be created by the Security Documents; and such Loan
Party will satisfy all other claims and charges which in the reasonable opinion
of the

 47
 

 

Administrative Agent might prejudice, impair or otherwise affect any of
the Mortgaged Properties or any Liens thereon in favor of the Administrative
Agent for the benefit of the Issuing Lender and the Lenders.

(b)           Each
Loan Party  hereby authorizes the
Administrative Agent to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Mortgaged Property
without the signature of such Loan Party where permitted by law. A carbon,
photographic or other reproduction of the Security Documents or any financing
statement covering the Mortgaged Property or any part thereof shall be
sufficient as a financing statement where permitted by law.  The Administrative Agent will promptly send
such Loan Party any financing or continuation statements it files without the
signature of such Loan Party and the Administrative Agent will promptly send
the Company the filing or recordation information with respect thereto.

ARTICLE VIII.

NEGATIVE COVENANTS

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

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

(a)           any Lien created under any Loan Document;

(b)           Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 7.09;

(c)           carriers’, warehousemen’s, mechanics’, landlords’,
materialmen’s, repairmen’s or other similar Liens arising in the ordinary
course of business (whether by law or by contract) which are not delinquent or
remain payable without penalty or which are being contested in good faith and
by appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

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

(e)           Liens on the Property of such Loan Party securing (i)
the non-delinquent performance of bids, trade contracts (other than for
borrowed money), statutory obligations, (ii) contingent obligations on surety
and appeal bonds, and (iii) other non-delinquent obligations of a like nature;
in each case, incurred in the ordinary course of business;

(f)            easements, rights-of-way, restrictions, defects or other
exceptions to title (including, but not limited to, the contractual nature of
the Company’s interest in the Brea Oil Field, Orange County, California, and
the failure of certain Indian Tribes to act on assignment consents in certain
Wyoming properties in connection with the acquisition by the Company of
Properties from Nautilus Resources, LLC and Phoenix Production Company) and other similar encumbrances incurred in
the ordinary course of business which, in the aggregate, are not substantial in
amount, are not incurred to

 48
 

 

secure Indebtedness, and which do not in any case materially detract from
the value of the Property subject thereto or interfere with the ordinary
conduct of the businesses of the Loan Parties;

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

(h)           Oil and Gas Liens.

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

(a)           as permitted under Sections 7.05, 8.03, 8.04, 8.09 or 8.10;

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

(c)           Dispositions by the Company’s Subsidiaries to the
Company;

(d)           used, worn-out or surplus equipment in the ordinary
course of business; and

(e)           Dispositions not otherwise permitted under Subsections 8.02 (a) — (d)
above which are made in the ordinary course of business;  provided that, (i) no Event of Default
shall exist at the time of such Disposition or 
result therefrom, and (ii) the aggregate value (as determined by the
value assigned to such properties under the most recent Reserve Report) of all
Dispositions of Oil and Gas Properties made by the Loan Parties, together,
shall not exceed in any Borrowing Base Period five percent (5%) of the
Borrowing Base then in effect; further provided that, the Borrowing Base
shall be automatically reduced by an amount equal to the aggregate value of
such Oil and Gas Properties and to the extent a Borrowing Base Deficiency
results from such reduction, up to one-hundred percent (100%) of the proceeds
of such Dispositions, net of usual and customary reasonable fees, expenses and
taxes, shall be applied, as necessary, to cure such Borrowing Base Deficiency.

8.03         Consolidations and Mergers. 
No Loan Party shall merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:

(a)           any Subsidiary may merge with any Loan Party, provided
that the Company or other Loan Party, as applicable, shall be the
continuing or surviving entity;

(b)           any Subsidiary may sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its assets (upon voluntary
liquidation or otherwise), to the Company or any other Subsidiary that is a
Guarantor; and

 49
 

 

(c)           Dispositions permitted under Section
8.02(e).

8.04         Loans and Investments. 
No Loan Party shall purchase or acquire, or permit any of its
Subsidiaries to purchase or acquire, or make any commitment therefor, any
capital stock, equity interest, or any obligations or other securities of, or
any interest in, any Person (including any Unrestricted Subsidiary), or make or
commit to make any Acquisition, or make or commit to make any advance, loan, extension
of credit or capital contribution to or any other investment in (collectively, “Investments”) any
Person including any Unrestricted Subsidiary or Affiliate of the Company,
except for:

(a)           Investments in Cash Equivalents;

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

(c)           Investments
in Subsidiaries, provided, however, that no Event of Default exists;

(d)           Investments permitted under Section
8.02(c);

(e)           Investments in Derivative Contracts permitted under Section 8.10;

(f)            Investments with third parties that are (i) customary in
the oil and gas business, (ii) made in the ordinary course of the such Person’s
business, and (iii) made in the form of or pursuant to Operating Agreements,
process agreements, farm-in agreements, farm-out agreements, development
agreements, unitization agreements, pooling agreements, joint bidding
agreements, service contracts and other similar agreements;

(g)           Investments by the Company in the Unrestricted
Subsidiary approved by the Majority Lenders;

(h)           extensions of credit by the Company to any of its full
time employees which do not exceed $500,000 at any time outstanding in the
aggregate to all such employees; and

(i)            other Investments not to exceed $500,000 in the
aggregate.

8.05         Limitation on Indebtedness. 
No Loan Party shall create, incur, assume, suffer to exist, or otherwise
become or remain directly or indirectly liable with respect to, any Indebtedness,
except:

(a)           Indebtedness incurred pursuant to this Agreement or the
other Loan Documents;

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

(c)           Indebtedness incurred in connection with the issuance of
Derivative Contracts permitted under Section 8.10 hereof;

(d)           Specific Indebtedness outstanding on the date hereof and
listed in Schedule 8.05
hereto; and

(e)           Indebtedness not otherwise permitted under Subsections 8.05(a) — (d)
above not exceeding $1,000,000 at any time outstanding.

 50
 

 

8.06         Transactions with Affiliates. No Loan Party shall enter into any
transaction with or make any payment or transfer to (collectively, “Transactions”) any
Affiliate of the Company or such Loan Party, except for
Transactions between the Company and a Loan Party (or any Unrestricted
Subsidiary) or between Subsidiaries (or a Subsidiary and any Unrestricted
Subsidiary) in the ordinary course of
business and upon fair and reasonable terms no less favorable to the Company or
such other Person than would obtain in a comparable arm’s-length
transaction with a Person not an Affiliate of the Company or such other Person
or to the extent permitted under Section 8.09.

8.07         Margin Stock. 
No Loan Party shall use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Company or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
If requested by the Administrative Agent, the Company will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

8.08         Contingent Obligations. 
No Loan Party shall create, incur, assume or suffer to exist any
Contingent Obligations except:

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

(b)           Derivative Contracts permitted under Section 8.10 hereof;

(c)           Contingent Obligations of the Loan Parties not to exceed
$100,000 annually in the aggregate or as listed in Schedule
8.08 hereto, the amount thereof certified by an independent
certified public accountant acceptable to the Administrative Agent;

(d)           plugging bonds, performance bonds and fidelity bonds
issued for the account of the Company or its Subsidiaries, obligations to
indemnify or make whole any surety and similar agreements incurred in the
ordinary course of business, provided that such obligations shall not
exceed $5,000,000 in the aggregate;

(e)           this Agreement and the Loan Documents; and

(f)            any other Contingent Obligations of the Loan Parties to
the extent not described in Subsections 8.08 (a) - (e) not to exceed $1,000,000
annually in the aggregate.

8.09         Restricted Payments. 
No Loan Party shall purchase, redeem or otherwise acquire for value any
membership interests, partnership interests, capital accounts, shares of its
capital stock or any warrants, rights or options to acquire such membership
interest, partnership interest or shares, now or hereafter outstanding from its
members, partners or stockholders and will not declare or pay any distribution,
dividend or return capital to its members, partners or stockholders, or make
any distribution of assets in cash or in kind to its  members, partners or stockholders (collectively
“Restricted Payments”);
except Restricted Payments to the extent permitted under the Loan Party’s
Organization Documents, including without limitation Restricted Payments on the
IPO Date in the aggregate amount of $63,200,000 to BreitBurn Energy Corporation,
Pro GP Corp. and Pro LP Corp, so long as (a) no Event of Default exists or
would result therefrom and (b) after giving effect to such Restricted Payment,
(i) the Loan Parties exhibit pro-forma compliance with all terms and conditions
of this Agreement, (ii) the Available Borrowing Base equals an amount no less
than ten percent (10%) of the Borrowing Base, (iii)

 51
 

 

the Company would
have the ability to draw at least ten percent (10%) of the Borrowing Base and
remain in compliance with all terms and conditions hereof, and (iv) such
Restricted Payment would not impair the ability of the Company to fulfill its
obligations hereunder. By making such Restricted Payment, the Company
specifically represents and warrants to Administrative Agent and the Lenders
that the conditions for making such Restricted Payment have been satisfied. No
Loan Party may make any Restricted Payment to Unrestricted Subsidiaries.

8.10         Derivative Contracts. 
No Loan Party shall enter into or in any manner be liable on any Derivative
Contract except:

(a)           Derivative
Contracts entered into by the Company with the purpose and effect of limiting
or reducing the market price risk of Oil and Gas expected to be produced by the
Company and each Subsidiary provided that at all times: (i) the
aggregate of all such Derivative Contracts limits or reduces such market price
risk for a term of no more than sixty (60) months; (ii) no such contract, when
aggregated with all Derivative Contracts permitted under this Subsection 8.10(a) (but excluding
put option contracts that are not related to corresponding calls, collars or
swaps) requires the Loan Parties to deliver more than 85% of the reasonably
anticipated production for each month for the total Oil and Gas classified as
either “proved producing” or “proved developed non-producing” (provided
however, the “proved developed non-producing” reserves included in such
calculation shall not exceed 20% of the “proved producing” reserves) on the
most recent Reserve Report delivered to the Administrative Agent covering the
Oil and Gas Properties, and (iii) each such contract (excluding Derivative
Contracts offered by national commodity exchange) shall be between the Company
or a Subsidiary and the Administrative Agent, or any of the Lenders or its
Affiliate, or with an unsecured counterparty or have a guarantor of the
obligation of the unsecured counterparty who, at the time the contract is made,
has long-term obligations rated BBB+ or Baal or better, respectively, by
Standard & Poor’s Corporation or Moody’s Investors Services, Inc. (or a
successor credit rating agency);

(b)           Derivative Contracts entered into by the Company with
the purpose and effect of fixing interest rates on a principal amount of
Indebtedness of the Company that is accruing interest at a variable rate, provided
that (i) the floating rate index of each such contract generally matches
the index used to determine the floating rates of interest on the corresponding
Indebtedness of the Company to be hedged by such contract, (ii) no such
contract, except those with a Lender or its Affiliate, when aggregated with all
Derivative Contracts permitted under Subsections 8.10(a) and (b), requires the
Company to put up money, assets, letters of credit, or other security against
the event of its non-performance prior to actual default by the Company in
performing obligations thereunder, and (iii) each such contract shall be with a
Lender or its Affiliate, or with an unsecured counterparty or have a guarantor
of the obligation of an unsecured counterparty who, at the time the contract is
made, has long-term obligations rated A+ or A1 or better, respectively, by
Standard & Poor’s Corporation or Moody’s Investors Services, Inc. (or a
successor credit rating agency);

(c)           In the event of a Derivative Contract between the
Company and any of the Lenders, the Contingent Obligation evidenced under such
Derivative Contract shall not be applied against such Lender’s Commitment nor
against the Effective Amount.  Any
Indebtedness to any Lender or its Affiliate incurred under any Derivative
Contract shall be treated as an Obligation pari passu and
secured pro rata under the Security Documents with all Obligations otherwise
incurred hereunder or under the other Loan Documents as more particularly
provided under Section
11.11; and

(d)           The Company shall not modify or terminate any Derivative
Contracts to which it is currently a party or subsequently becomes a party
without the consent of the Required Lenders.

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8.11         Change in Business and Corporate
Structure.

(a)           The Loan Parties shall not (i) have any Subsidiaries
other than wholly-owned Subsidiaries, (ii) enter into, or allow any Subsidiary
to enter into, any joint ventures, or (iii) have any other material equity
investment other than the Unrestricted Subsidiaries.

(b)           The
Loan Parties shall not, and shall not permit any Subsidiary to, engage in any
business or activity other than its Principal Business.

(c)           The
Loan Parties shall not alter, amend or modify in any manner materially adverse
to the Lenders any of its Organization Documents.

8.12         Accounting Changes. 
Except as expressly permitted by the Lenders, no Loan Party shall suffer
or permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change the
fiscal year of any Loan Party.

8.13         ERISA Compliance.  Except as would not
reasonably be expected to result in a Material Adverse Effect, No Loan Party will at any time:

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

(b)           terminate,
or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any
other action with respect to any Plan, which could result in any liability of
such Loan Party or any ERISA Affiliate to the PBGC.

(c)           fail
to make, or permit any ERISA Affiliate to fail to make, full payment when due
of all amounts which, under the provisions of any Plan, agreement relating
thereto or applicable law, any Loan Party or any ERISA Affiliate is required to
pay as contribu­tions thereto.

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

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

(f)            incur,
or permit any ERISA Affiliate to incur, any withdrawal liability pursuant to
Section 4201 or 4202 of ERISA.

(g)           acquire,
or permit any ERISA Affiliate to acquire, an interest in any Person that causes
such Person to become an ERISA Affiliate with respect to such Loan Party or
with respect to any ERISA Affiliate of such Loan Party if such Person sponsors,
maintains or contributes to, or at any time in the six-year period preceding
such acquisition has sponsored, maintained, or contributed to, (i) any

 53
 

 

Multiemployer
Plan with respect to which such Person has an outstanding withdrawal liability
under Section 4201 or 4202 of ERISA, or (ii) any other Plan that is subject to
Title IV of ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the assets (computed
on a plan termination basis in accordance with Title IV of ERISA) of such
Plan allocable to such benefit liabilities.

(h)           incur,
or permit any ERISA Affiliate to incur, a liability to or on account of a Plan
under sections 515, 4062, 4063, 4064, or 4204 of ERISA.

(i)            contribute
to or assume an obligation to contribute to, or permit any ERISA Affiliate to
contribute to or assume an obligation to contribute to, any employee welfare
benefit plan, as defined in section 3(1) of ERISA, that provides retiree
benefits to former employees of such entities (other than coverage mandated by
applicable law), that may not be terminated by such entities in their sole
discretion at any time without any material liability.

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

8.14         Interest Coverage Ratio.  Parent shall not
permit, as of the last day of each fiscal quarter beginning with the fiscal
quarter ended September 30, 2006, the ratio of EBITDA to Consolidated Interest
Expense to be less than 2.75 to 1.00.

8.15         Leverage Ratio. Parent shall not permit, as of the last day of each fiscal
quarter beginning with the fiscal quarter ended September 30, 2006, the ratio
of Total Indebtedness (as of the last day of such fiscal quarter, for the
twelve months preceding) to EBITDA to be greater than 3.50 to 1.00.

8.16         Current Ratio.  Parent shall not
permit, as of the last day of each fiscal quarter beginning with the fiscal
quarter ended September 30, 2006, the ratio of Current Assets to Current
Liabilities to be less than 1.10 to 1.00.

ARTICLE IX.

EVENTS OF DEFAULT

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

(a)           Non-Payment.  The Company fails to pay, when
and as required to be paid herein, any amount of principal or interest of any
Loan, or fails to pay within five (5) Business Days of when due any fee or
other amount payable hereunder or under any other Loan Document; or

(b)           Representation or Warranty.  Any
representation or warranty by any Loan Party made or deemed made herein, in any
other Loan Document, or which is contained in any certificate, document or
financial or other statement by the Company, any other Loan Party, or any
Responsible Officer of such Person, furnished at any time under this Agreement,
or in or under any other Loan Document, is incorrect on or as of the date made
or deemed made and causes a Material Adverse Effect; or

(c)           Specific Defaults.  Any Loan Party fails to perform
or observe any term, covenant or agreement contained in Subsection
7.03(a) or Article VIII (except
for such Liens under

 54
 

 

Section 8.01 other
than arising by consensual action of such Loan Party) or there is a change in
the tax status of any Loan Party; or

(d)           Other Defaults.  An Event of Default as defined
in any Security Document shall occur, or any Loan Party fails to perform or
observe any other term or covenant contained in this Agreement (other than
described in this Section
9.01) or any other Loan Document, and same shall continue
unremedied for a period of 30 days after the earlier of (i) the date upon which
a Responsible Officer knew or reasonably should have known of such default or
(ii) the date upon which written notice thereof is given to the Company by the
Administrative Agent or any Lender; or

(e)           Cross-Default.  (i) any Loan Party fails to make
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts
and including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $1,000,000 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and such
failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure; or (ii) any
Loan Party fails after the applicable grace or notice period, if any, specified
in the relevant document on the date of such failure to perform or observe any
other condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation having an aggregate principal amount of more than
$1,000,000, if the effect of such failure, event or condition is to cause, or
to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness
to be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof
to be demanded; or (iii) any Indebtedness or Contingent Obligations of any Loan
Party in excess of $1,000,000 shall be declared due and payable prior to its
stated maturity or cash collateral is demanded in respect of such Contingent Obligations;
or

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

(g)           Involuntary Proceedings.  (i) Any involuntary Insolvency
Proceeding is com­menced or filed against any Loan Party or BreitBurn GP LLC,
or any writ, judgment, warrant of attachment, execution or similar process, is
issued or levied against all or a substantial part of the Company’s or any
Guarantor’s properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) any Loan Party or BreitBurn GP LLC admits
the material allegations of a petition against it in any Insolvency Proceeding,
or an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) any Loan Party or BreitBurn GP LLC acquiesces
in the appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or

(h)           Change in Management or Control.  Either Halbert
Washburn or Randall Breitenbach shall cease or fail for any reason to serve and
function as Co-CEO of BreitBurn GP LLC and shall not be succeeded in such
position or other comparable position acceptable to the Lenders, within sixty
(60) days by a Person acceptable to the Lenders or there shall occur a Change
of Control; or

 55
 

 

(i)            Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders,
decrees or arbitration awards is entered against any Loan Party or General
Partner involving in the aggregate a liability (to the extent not covered by
independent third-party insurance as to which the insurer does not dispute
coverage) as to any single or related series of transactions, incidents or
conditions, of $1,000,000 or more, and the same shall remain unsatisfied,
unvacated and unstayed pending appeal for a period of 30 days after the entry
thereof; or

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

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

(l)            Guaranty Default. A Guaranty is for any reason partially (including with respect to
future advances) or wholly revoked or invalidated, or otherwise ceases to be in
full force and effect, or such Guarantor or any other Person contests in any
manner the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder; or

(m)          Material Agreements. Any Loan Party shall fail to observe, perform or comply with any
material covenant, agreement, condition or provision of any material
Contractual Obligation including without limitation the following: (i) or
Derivative Contracts required under Section 8.10, (ii) material leases associated
with the Mortgaged Properties and (iii) material agreements governing the
transportation of Oil and Gas from the Mortgaged Properties; or

(n)           ERISA. The occurrence of any of the following events: (i) the happening of a
Reportable Event which has resulted or could reasonably be expected to result
in a Material Adverse Effect (if not waived by the PBGC or by the Majority
Lenders, or if such event can be avoided by any corrective action of the Loan
Party affected thereby, such corrective action is not completed within ninety
(90) days after the occurrence of such Reportable Event) with respect to any
Pension Plan; (ii) the termination of any Pension Plan in a “distress
termination” under the provisions of Section 4041 of ERISA; (iii) the
appointment of a trustee by an appropriate United States District Court to
administer any Pension Plan; and (iv) the institution of any proceedings by the
PBGC to terminate any Pension Plan or to appoint a trustee to administer any
such plan; or

(o)           Environmental Claims. An Environmental Claim shall have been asserted against any Loan Party
which could have a Material Adverse Effect; or

9.02         Remedies.  If any Event of
Default occurs and is continuing, the Administrative Agent shall, at the
request of, or may, with the consent of, the Majority Lenders:

(a)           declare the Commitment, if any, of each Lender to make Loans
and issue Letters of Credit to be terminated, and/or declare all or any part of
the unpaid principal of the Loans, all interest accrued and unpaid thereon and
all other amounts payable under the Loan Documents to be immediately due and
payable, whereupon the same shall become due and payable, without presentment,
demand,

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protest, notice of intention to accelerate, notice of acceleration or any
other notice of any kind, all of which are hereby expressly waived by each Loan
Party .

(b)           exercise on behalf of itself and the Lenders all rights
and remedies available to it and the Lenders under the Loan Documents or
applicable law; provided, however, that upon the occurrence of
any event specified in Subsection
(f) or (g)
of Section 9.01
(in the case of clause (i) of Subsection (g) upon the expiration of the 60-day period
mentioned therein), the obligation of each Lender to make Loans and issue
Letters of Credit shall automatically terminate and the unpaid principal amount
of all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Administrative
Agent, or any Lender and without presentment, demand, protest, notice of
intention to accelerate, notice of acceleration or any other notice of any
kind, all of which are hereby expressly waived by each Loan Party .

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

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

ARTICLE X.

ADMINISTRATIVE AGENT

10.01       Appointment and
Authorization.  Each
of the Lenders and the Issuing Lender hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof and the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto.

10.02       Duties and Obligations of Administrative
Agent.  The Administrative Agent shall not have any
duties or obligations except those expressly set forth in the Loan
Documents.  Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing (the use of the term “agent” herein and in the other
Loan Documents with reference to the Administrative Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law; rather, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties), (b) the
Administrative Agent shall not have any duty to take any discretionary action
or exercise any discretionary powers, except as provided in Section 10.03, and
(c) except as expressly set forth herein, the Administrative Agent shall have
no duty to disclose, and shall not be liable for the failure to disclose, any
information relating to the Company or any of its Subsidiaries that is
communicated to or obtained by the

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

10.03       Action by Administrative Agent.  The Administrative
Agent shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby that the Administrative Agent is required to exercise in
writing as directed by the Majority Lenders (or such other number or percentage
of the Lenders as shall be necessary under the circumstances as provided in Section 2.05) and in
all cases the Administrative Agent shall be fully justified in failing or
refusing to act hereunder or under any other Loan Documents unless it shall (i)
receive written instructions from the Majority Lenders or the Lenders, as
applicable, (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02) specifying the action to
be taken and (ii) be indemnified to its satisfaction by the Lenders against any
and all liability and expenses which may be incurred by it by reason of taking
or continuing to take any such action. 
The instructions as aforesaid and any action taken or failure to act
pursuant thereto by the Administrative Agent shall be binding on all of the
Lenders.  If a Default has occurred and
is continuing, then the Administrative Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders in the
written instructions (with indemnities) described in this Section 10.03, provided
that, unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
as it shall deem advisable in the best interests of the Lenders.  In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law.  The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Majority Lenders or the Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 2.05), and
otherwise the Administrative Agent shall not be liable for any action taken or
not taken by it hereunder or under any other Loan Document or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except
for its own gross negligence or willful misconduct.

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

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

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

10.06       Administrative Agent as Lender. Administrative Agent shall have the same rights and powers
in its capacity as a Lender as any other Lender and may exercise the same as
though it were not Administrative Agent, and it and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Company or any Subsidiary or other Affiliate thereof as if it were not
Administrative Agent hereunder.

10.07       No Reliance.  Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party.  Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall from time to
time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.  The Agents shall not be required to keep
themselves informed as to the performance or observance by the Company or any
of its Subsidiaries of this Agreement, the Loan Documents or any other document
referred to or provided for herein or to inspect the Properties or books of the
Company or its Subsidiaries.  Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall have no duty or responsibility to provide any Lender
with any credit or other information concerning the affairs, financial
condition or business of the Company (or any of its Affiliates) which may come
into the possession of the Administrative Agent or any of its Affiliates.  In this regard, each Lender acknowledges that
Haynes and Boone, L.L.P. is acting in this transaction as special counsel to
the Administrative Agent only, except to the extent otherwise expressly stated
in any legal opinion or any Loan Document. 
Each other party hereto will consult with its own legal counsel to the
extent that it deems necessary in connection with the Loan Documents and the
matters contemplated therein.

10.08       Administrative Agent May File Proofs of
Claim.  In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal
of any Loan shall then be due and payable as herein expressed or by declaration
or otherwise and irrespective of whether the Administrative Agent shall have
made any

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demand on the Company) shall be
entitled and empowered, by intervention in such proceeding or otherwise:

(a)           to
file and prove a claim for the whole amount of the principal and interest owing
and unpaid in respect of the Loans and all other Indebtedness that are owing
and unpaid and to file such other documents as may be necessary or advisable in
order to have the claims of the Lenders and the Administrative Agent (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Lenders and the Administrative Agent and their respective agents and
counsel and all other amounts due the Lenders and the Administrative Agent
under Section 11.04)
allowed in such judicial proceeding; and

(b)           to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such
judicial proceeding is hereby authorized by each Lender to make such payments
to the Administrative Agent and, in the event that the Administrative Agent
shall consent to the making of such payments directly to the Lenders, to pay to
the Administrative Agent any amount due for the reasonable compensation,
expenses, disbursements and advances of the Administrative Agent and its agents
and counsel, and any other amounts due the Administrative Agent under Section 11.04.

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

10.09       Authority of Administrative Agent to Release
Collateral and Liens.  Each Lender and Issuing Lender hereby
authorizes the Administrative Agent to release any collateral that is permitted
to be sold or released pursuant to the terms of the Loan Documents.  Each Lender and Issuing Lender hereby
authorizes the Administrative Agent to execute and deliver to the Company, at
the Company’s sole cost and expense, any and all releases of Liens, termination
statements, assignments, or other documents reasonably requested by the Company
in connection with any sale or other disposition of property to the extent such
sale or other disposition is permitted by the terms of Section 8.02 or is
otherwise authorized by the terms of the Loan Documents.

10.10       The Arrangers, the Syndication Agent and the Documentation
Agent.  The Lead Arranger, the Syndication Agent and
the Documentation Agent shall have no duties, responsibilities or liabilities
under this Agreement and the other Loan Documents other than their duties,
responsibilities and liabilities in their capacity as Lenders hereunder.

10.11       Successor Administrative Agent. The Administrative Agent may resign
as the Administrative Agent upon 30 days’ notice to the Lenders.  If the Administrative Agent resigns under
this Agreement, the Majority Lenders shall appoint from among the Lenders a
successor administrative agent reasonably satisfactory to the Company in the
same capacity as the retiring Administrative Agent for the Lenders.  If no successor administrative agent is
appointed prior to the effective date of the resignation of such retiring
Administrative Agent, such retiring Administrative Agent may appoint, after
consulting with the Lenders, a successor administrative agent from among the
Lenders.  Upon the acceptance of its
appointment as successor administrative agent hereunder, such successor
administrative agent shall succeed to all the rights, powers and duties of the
retiring Administrative Agent and the term “Administrative Agent” shall mean
such successor administrative agent and the retiring Administrative Agent’s
appointment, powers and duties as the Administrative Agent shall be terminated.
After any

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retiring
Administrative Agent’s resignation hereunder as the Administrative Agent, the
provisions of this Article
X and Sections
11.04 and 11.05
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was the Administrative Agent under this Agreement.  If no successor administrative agent has
accepted appointment as the Administrative Agent in the same capacity as the
retiring Administrative Agent by the date which is 30 days following a retiring
Administrative Agent’s notice of resignation, the retiring Administrative Agent
shall either withdraw its resignation or may appoint as a successor
administrative agent a commercial Lender organized under the laws of the United
States of America or of any State thereof having a commercial capital surplus
of at least $500,000,000.

10.12       Withholding Tax.

(a)           If any Lender is a not a “United
States person” within the meaning of Section 7701(a)(3) of the Code
(a “Foreign Lender”),
such Foreign Lender agrees with and in favor of the Administrative Agent, to
deliver to the Administrative Agent prior to receipt
of any payment subject to withholding under the Code (or upon accepting an
assignment or participation of an interest herein), two duly signed completed
copies of either IRS Form W-8BEN or any successor thereto (relating to such
Foreign Lender and entitling it to a complete exemption from withholding tax on
all payments to be made to such Foreign Lender by the Company pursuant to this
Agreement) or IRS Form W-8ECI or any successor thereto (relating to all
payments to be made to such Foreign Lender by the Company pursuant to this
Agreement) or such other evidence satisfactory to the Company that such Foreign
Lender is entitled to a complete exemption from U.S. withholding tax, including
any exemption pursuant to Section 881(c) of the Code.  Thereafter and from time to time, each such
Foreign Lender shall (i) promptly submit to the Company such additional
duly completed and signed copies of one of such forms (or such successor forms
as shall be adopted from time to time by the relevant United States taxing
authorities) as may then be available under then current United States laws and
regulations to avoid, or such evidence as is satisfactory to the Company of any
available complete exemption from United States withholding taxes in respect of
all payments to be made to such Foreign Lender by the Company pursuant to this
Agreement, and (ii) promptly notify the
Administrative Agent and the Company of any change in circumstances which would
modify or render invalid any claimed exemption.

(b)           Each
Foreign Lender, to the extent it does not act or ceases to act for its own
account with respect to any portion of any sums paid or payable to that Lender
under any of the Loan Documents (for example, in the case of a typical
participation by that Lender), shall deliver to the Administrative Agent on the
date when such Foreign Lender ceases to act for its own account with respect to
any portion of any such sums paid or payable, and at such other times as may be
necessary in the determination of the Administrative Agent (in the reasonable
exercise of its discretion), (i) two duly signed completed copies of the
forms or statements required to be provided by that Lender as set forth above,
to establish the portion of any such sums paid or payable with respect to which
that Lender acts for its own account that is not subject to U.S. withholding
tax, and (ii) two duly signed completed copies of IRS Form W-8IMY (or any
successor thereto), together with any information that is required by the Code
and Treasury regulations promulgated thereunder and any additional information
that Lender chooses to transmit with such form, and any other certificate or
statement of exemption required under the Code, to establish that that Lender
is not acting for its own account with respect to a portion of any such sums
payable to that Lender.

(c)           The
Company shall not be required to pay any additional amount to any Foreign
Lender under Section 3.01:  (i) with respect to any Taxes or Other
Taxes required to be deducted or withheld on the basis of the information,
certificates or statements of exemption that Foreign Lender transmits with an
IRS Form W-8IMY pursuant to Subsection 10.12(b) or (ii) if that Foreign
Lender shall have failed to satisfy the foregoing provisions of this Section 10.12.

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(d)           Each
Lender that is a “United States person” within the
meaning of Section 7701(a)(30) of the Code (“Domestic
Lender”) shall deliver to the Administrative Agent two duly
signed completed copies of IRS Form W-9. 
If that Domestic Lender fails to deliver such forms, then the Company
may withhold from any interest payment to that Domestic Lender an amount
equivalent to the applicable back-up withholding tax imposed by the Code,
without reduction.  Thereafter and from
time to time, each such Domestic Lender shall (i) promptly submit to the
Company such additional duly completed and signed copies of one of such forms
(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may then be available under then current
United States laws and regulations to avoid, or such evidence as is
satisfactory to the Company of any available exemption from United States
withholding taxes in respect of all payments to be made to such Domestic Lender
by the Company pursuant to this Agreement, and (ii) promptly notify the
Company of any change in circumstances which would modify or render invalid any
claimed exemption.

(e)           No Assignee shall be entitled to the benefits of Section 3.01 unless the Company is
notified of the assignment and such Assignee has complied with the requirements
of this Section 10.12.

(f)            If any Lender is entitled to a reduction in the
applicable withholding tax, the Administrative Agent may withhold from any
payment to such Lender an amount equivalent to the applicable withholding tax
after taking into account such reduction. 
If (i) a Lender does not deliver the forms or other documentation
required this Section
10.12 to the Administrative Agent, or (ii) the
Company is required by law to deduct and withhold from or in respect of any
amounts payable under any Loan Document to a Lender but is not required to pay
additional amounts under Section
3.01 with respect to such payment, then the Administrative Agent may deduct from any payment to such Lender
an amount equivalent to the applicable withholding tax.

(g)           If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Administrative
Agent did not properly withhold tax from amounts paid to or for the account of
any Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify the Administrative Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify the Administrative Agent fully for all amounts paid, directly or
indirectly, by the Administrative Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Administrative Agent under this Section, together
with all costs and expenses (including Attorney Costs).  The obligation of the Lenders under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Administrative Agent.

ARTICLE XI.

MISCELLANEOUS

11.01       Amendments and
Waivers.  No amendment, modification, termination or
waiver of any provision of this Agreement or any other Loan Document, and no
consent with respect to any departure by the Company or any applicable Loan
Party therefrom, shall be effective unless the same shall be in writing and
signed by the Majority Lenders (or by the Administrative Agent at the written
request of the

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Majority Lenders)
and the Company and acknowledged by the Administrative Agent, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such waiver, amendment,
modification, termination or consent shall, unless in writing and signed by all
the Lenders and the Company, on behalf of the Loan Parties, and acknowledged by
the Administrative Agent, do any of the following:

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

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

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

(d)           change
the Pro Rata Shares or change in any manner the definition of “Majority Lenders” or “Required Lenders”;

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

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

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

(h)           increase
the Borrowing Base pursuant to Section 2.05, provided, the Required Lenders may
maintain or decrease the Borrowing Base pursuant to Section 2.05;

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

11.02       Notices.

(a)           All notices, requests and other communications shall be
in writing and mailed, faxed or delivered, to the address or facsimile number
specified for notices on Schedule
11.02; or, as directed to the Company or the Administrative
Agent, to such other address as shall be designated by such

 63
 

 

party in a written notice to the other parties, and as directed to any
other party, at such other address as shall be designated by such party in a
written notice to the Company and the Administrative Agent.

(b)           All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article
II or IX
shall not be effective until actually received.

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

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

11.04       Costs and Expenses. 
The Company shall:

(a)           whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Administrative Agent within five (5) Business
Days after demand (subject to Subsection 5.01(c)) for all reasonable costs and
expenses incurred by the Administrative Agent in connection with the
development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or there­with, and the consummation of the transactions
contemplated hereby and thereby, including Attorney Costs incurred by the
Administrative Agent with respect thereto except such costs and expenses as may
be incurred by the assignor Lenders or Assignee under Subsection 11.08(c);
and

(b)           pay or reimburse the Administrative Agent and each
Lender within five (5) Business Days after demand (subject to Subsection 5.01(c))
for all costs and expenses (including Attorney Costs) incurred by each of them
in connection with the enforcement, attempted enforcement, or preservation of
any rights or remedies under this Agreement or any other Loan Document during
the existence of an Event of Default or after acceleration of the Loans (including
in connection with any “workout” or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding).

11.05       Indemnity. 
Whether or not the transactions contemplated hereby are consummated, the
Company shall indemnify and hold the Agent-Related Persons, and each Lender and
each of their respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an “Indemnified

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

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

11.07       Successors and Assigns. 
Except for all provisions in Section 11.08, the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Administrative Agent and each Lender.

11.08       Assignments, Participations, etc.

(a)           Any Lender may upon written consent of the
Administrative Agent, the Issuing Lender and Borrower, which consent shall not
be unreasonably withheld (provided at any time that an Event of Default has
occurred and is continuing, no approval from the Company shall be required), at
any time, assign and delegate to one or more Eligible Assignees (provided
that no written consent of the Administrative Agent or the Issuing Lender
shall be required in connection with any assignment and delegation by the
Lender to an Eligible Assignee that is an Affiliate of such Lender) (each an “Assignee”) all, or
any ratable part of all in a minimum commitment amount at least equal to
$5,000,000 or in $1,000,000 increments in excess thereof, of the Loans, the
Commitments, and the other rights and obligations of such Lender hereunder; provided,
however, that the Company and the Administrative Agent may continue to
deal solely and directly with such Lender in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to
the Assignee, shall have been given to the Company and

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the Administrative Agent by such Lender and the Assignee; (ii) such
Lender and its Assignee shall have delivered to the Company and the
Administrative Agent an Assignment and Acceptance in the form of Exhibit D (“Assignment and Acceptance”)
together with any Note or Notes subject to such assignment and (iii) the
assignor Lender or Assignee has paid to the Administrative Agent a processing
fee in the amount of $3,000.00.

(b)           From and after the date that the Administrative Agent
notifies the assignor Lender that it has received an executed Assignment and
Acceptance and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.

(c)           Within five (5) Business Days after its receipt of
notice by the Administrative Agent that it has received an executed Assignment
and Acceptance and payment of the processing fee, (and provided that it
consents to such assignment in accordance with Subsection 11.08(a)) the Company shall
execute and deliver to the Administrative Agent, new Notes evidencing such
Assignee’s assigned Loans and Commitment and, if the assignor Lender has
retained a portion of its Loans and its Commitment, replacement Notes in the
principal amount of the Loans retained by the assignor Lender (such Notes to be
in exchange for, but not in payment of, the Notes held by such Lender, which
shall be cancelled upon receipt of the new or replacement Notes).  Immediately upon each Assignee’s making its
processing fee payment under the Assignment and Acceptance, this Agreement
shall be deemed to be amended to the extent, but only to the extent, necessary
to reflect the addition of the Assignee and the resulting adjustment of the
Commitments arising therefrom. The Commitment allocated to each Assignee shall
reduce such Commitments of the assigning Lender pro tanto.

(d)           Any Lender may at any time sell to one or more
commercial Lenders or other Persons not Affiliates of the Company (a “Participant”)
participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the “originating Lender”) hereunder and under the
other Loan Documents; provided,
however, that (i) the originating Lender’s obligations under this
Agreement shall remain unchanged, the originating Lender shall remain a Lender
for all purposes hereof and the other Loan Documents to which such originating
Lender is a party, and the Participant may not become a Lender for purposes
hereof or for any other of the Loan Documents, (ii) the originating Lender
shall remain solely responsible for the performance of such obligations,
(iii) the Company and the Administrative Agent shall continue to deal
solely and directly with the originating Lender in connection with the
originating Lender’s rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Lender shall transfer or grant any
participating interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent of the Lenders. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents (the Participant’s rights against the
granting Lender in respect of such participation being those set forth in the
agreement creating or evidencing such participation with such Lender), and all
amounts payable by the Company hereunder shall be determined as if such Lender
had not sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.

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(e)           Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as “confidential” or “secret” by the Company and
provided to it by the Company or any of its Subsidiaries, or by the
Administrative Agent on such Company’s or Subsidiary’s behalf, under or in
connection with this Agreement or any other Loan Document, and neither it nor
any of its Affiliates shall use any such information other than in connection
with or in enforcement of this Agreement and the other Loan Documents; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by any Lender or the Administrative
Agent, or (ii) was or becomes available on a 
non-confidential basis from a source other than the Company, provided
that such source is not bound by a confidentiality agreement with the
Company known to the Lender; provided, however, that any Lender
may disclose such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Lender is subject or in connection
with an examination of such Lender by any such authority; (B) pursuant to
subpoena or other court process; (C) when required to do so in accordance with
the provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the
Administrative Agent, any Lender or their respective Affiliates may be party;
(E) to the extent reasonably required in connection with the exercise of any
remedy hereunder or under any other Loan Document; (F) to such Lender’s
independent auditors and other professional advisors; (G) to any Affiliate of
such Lender, or to any Participant or Assignee, actual or potential, provided
that such Affiliate, Participant or Assignee agrees to keep such
information confidential to the same extent required of the Lenders hereunder,
and (H) as to any Lender, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company is party
or is deemed party with such Lender.

(f)            Notwithstanding any other provision in this Agreement,
any Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Notes held
by it in favor of any Federal Reserve Lender in accordance with Regulation A of
the FRB or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve
Lender may enforce such pledge or security interest in any manner permitted
under applicable law.

11.09       Interest.

(a)           It
is the intention of the parties hereto to comply with applicable usury laws, if
any; accordingly, notwithstanding any provision to the contrary in this
Agreement, the Notes or in any of the other Loan Documents securing the payment
hereof or otherwise relating hereto, in no event shall this Agreement, the
Notes or such other Loan Documents require or permit the payment, taking,
reserving, receiving, collection, or charging of any sums constituting interest
under applicable laws  which exceed the
maximum amount permitted by such laws. 
If any such excess interest is called for, contracted for, charged,
taken, reserved, or received in connection with the Loans evidenced by the
Notes or in any of the Loan Documents securing the payment thereof or otherwise
relating thereto, or in any communication by the Administrative Agent, the
Issuing Lender or the Lenders or any other Person to the Company or any other
Person, or in the event all or part of the principal or interest thereof shall
be prepaid or accelerated, so that under any of such circumstances or under any
other circumstance whatsoever the amount of interest contracted for, charged,
taken, reserved, or received on the amount of principal actually outstanding
from time to time under the Notes or any other Loan Document shall exceed the
maximum amount of interest permitted by applicable usury laws, then in any such
event it is agreed as follows:  (i) the
provisions of this paragraph shall govern and control, (ii) neither any Company
nor any other Person now or hereafter liable for the payment of the Notes or
any Obligation shall be obligated to pay the amount of such interest to the
extent such interest is in excess of the maximum amount of interest permitted
by applicable usury laws, (iii) any such excess which is or has been received
notwithstanding this paragraph shall be credited against the then unpaid
principal balance of the Notes or other

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Obligations, as
applicable, or, if the Notes or other Obligations, as applicable, have been or
would be paid in full, refunded to the Company, and (iv) the provisions of this
Agreement, the Notes and the other Loan Documents securing the payment thereof
and otherwise relating thereto, and any communication to the Company, shall
immediately be deemed reformed and such excess interest reduced, without the
necessity of executing any other document, to the maximum lawful rate allowed
under applicable laws as now or hereafter construed by courts having
jurisdiction hereof or thereof.  Without
limiting the foregoing, all calculations of the rate of the interest contracted
for, charged, collected, taken, reserved, or received in connection with the
Notes, this Agreement or any other Loan Document which are made for the purpose
of determining whether such rate exceeds the maximum lawful rate shall be made
to the extent permitted by applicable laws by amortizing, prorating, allocating
and spreading during the period of the full term of the Loans or other
Obligations, as applicable, including all prior and subsequent renewals and
extensions, all interest at any time contracted for, charged, taken, collected,
reserved, or received.  The terms of this
paragraph shall be deemed to be incorporated in every document and
communication relating to the Notes, the Loans or any other Loan Document.

(b)           Texas
Finance Code, Chapter 346 (formerly Tex. 
Rev.  Civ.  Stat., Title 79, Chapter 15), which regulates
certain revolving loan accounts and revolving tri-party accounts, shall not
apply to any revolving loan accounts created under the Notes, this Agreement or
the other Loan Documents or maintained in connection therewith.

(c)           To
the extent that the interest rate laws of the State of Texas are applicable to
the Loans or any other Obligations, the applicable interest rate ceiling is the
weekly ceiling (formerly the indicated rate ceiling) determined in accordance
with Tex.  Rev.  Civ. 
Stat., Title 79, Article 5069-1D.003, also codified at Texas Finance
Code, Section 303.301 (formerly Article 5069-1.01(a)(1)), and, to the extent
that this Agreement, the Notes or any other Loan Document is deemed an open end
account as such term is defined in Tex. 
Rev.  Civ.  Stat., Title 79, Article 5069-1B.002(14),
also codified at Texas Finance Code Section 3.01.001(3) (formerly Article
5069-1.01(f)), the payee retains the right to modify the interest rate in
accordance with applicable law.

11.10       Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as any Guarantor may have under applicable law, the
Company agrees that in the event a payment shall be made by any Guarantor under
a Guaranty in respect of a Loan to the Company the Company shall indemnify such
Guarantor for the full amount of such payment and such Guarantor shall be
subrogated to the rights of the person to whom such payment shall have been
made to the extent of such payment subject to the provisions of the Guaranty
executed by such Guarantor. Notwithstanding any provision of this Agreement to
the contrary, all rights of any Guarantor under this Section 11.10 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full of
the Obligations, and no payments may be made in respect of such rights of
indemnity, contribution or subrogation until all the Obligations have been paid
in full and all Commitments have expired. No failure on the part of the Company
to make the payments required by this Section (or any other payments required
under applicable law or otherwise) shall in any respect limited the obligations
and liabilities required under applicable law or otherwise) shall in any
respect limit the obligations and liability of any Guarantor with respect to
any Guaranty, and Guarantor shall remain liable for the full amount of the
obligation of such Guarantor under each such Guaranty in accordance therewith.

11.11       Collateral Matters; Derivative Contracts.  The benefit of the
Security Documents and of the provisions of this Agreement relating to any
collateral securing the Indebtedness shall also extend to and be available to
any Lender or any Affiliate of a Lender that is counterparty to any Derivative
Contract with the Company or any of its Subsidiaries (including any Derivative
Contract between such

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Persons in existence prior to
the Effective Date) on a pro rata
basis in respect of any obligations of the Company or any of its Subsidiaries
which arise under any such Derivative Contract; provided that the
applicable counterparty must have provided Administrative Agent written notice
of the existence thereof  (such notice to
include a summary of the contract date, price, volumes and other terms of such
Derivative Contracts as Administrative Agent may reasonably request) and such
transaction must not otherwise be prohibited under this Agreement at the time
it was entered into and provided further that if such Lender
or Affiliate ceases to be a Lender (a) its Derivative
Contract obligations shall be secured pari passu with the Lenders’ Obligations
but only to the extent such counterparty’s obligations arise from
transactions entered into at the time such counterparty was a Lender hereunder
or an Affiliate of a Lender hereunder, and (b) such
counterparty shall have no voting rights under any Loan Documents as a
result of the existence of obligations owed to it under any such
Derivative Contract.  For the avoidance of doubt, a Person ceases to
be a Lender hereunder if (i) pursuant to an assignment, such Person ceases to
have any Commitment, Loans and LC Obligation hereunder or (ii) the Commitments
of all of the Lenders hereunder have been terminated and all principal,
interest and other amounts outstanding under this Agreement have been paid in
full in cash (whether as a result of repayment at maturity, prepayment in
connection with the refinancing of this Agreement or otherwise).

11.12       USA Patriot Act Notice.  Each Lender hereby
notifies the Loan Parties that pursuant to the requirements of the USA Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required
to obtain, verify and record information that identifies such Loan Party, which
information includes the name and address of such Loan Party and other
information that will allow such Lender to identify the Loan Party, insofar as
it is needed to comply with the Act, in accordance with the Act. Each Loan
Party hereby represents and warrants to Administrative Agent and each Lender
that such Loan Party is not a country, individual or entity named on the “Specifically Designated National and Blocked Persons” list
issued by the Office of Foreign Asset Control of the Department of the Treasury
of the United States of America.

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

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

11.15       Counterparts. 
This Agreement may be executed in any number of separate counterparts,
each of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument.

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

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enforceability of
the remaining provisions of this Agreement or any instrument or agreement
required hereunder.

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

11.18       Governing Law, Jurisdiction and Waiver
of Jury Trial. The provisions of Section
11.19 hereof shall govern the resolution of any Dispute (as such
term is defined in such Section
11.19).  If, however, the
provisions of Section
11.19 are not invoked as therein provided, the following
provisions shall apply:

(a)           THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS AND APPLICABLE
FEDERAL LAW; AND THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.

(b)           EACH LOAN PARTY PARTY HERETO IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH
IN SCHEDULE 11.02.  SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS
AFTER SUCH MAILING.  NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

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

(d)           THE LOAN PARTIES, THE LENDERS AND THE ADMINISTRATIVE
AGENT EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR

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THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED
PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE LOAN PARTIES, THE LENDERS AND THE ADMINISTRATIVE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

11.19       ARBITRATION.

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

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

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

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

(e)           Judicial Review and Other Exceptions.  Notwithstanding anything herein to the contrary: (i) In any arbitration in which the
amount in controversy exceeds $25,000,000, the arbitrators shall be required to
make specific, written findings of fact and conclusions of law.  In such arbitrations (A) the arbitrators
shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (B) an award shall not
be binding upon the parties unless the findings of fact are supported by substantial
evidence and the conclusions of law are not erroneous under the substantive law
of the state of Texas, and (C) the parties shall have in addition to the
grounds referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (1) whether the findings of
fact rendered by the arbitrators are supported by substantial evidence, and (2)
whether the conclusions of law are erroneous under the substantive law of the
state of Texas.  Judgment confirming an
award in such a proceeding may be entered only if a court determines the award
is supported by substantial evidence and not based on legal error under the
substantive law of the state of Texas; and (ii) Determinations of the Borrowing
Base pursuant to Section
2.05 hereof shall not be subject to review or challenge under
this Section 11.19.

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

11.20       Entire Agreement. 
This Agreement, together with the other Loan Documents, embodies the
entire agreement and understanding among the Company, its Subsidiaries, the
Lenders and the Administrative Agent, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.

11.21       NO ORAL AGREEMENTS. 
THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER WRITTEN LOAN
DOCUMENTS EXECUTED IN CONNECTION HEREWITH,

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REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

[THE REMAINDER OF THIS PAGE
INTENTIONALLY LEFT BLANK]

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

	
  

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING L.P.,

  
	
   

  	
  a Delaware limited Partnership

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall H. Breitenbach

  	
   

  
	
   

  	
   

  	
  Randall H. Breitenbach,

  
	
   

  	
   

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  ALAMITOS COMPANY,

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall H. Breitenbach

  	
   

  
	
   

  	
   

  	
  Randall H. Breitenbach,

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  ALAMITOS COMPANY LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bruce D. McFarland

  	
   

  
	
   

  	
   

  	
  Bruce D. McFarland,

  
	
   

  	
   

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING GP, LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall H. Breitenbach

  	
   

  
	
   

  	
   

  	
  Randall H. Breitenbach,

  
	
   

  	
   

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  BREITBURN ENERGY PARTNERS L.P.,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall H. Breitenbach

  	
   

  
	
   

  	
   

  	
  Randall H. Breitenbach,

  
	
   

  	
   

  	
  Co-Chief Executive Officer

  
							

 

 1
 

 

 

	
  

  	
  PHOENIX PRODUCTION COMPANY,

  
	
   

  	
  a Wyoming corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
  Halbert S. Washburn,

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  PREVENTIVE MAINTENANCE SERVICES LLC,

  
	
   

  	
  a Colorado limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
  Halbert S. Washburn,

  
	
   

  	
   

  	
  President

  
					

 

 2
 

 

 

	
  

  	
  ADMINISTRATIVE AGENT:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jo Ann Vasquez

  	
   

  
	
   

  	
  Name:

  	
  Jo Ann Vasquez

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ISSUING LENDER:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jo Ann Vasquez

  	
   

  
	
   

  	
  Name:

  	
  Jo Ann Vasquez

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  

 

 3
 

 

 

	
  

  	
  LENDERS:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jo Ann Vasquez

  	
   

  
	
   

  	
  Name:

  	
  Jo Ann Vasquez

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  BOM CAPITAL MARKETS
  FINANCING, INC.

  
	
   

  	
  (f/k/a Harris Nesbitt
  Financing, Inc.)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James V.
  Ducote

  	
   

  
	
   

  	
   

  	
  James V. Ducote

  
	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  CITIBANK, N.A.

  
	
   

  	
  (f/k/a Citibank Texas, N.A.)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry Holden

  	
   

  
	
   

  	
   

  	
  Larry Holden

  
	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NOVA SCOTIA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William E.
  Zarrett

  	
   

  
	
   

  	
   

  	
  William E. Zarrett

  
	
   

  	
   

  	
  Managing Director

  
	
   

  	
   

  
	
   

  	
  UNION BANK OF CALIFORNIA,
  N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ M. Jarrod Bourgeois

  	
   

  
	
   

  	
   

  	
  M. Jarrod Bourgeois

  
	
   

  	
   

  	
  Vice President

  
							

 

 4Exhibit 10.2
  
 Execution Copy
   
 

CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

AMONG

PRO GP CORP.,

PRO LP CORP.,

BREITBURN ENERGY CORPORATION,

BREITBURN ENERGY COMPANY L.P.,

BREITBURN MANAGEMENT COMPANY, LLC,

BREITBURN GP, LLC,

BREITBURN ENERGY PARTNERS L.P.,

BREITBURN OPERATING GP, LLC

AND

BREITBURN OPERATING L.P.

 

   
 

 

TABLE
OF CONTENTS

	
  ARTICLE I DEFINITIONS

  	
  3

  
	
   

  	
   

  
	
  Section 1.1

  	
  Terms

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II CONTRIBUTIONS,
  ACKNOWLEDGMENTS AND DISTRIBUTIONS

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Contribution of Interests by BreitBurn Energy to
  Operating LP and Operating GP

  	
  7

  
	
  Section 2.2

  	
  Distribution and Assignment of Interests in
  Operating GP and Operating LP by BreitBurn Energy to Pro GP, Pro LP and BEC

  	
  7

  
	
  Section 2.3

  	
  Contribution of Interests by Pro GP, Pro LP and BEC
  to the General Partner

  	
  7

  
	
  Section 2.4

  	
  Contribution of Interests by the General Partner to
  the Partnership

  	
  8

  
	
  Section 2.5

  	
  Contribution of Interests in Operating GP and
  Operating LP by Pro GP, Pro LP and BEC to the Partnership

  	
  8

  
	
  Section 2.6

  	
  Public Cash Contribution

  	
  8

  
	
  Section 2.7

  	
  Payment of Transaction Expenses by the Partnership;
  Distribution to Pro GP, Pro LP and BEC by the Partnership; Cash Contribution
  by the Partnership to Operating LP

  	
  8

  
	
  Section 2.8

  	
  Contribution of Interests in the General Partner by
  Pro GP, Pro LP and BEC to BreitBurn Management

  	
  8

  
	
  Section 2.9

  	
  Over-Allotment Option

  	
  9

  
	
  Section 2.10

  	
  Redemption of the Initial Limited Partner Interest

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE III ASSUMPTIONS OF
  CERTAIN LIABILITIES; INDEMNIFICATION

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Assumption of Indebtedness

  	
  9

  
	
  Section 3.2

  	
  Environmental Indemnification

  	
  9

  
	
  Section 3.3

  	
  Limitations Regarding Environmental Indemnification

  	
  10

  
	
  Section 3.4

  	
  Additional Indemnification

  	
  10

  
	
  Section 3.5

  	
  Indemnification Procedures

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV TITLE MATTERS

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Encumbrances

  	
  12

  
	
  Section 4.2

  	
  Disclaimer of Warranties; Subrogation; Waiver of
  Bulk Sales Laws

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE V FURTHER ASSURANCES

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Further Assurances

  	
  14

  
	
  Section 5.2

  	
  Other Assurances

  	
  14

  

 

  
 BREITBURN ENERGY PARTNERS L.P.
 CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
 i

 

 

	
  ARTICLE VI EFFECTIVE TIME

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII MISCELLANEOUS

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Order of Completion of Transactions

  	
  15

  
	
  Section 7.2

  	
  Costs

  	
  15

  
	
  Section 7.3

  	
  Headings; References; Interpretation

  	
  16

  
	
  Section 7.4

  	
  Successors and Assigns

  	
  16

  
	
  Section 7.5

  	
  No Third Party Rights

  	
  16

  
	
  Section 7.6

  	
  Counterparts

  	
  16

  
	
  Section 7.7

  	
  Governing Law

  	
  16

  
	
  Section 7.8

  	
  Severability

  	
  16

  
	
  Section 7.9

  	
  Amendment or Modification

  	
  17

  
	
  Section 7.10

  	
  Integration

  	
  17

  
	
  Section 7.11

  	
  Deed; Bill of Sale; Assignment

  	
  17

  
	
   

  	
   

  	
   

  
	
  Schedule A

  	
   

  	
   

  
	
  Schedule B

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
   

  

 

  
 ii

 

CONTRIBUTION,
CONVEYANCE AND ASSUMPTION AGREEMENT

This Contribution, Conveyance and Assumption
Agreement, dated as of October 10, 2006, is entered into by and among Pro GP
Corp., a Delaware corporation (“Pro GP”), Pro LP Corp., a Delaware corporation (“Pro
LP”), BreitBurn Energy Corporation, a California corporation (“BEC”), BreitBurn
Energy Company L.P., a Delaware limited partnership (“BreitBurn Energy”), BreitBurn
Management Company, LLC, a Delaware limited liability company (“BreitBurn
Management”), BreitBurn GP, LLC, a Delaware limited liability company (the “General
Partner”), BreitBurn Energy Partners L.P., a Delaware limited partnership (the “Partnership”),
BreitBurn Operating GP, LLC, a Delaware limited liability company (“Operating
GP”) and BreitBurn Operating L.P., a Delaware limited partnership (“Operating
LP”).  The above-named entities are
sometimes referred to in this Agreement each as a “Party” and
collectively as the “Parties.”  Capitalized terms
used herein shall have the meanings assigned to such terms in Section 1.1.

RECITALS:

WHEREAS,
the General Partner, BEC, Pro GP and Pro LP have formed the Partnership
pursuant to the Delaware Revised Uniform Limited Partnership Act (the “Delaware
LP Act”) for the purpose of engaging in any business activity that is approved
by the General Partner and that lawfully may be conducted by a limited
partnership organized pursuant to the Delaware LP Act;

WHEREAS,
in order to accomplish the objectives and purposes in the preceding recital, each
of the following actions has been taken prior to the date hereof:

1.     Pro GP, Pro LP and BEC formed the General Partner under the
terms of the Delaware Limited Liability Company Act (the “Delaware LLC Act”) and contributed an
aggregate of $1,000 to the General Partner in exchange for all of the member
interests in the General Partner;

2.     Pro GP, Pro LP and BEC formed BreitBurn Management under the
terms of the Delaware LLC Act and contributed an aggregate of $1,000 to
BreitBurn Management in exchange for all of the member interests in BreitBurn
Management;

3.     the General Partner, BEC, Pro GP and Pro LP formed the
Partnership under the terms of the Delaware LP Act and the General Partner contributed
$20 to the Partnership in exchange for a 2% general partner interest in the Partnership
and BEC, Pro GP and Pro LP contributed an aggregate of $980 to the Partnership
in exchange for a 98% limited partner interest in the Partnership (the “Initial
Limited Partner Interest”);

4.     BreitBurn Energy formed Operating GP under the terms of the
Delaware LLC Act and contributed $1,000 to Operating GP in exchange for all of
the member interests in Operating GP; and

 

5.     Operating GP and BreitBurn Energy formed Operating LP under the
terms of the Delaware LP Act and contributed $.01 and $999.99 to Operating LP
in exchange for a .001% general partner interest and a 99.999% limited partner
interest in Operating LP, respectively;

WHEREAS,
concurrently with the consummation of the transactions contemplated hereby,
each of the following shall occur:

1.     BreitBurn Energy will convey to Operating LP (.001% on behalf of
Operating GP) its interests in the Assets (as defined herein) (provided that
with respect to the Non-Consent Assets (as defined herein) same will only be
conveyed to the extent provided herein), and Operating LP will assume the Indebtedness
(as defined herein);

2.     BreitBurn Energy will distribute its interest in Operating GP
and its limited partner interest in Operating LP to Pro GP, Pro LP and BEC in
proportion to their ownership interests in BreitBurn Energy;

3.     Pro GP, Pro LP and BEC will convey a 0.01%, 1.90% and 0.09%,
respectively, interest in Operating LP to the General Partner, which interests
in Operating LP will have an aggregate value equal to 2% of the equity value of
the Partnership at the closing of the transactions contemplated by this
Agreement (as defined herein) and shall be referred to herein as the “Interests”, in exchange for a 0.40%, 95.15%
and 4.45%, respectively, member interest in the General Partner;

4.     the General Partner will convey the Interests to the Partnership
in exchange for a continuation of its 2% general partner interest in the
Partnership;

5.     Pro GP, Pro LP and BEC will convey all of their interests in
Operating GP and their remaining interests in Operating LP to the Partnership
in exchange for (a) 15,975,758 common units (“Common Units”) representing
limited partner interests with a 71.24% limited partner interest in the Partnership
and (b) the right to receive $63.2 million to reimburse them for certain capital
expenditures made directly by them or through BreitBurn Energy;

6.     in connection with the Partnership’s initial public offering
(the “Offering”), the public, through the Underwriters (as defined herein), will
contribute $111,000,000 in cash to the Partnership, less the Underwriters’ discount
of 7%, in exchange for 6,000,000 Common Units representing a 26.76% limited
partner interest in the Partnership;

7.     the Partnership will use the proceeds from the Offering of
Common Units to (a) pay transaction expenses, which are estimated to be $3.5
million (exclusive of the Underwriters’ discount), (b) distribute $63.2 million
to Pro GP, Pro LP and BEC to reimburse them for certain capital expenditures,
and (c) contribute the balance, $36.5 million, to Operating LP (.001% on behalf
of Operating GP), which will use it to retire the Indebtedness;

8.     Pro GP, Pro LP and BEC will convey their interests in the
General Partner to BreitBurn Management as a capital contribution;

 2
 

 

9.     to the extent that the Underwriters exercise their
over-allotment option to purchase up to 900,000 Common Units (the “Over-Allotment Option”), the
Partnership will use the net proceeds to redeem from Pro GP, Pro LP and BEC a
number of Common Units owned by Pro GP, Pro LP and BEC (in proportion to their
Common Unit ownership) equal to those sold pursuant to the Over-Allotment
Option and to reimburse Pro GP, Pro LP and BEC for capital expenditures
incurred by them or BreitBurn Energy; and

10.   the organizational documents of the Parties
will be amended and restated as necessary to reflect the applicable matters set
forth above and as contained in this Agreement;

NOW, THEREFORE, in
consideration of their mutual undertakings and agreements hereunder, the
Parties undertake and agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1                                      Terms.

The following defined terms shall have the meanings
given below:

“Agreement”
means this Contribution, Conveyance and Assumption Agreement.

“Affiliates”
means, with respect 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, the Person in question. As used herein, the term “control”
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.

“Assets”
means the assets listed on Schedule A hereto and as described in the
Assignment with respect thereto.

“Assignment”
means one or more Deed, Assignment and Bill of Sale substantially in the form
attached as Exhibit A, but modified as necessary for state-specific
requirements.

“BEC” has the
meaning as set forth in the opening paragraph of this Agreement.

“BreitBurn Energy”
has the meaning as set forth in the opening paragraph of this Agreement.

“BreitBurn Management”
has the meaning as set forth in the opening paragraph of this Agreement.

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

“Common Units”
has the meaning as set forth in the Partnership Agreement.

 3
 

 

“Conflicts Committee”
means the Conflicts Committee of the General Partner.

“Corporate Subs”
means Alamitos Company and Phoenix Production Company.

“Covered Environmental
Losses” is defined in Section 3.2.

“Delaware GCL”
has the meaning as set forth in the Recitals of this Agreement.

“Delaware LLC Act”
has the meaning as set forth in the Recitals of this Agreement.

“Delaware LP Act”
has the meaning as set forth in the Recitals of this Agreement.

“Effective Date”
means October 10, 2006.

“Effective
Time” means 12:01 a.m.
Eastern Daylight Time on October 10, 2006.

“Environmental Laws” means all federal, state, and local laws,
statutes, rules, regulations, orders and ordinances, legally enforceable
requirements and rules of common law, now or hereafter in effect, relating to
protection of the environment including, without limitation, the federal
Comprehensive Environmental Response, Compensation, and Liability Act, the
Superfund Amendments Reauthorization Act, the Resource Conservation and
Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the
Toxic Substances Control Act, the Oil Pollution Act, the Safe Drinking Water
Act, the Hazardous Materials Transportation Act and other environmental
conservation and protection laws, each as amended from time to time.

“General Partner”
has the meaning as set forth in the opening paragraph of this Agreement.

“Hazardous Substance”
means (a) any substance that is designated, defined or classified as a
hazardous waste, hazardous material, pollutant, contaminant or toxic or
hazardous substance, or that is otherwise regulated under any Environmental
Law, including, without limitation, any hazardous substance as such term is
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, and (b) petroleum, petroleum products, crude oil,
gasoline, natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel
and other petroleum hydrocarbons whether refined or unrefined and (c) asbestos,
whether in a friable or a non-friable condition, and polychlorinated biphenyls.

“Indebtedness” means
the indebtedness listed on Schedule B hereto.

“Indemnified Party”
means either the Partnership Group or BreitBurn Energy, as the case may be,
each in its capacity as a party entitled to indemnification in accordance with
Article III.

“Indemnifying Party”
means either the Partnership Group or BreitBurn Energy, as the case may be,
each in its capacity as a party from whom indemnification may be required in
accordance with Article III.

 4
 

 

“Indemnified  Assets” means
all assets conveyed, contributed or otherwise Transferred by BreitBurn Energy
and its Affiliates to the Partnership Group prior to or on the Effective Date,
including any such assets held by a Person whose ownership interests are
Transferred by BreitBurn Energy and its Affiliates thereof to the Partnership
Group prior to or on the Effective Date by means of operation of law or
otherwise.

“Interests” has the meaning as
set forth in the Recitals of this Agreement.

“Non-Consent Assets” has the
meaning as set forth in Section 2.1 of this Agreement.

“Offering” has
the meaning as set forth in the Recitals of this Agreement.

“Operating GP”
has the meaning as set forth in the opening paragraph of this Agreement.

“Operating LP”
has the meaning as set forth in the opening paragraph of this Agreement.

“Operating Subsidiaries” means the Corporate Subs and the Partnership Subs.

“Operations and Proceeds
Agreement” means one or more agreements substantially in the form attached
as Exhibit B hereto.

“Other Losses”
is defined in 3.4(a).

“Over-Allotment
Option” has the meaning as set forth in the Recitals of this
Agreement.

“Party” or “Parties” has the
meaning as set forth in the opening paragraph of this Agreement.

“Partnership” has
the meaning as set forth in the opening paragraph of this Agreement.

“Partnership Agreement” means the First
Amended and Restated Agreement of Limited Partnership of the Partnership, as it
may be amended, supplemented or restated from time to time.

“Partnership
Entities” means the General Partner, the Partnership, Operating GP,
Operating LP and the Operating Subsidiaries.

“Partnership Group”
means the General Partner, the Partnership and all of their respective
Subsidiaries.

“Partnership Subs”
means Preventive Maintenance Services LLC and Alamitos Company LLC.

“Person”
means an individual or a corporation, limited liability company, partnership,
joint venture, trust, unincorporated organization, association, government
agency or political subdivision thereof or other entity.

“Pro GP” has the
meaning as set forth in the opening paragraph of this Agreement.

 5
 

 

“Pro LP” has the
meaning as set forth in the opening paragraph of this Agreement.

“Registration Statement” means
the registration statement on Form S-1 filed by the Partnership relating to the
Offering.

“Retained Assets”
means the assets and investments owned by BreitBurn Energy and any of its
Affiliates that were not conveyed, contributed or otherwise Transferred to the
Partnership Group pursuant to the Contribution Agreement and other documents
relating to the transactions referred to in the Contribution Agreement,
including, without limitation, the
replacements and natural extensions thereof.

“Subsidiary”
means, with respect to any Person, (a) a corporation of which more than 50% of
the voting power of shares entitled (without regard to the occurrence of any
contingency) to vote in the election of directors or other governing body of
such corporation is owned, directly or indirectly, at the date of determination,
by such Person, by one or more Subsidiaries of such Person or a combination
thereof, (b) a partnership (whether general or limited) or limited liability
company in which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership or member of
such limited liability company, but only if more than 50% of the partnership
interests of such partnership or membership interests of such limited liability
company (considering all of the partnership interests or membership interests
as a single class) is owned, directly or indirectly, at the date of
determination, by such Person, by one or more Subsidiaries of such Person, or a
combination thereof, or (c) any other Person (other than a corporation, a
partnership or a limited liability company) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or
indirectly,  at the date of
determination, has (i) at least a majority ownership interest or (ii) the power
to elect or direct the election of a majority of the directors or other
governing body of such person.

“Surface Operating
Agreement” means the agreement attached as Exhibit C
hereto.

“Transfer”
including the correlative terms “Transferring”
or “Transferred” means any direct or
indirect transfer, assignment, sale, gift, pledge, hypothecation or other
encumbrance, or any other disposition (whether voluntary, involuntary or by
operation of law) of any assets, property or rights.

“Underwriters”
means RBC Capital Markets Corporation, Citigroup Global Markets Inc., Credit
Suisse Securities (USA) LLC, A.G. Edwards & Sons, Inc., Wachovia Capital
Markets, LLC, Deutsche Bank Securities Inc. and Canaccord Adams Inc.

“Voluntary Cleanup Program” means a program of the United States or a state of the
United States enacted pursuant to Environmental Laws which provides for a
mechanism for the written approval of, or authorization to conduct, voluntary
remedial action for the clean-up, removal or remediation of contamination that
exceeds actionable levels established pursuant to Environmental Laws.

 6
 

 

ARTICLE II

CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS

 

Section 2.1                                      Contribution
of Interests by BreitBurn Energy to Operating LP and Operating GP.

BreitBurn Energy hereby agrees to contribute, bargain,
convey, assign, transfer, set over and deliver to Operating LP (.001% on behalf
of Operating GP), its interests in the Assets, as a capital contribution,
pursuant to the Assignment and such other additional instruments and agreements
as may be necessary to affect same in exchange for an assumption by Operating
LP of the Indebtedness, and Operating LP hereby accepts such contribution to
the capital of Operating LP and assumes the Indebtedness; provided however that
the underlying real property interests described in Part 2 of Schedule A and
described in “Exhibit A” to Exhibits B-1 and B-2 to this Agreement
(collectively, the “Non-Consent Assets”) shall only be contributed, if at all,
following receipt of all consents deemed necessary to such contribution by
BreitBurn Energy; and further provided that, with respect to the property
described in Part 3 of Schedule A and described in “Exhibit A” to Exhibit C to
this Agreement, it is understood and agreed that the Surface Use Agreement (as
defined in Exhibit C, the Surface Operating Agreement) related to such property
shall only be contributed, if at all, following receipt of all consents deemed
necessary to such contribution by BreitBurn Energy.  Concurrently, with such contribution, BreitBurn
Energy and Operating LP shall enter into the Operations and Proceeds Agreement with
respect to the Non-Consent Assets and the Surface Operating Agreement.

Section 2.2                                      Distribution and Assignment of Interests in Operating
GP and Operating LP by BreitBurn Energy to Pro GP, Pro LP and BEC.

BreitBurn Energy hereby grants, distributes, contributes,
bargains, conveys, assigns, transfers, sets over and delivers to Pro GP, Pro LP
and BEC, their respective successors and assigns, for their own use forever,
all of its interest in Operating GP and its limited partner interest in
Operating LP in proportion to the ownership of Pro GP, Pro LP and BEC in
BreitBurn Energy, and Pro GP, Pro LP and BEC hereby accept such interests.

Section 2.3                                      Contribution of Interests by Pro GP, Pro LP and BEC
to the General Partner.

Pro GP, Pro LP and BEC hereby grant, contribute,
bargain, convey, assign, transfer, set over and deliver to the General Partner,
its successors and assigns, for its and their own use forever, the Interests,
which Interests have an aggregate value equal to 2% of the equity value of the
Partnership at the closing of the transactions contemplated by this Agreement,
in exchange for a 0.40%, 95.15% and 4.45%, respectively, member interest in the
General Partner, and the General Partner hereby accepts the Interests as a
contribution to the capital of the General Partner.

 7
 

 

Section 2.4             Contribution of Interests by the General Partner to the
Partnership.

 

The General Partner hereby grants, contributes,
bargains, conveys, assigns, transfers, sets over and delivers to the
Partnership, its successors and assigns, for its and their own use forever, the
Interests in exchange for a continuation of its 2% general partner interest in
the Partnership, and the Partnership hereby accepts the Interests as a
contribution to the capital of the Partnership.

Section 2.5                                      Contribution
of Interests in Operating GP and Operating LP by Pro GP, Pro LP and BEC to the
Partnership.

Pro GP, Pro LP and BEC hereby grant, contribute,
bargain, convey, assign, transfer, set over and deliver to the Partnership, its
successors and assigns, for its and their own use forever, all their member
interests in Operating GP and their remaining interests in Operating LP in
exchange for (a) 15,975,758 Common Units, representing limited partner
interests with a 71.24% limited partner interest in the Partnership, and (b)
the right to receive $63.2 million to reimburse them for certain capital
expenditures made directly by them or through BreitBurn Energy, and the
Partnership hereby accepts such member interests in Operating GP and limited
partner interests in Operating LP as a contribution to the capital of the
Partnership.

Section 2.6                                      Public Cash Contribution.

The Parties acknowledge a cash contribution by the
public through the Underwriters to the Partnership of $111,000,000 ($103,230,000
after the Underwriters’ discount of 7%)
in exchange for 6,000,000 Common Units representing a 26.76% limited
partner interest in the Partnership.

Section 2.7                                      Payment of Transaction Expenses by the Partnership;
Distribution to Pro GP, Pro LP and BEC by the Partnership; Cash Contribution by
the Partnership to Operating LP.

The Parties acknowledge (a)
the payment by the Partnership, in connection with the transactions contemplated
hereby, of transaction expenses in the amount of approximately $3.5
million (exclusive of the
Underwriters’ discount), (b) the distribution by the Partnership of
approximately $63.2 million to Pro GP, Pro LP and BEC to reimburse them for
certain capital expenditures and (c) the contribution by the Partnership of its
remaining cash of approximately $36.5 million as a capital contribution to
Operating LP (.001% on behalf of Operating GP), which will use it to retire the
Indebtedness.

Section 2.8                                      Contribution of Interests in the General Partner by
Pro GP, Pro LP and BEC to BreitBurn Management.

Pro GP, Pro LP and BEC hereby grant, contribute,
bargain, convey, assign, transfer, set over and deliver to the BreitBurn
Management, its successors and assigns, for its and their own use forever,
their interests in the General Partner, and BreitBurn Management hereby accepts
their interests in the General Partner as a contribution to the capital of the
BreitBurn Management.

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Section 2.9             Over-Allotment Option.

 

The Parties acknowledge that in the event the
Underwriters exercise their Over-Allotment Option, the Partnership will use the
net proceeds therefrom to redeem from Pro GP, Pro LP and BEC a pro rata number
of Common Units owned by each of Pro GP, Pro LP and BEC equal to the number of
Common Units issued upon exercise of the Over-Allotment Option, at a price per
Common Unit equal to the net proceeds per Common Unit received by the
Partnership after the Underwriters’ discount but before other expenses.

Section 2.10                                Redemption of the Initial Limited Partner Interest.

The Partnership hereby agrees to redeem from BEC, Pro
GP and Pro LP and agrees to retire the Initial Limited Partner Interest in
exchange for an aggregate payment of cash of $980.

ARTICLE
III

ASSUMPTIONS OF CERTAIN LIABILITIES; INDEMNIFICATION

Section 3.1                                      Assumption of Indebtedness.

In connection with the contribution and transfer by
BreitBurn Energy of interests in the Assets to Operating LP, pursuant to Section
2.1 above, Operating LP hereby assumes and agrees to duly and timely pay,
perform and discharge the Indebtedness, to the full extent that the parties
thereto have been heretofore or would have been in the future obligated to pay,
perform and discharge the Indebtedness were it not for the execution and
delivery of this Agreement; provided, however, that said assumption and
agreement to duly and timely pay, perform and discharge the Indebtedness shall
not (a) increase the obligation of the Operating LP with respect to the
Indebtedness beyond that of the parties thereto, (b) waive any valid defense
that was available to the parties thereto with respect to the Indebtedness or
(c) enlarge any rights or remedies of any third party, if any, under the
Indebtedness.

Section 3.2                                      Environmental Indemnification.

(a)           Subject to Section 3.3,
BreitBurn Energy shall indemnify, defend and hold harmless the Partnership
Group from and against any environmental claims, losses and expenses
(including, without limitation, court costs and reasonable attorney’s and
expert’s fees) of any and every kind or character, known or unknown, fixed or
contingent, suffered or incurred by the Partnership Group by reason of or
arising out of:

(i)            any violation of Environmental Laws
associated with the ownership or operation of the Indemnified Assets; or

(ii)           any event or condition associated
with ownership or operation of the Indemnified Assets (including, without
limitation, the presence of Hazardous Substances on, under, about or migrating
to or from the Indemnified Assets or the disposal or release of Hazardous
Substances generated by operation of the Indemnified Assets at non-Indemnified
Asset locations) including, without limitation, (A) the cost and expense

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of any
investigation, assessment, evaluation, monitoring, containment, cleanup, repair,
restoration, remediation, or other corrective action required or necessary
under Environmental Laws or to satisfy any applicable Voluntary Cleanup
Program, (B) the cost or expense of the preparation and implementation of any
closure, remedial, corrective action or other plans required or necessary under
Environmental Laws or to satisfy any applicable Voluntary Cleanup Program and
(C) the cost and expense for any environmental pre-trial, trial, or
appellate legal or litigation support work;

but only to the extent
that such violation complained of under Section 3.2(a)(i) or such events or
conditions included under Section 3.2(a)(ii) occurred before the Effective Date
(collectively, “Covered Environmental Losses”). 
Covered Environmental Losses shall not include any claim, loss or
expense arising from or related to the plugging and abandonment of wells
associated with the Indemnified Assets upon the determination that such well or
wells have reached its or their useful economic life.   The term “plugging and abandonment” as used
herein shall mean all plugging, replugging, and abandonment associated with the
Indemnified Assets, or any portion thereof, and including, but not limited to,
all plugging and abandonment, associated removal, disposal or restoration of
the surface, site clearance and disposal of the wells, structures and personal
property located on or associated with the Indemnified Assets, the removal or
capping and burying of all associated flowlines, the recontouring of the
surface in accordance with applicable laws or the terms and conditions of
applicable leases, licenses, franchises or contracts, site clearance and any
disposal of related waste materials or Hazardous Substances of the type
ordinarily encountered in oil and gas operations, but “plugging and abandonment”
shall not include investigation or remediation of soil, groundwater, or surface
water contamination (requiring remediation or response action under applicable
Environmental Laws) exceeding the level of site restoration typically required
for normal plugging and abandonment activities.

(b)           Except for claims
for Covered Environmental Losses made before the fourth anniversary of the
Effective Date, which shall not terminate, all environmental indemnification
obligations in this 3.2 shall terminate on the fourth anniversary of the
Effective Date.

Section 3.3                                      Limitations Regarding Environmental Indemnification.

The aggregate liability of BreitBurn Energy in respect
of all Covered Environmental Losses under Section 3.2 shall not exceed $5.0 million and BreitBurn
Energy shall not have any obligation under Section 3.2 until such Covered
Environmental Losses exceed $500,000 and
then only to the extent such aggregate Covered Environmental Losses exceed
$500,000.  Notwithstanding anything herein to the
contrary, in no event shall BreitBurn Energy Entities have any indemnification
obligations under Section 3.2 for claims made as a result of additions to or
modifications of Environmental Laws promulgated after the Effective Date.

Section 3.4                                      Additional Indemnification.

(a)           In addition to and
not in limitation of the indemnification provided under Section 3.2, BreitBurn
Energy shall indemnify, defend and hold harmless the Partnership Group from and
against any claims, losses and expenses (including, without limitation, court
costs and reasonable attorney’s and expert’s fees) of any and every kind or
character, known or unknown,

 10
 

 

fixed or
contingent, suffered or incurred by the Partnership Group (“Other Losses”) by
reason of or arising out of (i) failure to convey good and defensible
title to the Indemnified Assets to one or more members of the Partnership Group
subject only to encumbrances that do not materially adversely affect the value
of the Indemnified Assets or the ability of the Partnership Group to operate
the Indemnified Assets in substantially the same manner as they were operated
immediately prior to the Effective Date, (ii) events and conditions associated
with the Retained Indemnified Assets whether occurring before or after the
Effective Date and (iii) all federal, state and local income tax liabilities
attributable to the operation of the Indemnified Assets prior to the Effective
Date, including any such income tax liabilities of BreitBurn Energy that may
result from the consummation of the formation transactions for the Partnership
Entities; provided that the Partnership Group shall not be entitled to the
indemnity in Section 3.2(a)(ii) for Other Losses to the extent caused by gross
negligence, bad faith or fraud or willful misconduct of any member of the
Partnership Group.  All title
indemnification obligations in Section 3.2(a)(i) shall terminate on the fourth
anniversary of the Effective Date

(b)           In addition to and
not in limitation of the indemnification provided under the Partnership
Agreement, the Partnership Group shall indemnify, defend and hold harmless
BreitBurn Energy and its Affiliates from and against any claims, losses and
expenses (including, without limitation, court costs and reasonable attorney’s
and expert’s fees) of any and every kind or character, known or unknown, fixed
or contingent, suffered or incurred by BreitBurn Energy and its Affiliates by
reason of or arising out of events and conditions associated with the operation
of the Indemnified Assets and occurring on or after the Effective Date unless
such indemnification would not be permitted under the Partnership Agreement by
reason of one of the provisos contained in Section 7.7(a) of the Partnership Agreement.

Section 3.5                                      Indemnification Procedures

(a)           The Indemnified
Party agrees that promptly after it becomes aware of facts giving rise to a
claim for indemnification under this Article III, it will provide notice
thereof in writing to the Indemnifying Party, specifying the nature of and
specific basis for such claim.

(b)           The Indemnifying
Party shall have the right to control all aspects of the defense of (and any
counterclaims with respect to) any claims brought against the Indemnified Party
that are covered by the indemnification under this Article III, including,
without limitation, the selection of counsel, determination of whether to
appeal any decision of any court and the settling of any such matter or any
issues relating thereto; provided, however,
that no such settlement shall be entered into without the consent of the
Indemnified Party (with the concurrence of the Conflicts Committee in the case
of the Partnership Group) unless it includes a full release of the Indemnified
Party from such matter or issues, as the case may be, and does not include the
admission of fault, culpability or a failure to act, by or on behalf of such
Indemnified Party.

(c)           The Indemnified
Party agrees to cooperate fully with the Indemnifying Party, with respect
to all aspects of the defense of any claims covered by the indemnification
under this Article III, including, without limitation, the prompt furnishing to
the Indemnifying Party of any
correspondence or other notice relating thereto that the Indemnified Party may
receive, permitting the name of the Indemnified Party to be utilized in
connection with such defense, the

 11

making
available to the
Indemnifying Party of any files, records or other information of the
Indemnified Party that the
Indemnifying Party considers relevant to such defense and the making
available to the Indemnifying Party,
at no cost to the Indemnifying Party, of any employees of the
Indemnified Party; provided, however,
that in connection therewith the
Indemnifying Party agrees to use reasonable efforts to minimize the
impact thereof on the operations of the Indemnified Party and further agrees to
endeavor to maintain the confidentiality of all files, records and other
information furnished by the Indemnified Party pursuant to this Section 3.5.  In no event shall the obligation of the
Indemnified Party to cooperate with the
Indemnifying Party as set forth in the immediately preceding sentence be
construed as imposing upon the Indemnified Party an obligation to hire and pay
for counsel in connection with the defense of any claims covered by the
indemnification set forth in this Article III; provided,
however, that the Indemnified Party may, at its own option, cost and
expense, hire and pay for counsel in connection with any such defense.  The
Indemnifying Party agrees to keep any such counsel hired by the
Indemnified Party informed as to the status of any such defense, but the Indemnifying Party shall have
the right to retain sole control over such defense.

(d)           In determining the
amount of any loss, cost, damage or expense for which the Indemnified Party is
entitled to indemnification under this Agreement, the gross amount of the
indemnification will be reduced by (i) any insurance proceeds realized by the
Indemnified Party and (ii) all amounts recovered by the Indemnified Party under
contractual indemnities from third Persons.

(e)           The date on which
the Indemnifying Party receives notification of a claim for indemnification
shall determine whether such claim is timely made.

ARTICLE IV

TITLE MATTERS

Section 4.1                                      Encumbrances.

(a)           Except to the extent
provided in any other document executed in connection with this Agreement or
the Offering, the contribution and conveyance (by operation of law or
otherwise) of the Assets pursuant to this Agreement are made expressly subject
to all recorded and unrecorded liens (other than consensual liens),
encumbrances, agreements, defects, restrictions, adverse claims and all laws,
rules, regulations, ordinances, judgments and orders of governmental
authorities or tribunals having or asserting jurisdictions over the Assets and
operations conducted thereon or in connection therewith, in each case to the
extent the same are valid and enforceable and affect the Assets, including all
matters that a current survey or visual inspection of the Assets would reflect.

(b)           To the extent that
certain jurisdictions in which the Assets are located may require that
documents be recorded in order to evidence the transfers of title reflected in
this Agreement, then the provisions set forth in Section 4.1(a) immediately
above shall also be applicable to the conveyances under such documents.

 12
 

Section 4.2             Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales Laws.

 

(a)           EXCEPT TO THE EXTENT
PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS
AGREEMENT OR THE OFFERING, THE PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE
PARTIES HAS MADE, DOES NOT MAKE, AND EACH SUCH PARTY SPECIFICALLY NEGATES AND
DISCLAIMS, ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED OR
STATUTORY, ORAL OR WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE,
NATURE, QUALITY OR CONDITION OF THE ASSETS INCLUDING THE WATER, SOIL, GEOLOGY
OR ENVIRONMENTAL CONDITION OF THE ASSETS GENERALLY, INCLUDING THE PRESENCE OR
LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON THE ASSETS, (B) THE
INCOME TO BE DERIVED FROM THE ASSETS, (C) THE SUITABILITY OF THE ASSETS
FOR ANY AND ALL ACTIVITIES AND USES THAT MAY BE CONDUCTED THEREON, (D) THE
COMPLIANCE OF OR BY THE ASSETS OR THEIR OPERATION WITH ANY LAWS (INCLUDING ANY
ZONING, ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES,
REGULATIONS, ORDERS OR REQUIREMENTS), OR (E) THE HABITABILITY,
MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE ASSETS.  EXCEPT TO THE
EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH
THIS AGREEMENT OR THE OFFERING, THE PARTIES ACKNOWLEDGE AND AGREE THAT EACH HAS
HAD THE OPPORTUNITY TO INSPECT THE RESPECTIVE ASSETS, AND EACH IS RELYING
SOLELY ON ITS OWN INVESTIGATION OF THE RESPECTIVE ASSETS AND NOT ON ANY
INFORMATION PROVIDED OR TO BE PROVIDED BY ANY OF THE PARTIES.  EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER
DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE
OFFERING, NONE OF THE PARTIES IS LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR
WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE ASSETS
FURNISHED BY ANY AGENT, EMPLOYEE, SERVANT OR THIRD PARTY.  EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER
DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE
OFFERING, EACH OF THE PARTIES ACKNOWLEDGES THAT TO THE MAXIMUM EXTENT PERMITTED
BY LAW, THE CONTRIBUTION OF THE ASSETS AS PROVIDED FOR HEREIN IS MADE IN AN “AS
IS”, “WHERE IS” CONDITION WITH ALL FAULTS, AND THE ASSETS ARE CONTRIBUTED AND
CONVEYED SUBJECT TO ALL OF THE MATTERS CONTAINED IN THIS SECTION.  THIS SECTION SHALL SURVIVE SUCH CONTRIBUTION
AND CONVEYANCE OR THE TERMINATION OF THIS AGREEMENT.  THE PROVISIONS OF THIS SECTION HAVE BEEN
NEGOTIATED BY THE PARTIES AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A
COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES, WHETHER
EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS THAT MAY ARISE
PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE, EXCEPT AS SET

 13
 

FORTH IN THIS
AGREEMENT OR ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS
AGREEMENT OR THE OFFERING.

(b)           The contributions of
the Assets made under this Agreement are made with full rights of substitution
and subrogation of the respective Parties receiving such contributions, and all
persons claiming by, through and under such Parties, to the extent assignable,
in and to all covenants and warranties by the predecessors-in-title of the
Parties contributing the Assets, and with full subrogation of all rights
accruing under applicable statutes of limitation and all rights of action of
warranty against all former owners of the Assets.

(c)           Each of the Parties
agrees that the disclaimers contained in this Section 4.2 are “conspicuous”
disclaimers.  Any covenants implied by
statute or law by the use of the words “grant,” “contribute,” “distribute,” “convey,”
“bargain,” “assign,” “transfer,” “deliver” or “set over” or any of them or any
other words used in this Agreement are hereby expressly disclaimed, waived or
negated.

(d)           Each of the Parties
hereby waives compliance with any applicable bulk sales law or any similar law
in any applicable jurisdiction in respect of the transactions contemplated by
this Agreement.

ARTICLE V

FURTHER ASSURANCES

Section 5.1                                      Further Assurances.

From time to time after the Effective Time, and
without any further consideration the Parties agree to execute, acknowledge and
deliver all such additional deeds, assignments, bills of sale, conveyances,
instruments, notices, releases, acquittances and other documents, and will do
all such other acts and things, all in accordance with applicable law, as may
be necessary or appropriate (a) more fully to assure that the applicable
Parties own all of the properties, rights, titles, interests, estates,
remedies, powers and privileges granted by this Agreement, or which are
intended to be so granted, or (b) more fully and effectively to vest in
the applicable Parties and their respective successors and assigns beneficial
and record title to the interests contributed and assigned by this Agreement or
intended so to be and to more fully and effectively carry out the purposes and
intent of this Agreement.

Section 5.2                                      Other Assurances.

From time to time after the
Effective Time, and without any further consideration, each of the Parties
shall execute, acknowledge and deliver all such additional instruments, notices
and other documents, and will do all such other acts and things, all in
accordance with applicable law, as may be necessary or appropriate to more
fully and effectively carry out the purposes and intent of this Agreement.  Without limiting the generality of the
foregoing, the Parties acknowledge that the Parties have used their good faith
efforts to attempt to identify all the assets being contributed to the
Partnership Group as required in connection with the Offering.

 14
 

However,
it is possible that assets intended to be contributed to the Partnership Group
were not identified and therefore are not included in the Assets.  It is the express intent of the Parties that
the Partnership Group will own all assets necessary to operate the assets that
are identified on Schedule A to this Agreement and in the Registration
Statement.  To the extent any assets were
not identified but are necessary to the operation of assets that were
identified, then the intent of the Parties is that all such unidentified assets
are intended to be conveyed to the appropriate members of the Partnership
Group.  To the extent such assets are
identified at a later date, the Parties shall take the appropriate actions
required in order to convey all such assets to the appropriate members of the
Partnership Group.  Likewise, to the
extent that assets are identified at a later date that were not intended by the
Parties to be conveyed as reflected in the Registration Statement, the Parties
shall take the appropriate actions required in order to convey all such assets
to the appropriate party.

ARTICLE
VI

EFFECTIVE TIME

Notwithstanding anything contained in this Agreement
to the contrary, none of the provisions of Article II or Article III of this
Agreement shall be operative or have any effect until the Effective Time, at
which time all the provisions of Article II or Article III of this Agreement
shall be effective and operative in accordance with Section 8.1 and this Article
VII, without further action by any Party.

ARTICLE
VII

MISCELLANEOUS

Section 7.1                                      Order
of Completion of Transactions.

The transactions provided for in Article II of this
Agreement shall be completed immediately following the Effective Time in the
order set forth in Article II of this Agreement.  The transaction provided for in Section 3.1 of
this Agreement shall be completed simultaneously with the transactions provided
for in Section 2.1 of this Agreement. 
The transactions provided for in Section 2.9 of this Agreement shall be
completed after those provided for in Article II and Section 3.1 of this
Agreement.

Section 7.2                                      Costs.

Except for the transaction expenses set forth in Section
2.7, the Operating LP shall pay all expenses, fees and costs, including sales,
use and similar taxes arising out of the contributions, conveyances and
deliveries to be made hereunder, and shall pay all documentary, filing,
recording, transfer, deed and conveyance taxes and fees required in connection
therewith. In addition, the Operating LP shall be responsible for all costs,
liabilities and expenses (including court costs and reasonable attorneys’ fees)
incurred in connection with the implementation of any conveyance or delivery
pursuant to Article V of this Agreement.

 15
 

Section 7.3             Headings; References; Interpretation.

 

All Article and Section headings in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning
or construction of any of the provisions hereof.  The words “hereof,” “herein” and “hereunder”
and words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole, including, without limitation, all Schedules and Exhibits
attached hereto, and not to any particular provision of this Agreement.  All references herein to Articles, Sections,
Schedules and Exhibits shall, unless the context requires a different
construction, be deemed to be references to the Articles and Sections of this
Agreement, and the Schedules and Exhibits attached hereto, and all such
Schedules and Exhibits attached hereto are hereby incorporated herein and made
a part hereof for all purposes.  All
personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all other genders, and the singular
shall include the plural and vice versa. 
The terms “include,” “includes,” “including” or words of like import
shall be deemed to be followed by the words “without limitation.”

Section 7.4                                      Successors and Assigns.

The Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.

Section 7.5                                      No Third Party Rights.

The provisions of this Agreement are intended to bind
the Parties as to each other and are not intended to and do not create rights
in any other person or confer upon any other person any benefits, rights or
remedies and no person is or is intended to be a third party beneficiary of any
of the provisions of this Agreement.

Section 7.6                                      Counterparts.

This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the Parties.

Section 7.7                                      Governing Law.

This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
made and to be performed wholly within such state without giving effect to
conflict of law principles thereof.

Section 7.8                                      Severability.

If any of the provisions of this Agreement are held by
any court of competent jurisdiction to contravene, or to be invalid under, the
laws of any political body having jurisdiction over the subject matter hereof,
such contravention or invalidity shall not invalidate the entire
Agreement.  Instead, this Agreement shall
be construed as if it did not contain the particular provision or provisions
held to be invalid, and an equitable adjustment shall be made and necessary
provision

 16
 

added so as to give effect to the intention of the
Parties as expressed in this Agreement at the time of execution of this
Agreement.

Section 7.9                                      Amendment or Modification.

This Agreement may be amended or modified from time to
time only by the written agreement of all the Parties.  Each such instrument shall be reduced to
writing and shall be designated on its face as an amendment to this Agreement.

Section 7.10                                Integration.

This Agreement and the instruments referenced herein
supersede all previous understandings or agreements among the Parties, whether
oral or written, with respect to its subject matter.  This document and such instruments contain
the entire understanding of the Parties. 
No understanding, representation, promise or agreement, whether oral or
written, is intended to be or shall be included in or form part of this
Agreement unless it is contained in a written amendment hereto executed by the
Parties after the date of this Agreement.

Section 7.11                                Deed; Bill of Sale; Assignment.

To the extent required and permitted by applicable
law, this Agreement shall also constitute a “deed,” “bill of sale” or “assignment”
of the assets and interests referenced herein; (but specifically excluding the
Non-Consent Assets and the Surface Use Agreement); provided that in such event,
as regards the Assets, any conflict between this Agreement and the Assignment
shall be construed in favor of the Assignment.

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IN WITNESS WHEREOF,  this Agreement has been duly executed by the
Parties as of the date first written above.

	
  

  	
  PRO GP CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Randall J. Findlay

  	
   

  
	
   

  	
   

  	
   

  	
  Randall J.
  Findlay

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PRO LP CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Randall J. Findlay

  	
   

  
	
   

  	
   

  	
   

  	
  Randall J.
  Findlay

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN ENERGY CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
   

  	
  Halbert S.
  Washburn

  
	
   

  	
   

  	
   

  	
  Co-President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN ENERGY COMPANY L.P.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Pro GP Corp.,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Randall J. Findlay

  	
   

  
	
   

  	
   

  	
   

  	
  Randall J.
  Findlay

  
	
   

  	
   

  	
   

  	
  President

  
						

 

 BREITBURN ENERGY PARTNERS L.P.
 CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
 Signature Pages

 

	
  

  	
  BREITBURN MANAGEMENT COMPANY,

  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
   

  	
  Halbert S.
  Washburn

  
	
   

  	
   

  	
   

  	
  Co-Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
   

  	
  Halbert S. Washburn

  
	
   

  	
   

  	
   

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN ENERGY PARTNERS L.P.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  BreitBurn GP, LLC,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Halbert S.
  Washburn

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Halbert S.
  Washburn

  
	
   

  	
   

  	
   

  	
   

  	
  Co-Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Halbert S. Washburn

  	
   

  
	
   

  	
   

  	
   

  	
  Halbert S.
  Washburn

  
	
   

  	
   

  	
   

  	
  Co-Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING L.P.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  BreitBurn Operating GP, LLC,

  
	
   

  	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Halbert S.
  Washburn

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Halbert S.
  Washburn

  
	
   

  	
   

  	
   

  	
   

  	
  Co-Chief
  Executive Officer

  
							

 

 BREITBURN ENERGY PARTNERS L.P.
 CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
 Signature Pages

EXHIBIT B

OPERATIONS
AND PROCEEDS AGREEMENT

 

EXHIBIT B-1

to that Certain Contribution, Conveyance and
Assumption Agreement

dated October 10, 2006

Among Pro GP Corp., Pro LP Corp., BreitBurn Energy Corporation,

BreitBurn Energy Company L.P., BreitBurn Management Company, LLC,

BreitBurn GP, LLC, BreitBurn Energy Partners L.P.,

BreitBurn Operating G.P., LLC and BreitBurn Operating L.P.

Operations and Proceeds Agreement
[Dominguez]

 

 

OPERATIONS AND PROCEEDS
AGREEMENT

This Operations and
Proceeds Agreement (this “Agreement”)
is entered into this 10th day of October, 2006, by and between BreitBurn Energy
Company L.P. (“Owner-Operator”)
and BreitBurn Operating L.P. (“Counterparty”).  Owner-Operator and Counterparty are sometimes
collectively referred to herein as the “Parties” and individually as a “Party.”

WITNESSETH

WHEREAS, references is
made to that certain Contribution, Conveyance and Assumption Agreement dated October
10, 2006 (the “Contribution Agreement”) in
connection with that certain MLP transaction and related public offering (the “Transaction”), pursuant to which Owner-Operator
has agreed to assign certain Non-Consent Assets (as defined in the Contribution
Agreement) to Counterparty as a capital contribution, and in exchange for an
assumption by Counterparty of Owner-Operator’s debt, only upon the receipt of certain
consents with respect thereto; and

WHEREAS, pending the
receipt of such consents, Owner-Operator has agreed to continue to hold title
and all other interest in and to such Non-Consent Assets and to enter into this
agreement with Counterparty with respect to the conduct of operations and the
allocation of income, cost and liability thereunder; and

WHEREAS, entering into
this Agreement will further the Transaction for the mutual benefit of the
Parties;

NOW, THEREFORE, for and
in consideration of the benefits herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties hereby agree as follows:

ARTICLE I

OPERATIONS

1.1          Operations.  During the term of
this Agreement, Owner-Operator shall conduct all operations with respect to the
oil and gas leases and other properties more particularly described in Exhibit
A hereto (the “Leases”) and all other assets
(including hydrocarbons), contracts and interests held in connection therewith
or produced therefrom (collectively with the Leases, the “Lease Assets”) (such operations being
herein referred to as the “Lease Operations”)
as instructed by Counterparty from time to time.

1.2          Notification.  Owner-Operator
shall, as soon as reasonably practicable, notify Counterparty of:

(a)           any material adverse change to the
Lease Assets or any event that, with the passage of time or otherwise, is
reasonably likely to result in a material adverse change to the Lease Assets;

 1
 

 

(b)           Owner-Operator becoming aware of any
violation of law or breach of contract (or assertion alleging same) involving
the Lease Assets or Lease Operations; and

(c)           any asserted claim or demand with
respect to the Lease Assets or Lease Operations or for which Counterparty could
bear ultimate financial responsibility or liability under the terms hereof or
otherwise.

1.3          Standard of Care.  Owner-Operator
shall conduct the Lease Operations, and maintain the Lease Assets, as would a
reasonable and prudent operator.  If at
any time Owner-Operator determines that complying with Counterparty’s
instructions hereunder would be inconsistent with the standards of a reasonable
and prudent operator, Owner-Operator shall promptly notify Owner-Operator of
its specific concerns and the Parties shall agree on how to proceed but failing
such agreement Owner-Operator shall proceed as instructed by Counterparty; provided
that Owner-Operator shall never be obligated to violate any law or any good
industry standard for protecting health, safety and the environment and
provided that Counterparty shall fully release, indemnify and hold harmless
Owner-Operator from any loss, cost, expense, damage or liability arising from
such action(s) (other than to the extent resulting from Owner-Operator’s gross
negligence or willful misconduct) regardless of simple negligence or strict
liability.

ARTICLE II

ACCOUNTING

2.1          Accounts.  Owner-Operator
shall maintain an accounting, in accordance with prudent and accepted
accounting practices and separately for each operating property subject to this
Agreement, of all income actually received (“Lease
Income”) and all costs actually paid (“Lease Costs”), in each case as attributable to its interest in
the Lease Assets and taking into account any pre-payments by Counterparty under
Section 2.5 (the “Lease Accounting”).

2.2          Statements.  As requested by
Counterparty, but no more often than monthly, during the term of this Agreement
Owner-Operator shall prepare and deliver to Counterparty a statement setting
forth the Lease Accounting for such requested period (each, an “Accounting Statement”), including such
supporting material as is reasonably necessary to document same, or as
Counterparty may reasonably request, and indicating whether, and the extent to
which, Lease Income exceeded Lease Costs for such period (a “Net Profit”) or vice versa (a “Net Loss”). 
On at least a monthly basis, Owner-Operator shall compute the Net Profit
or the Net Loss attributable to each operating property subject to this
Agreement.  Owner-Operator shall obtain
the consent of Counterparty for any non-recurring expenses or any costs outside
normal operations in connection with the Lease Operations in excess of $25,000.

2.3          Payment.  With respect to
each month for which there is a Net Profit, Owner-Operator shall pay
Counterparty, on or before the 25th day of the following month, an amount equal
to such Net Profit.  With respect to each
month for which there is a Net Loss, Counterparty shall pay Owner-Operator, on
or before the 25th day of the following month, an amount equal to such Net
Loss.  All payments hereunder shall be to
accounts of the Parties as indicated to each other in writing from time to
time.

 2
 

 

2.4          Operating/Reserve Accounts.  Notwithstanding the
obligation of Owner-Operator to pay to Counterparty the Net Profit for each
month, Owner-Operator shall, during the term of this Agreement until the final
Accounting Statement issued in connection with the termination of this
Agreement, be entitled to maintain from month to month, an account containing a
balance reasonably approximating the following month’s anticipated expenses
with respect to the Lease Operations and a reasonable emergency reserve (not
exceeding five month’s operating expenses with respect to the Lease
Operations).

2.5          Pre-Payments.  If Owner-Operator
determines, acting reasonably, that any Lease Cost anticipated for the
following month is likely to result in a Net Loss for such month, it shall
promptly notify Counterparty of same and Counterparty shall use reasonable
endeavors to pay such Lease Cost to Owner-Operator in advance of same being
paid by Owner-Operator.

ARTICLE III

INFORMATION ACCESS

3.1          Access.  Owner-Operator
shall:

(a)           permit Counterparty to observe Lease
Operations, have access to the Lease Assets and inspect all files, records and
contracts related thereto; and

(b)           timely provide Counterparty such
information as it may reasonably need (as determined by Owner-Operator acting
in good faith), or as Counterparty may reasonably request from time to time, in
order to (i) be fully and fairly informed as to the state of the Lease Assets
and the Lease Operations conducted and to be conducted, (ii) make reasonably
informed decisions with respect to instructions for Lease Operations or
disposition of the Lease Assets, and (iii) fully document Lease Operations,
Lease Costs and Lease Income hereunder;

in each case except to the extent prohibited by applicable
confidentiality restrictions or other contractual or legal obligations.  Owner-Operator shall reasonably cooperate
with Counterparty’s access to and inspection of such information and the Lease
Assets and Counterparty shall not unreasonably interfere with the operations
and activities of Owner-Operator.

3.2          Audit.  Counterparty shall
have the right, at reasonable intervals and at is own expense, to audit
Owner-Operator’s books and records to confirm compliance with the terms of this
Agreement; provided that if any such audit conclusively identifies material
errors on the part of Owner-Operator, the expense of such audit shall be for
the account of Owner-Operator (notwithstanding Section 5.2).

ARTICLE IV

ASSIGNMENT

4.1          Assignment.  Owner-Operator
shall continue to use commercially reasonable efforts to obtain all necessary
consents for the contribution of the Lease Assets; provided however that
nothing in this Agreement shall require Owner-Operator to incur or agree to
incur any liability or cost, or to make any payment, in conjunction with
obtaining such consent.  Upon 

 3
 

 

the receipt of all
such necessary consents, the Parties shall execute the Assignment (as defined
in the Contribution Agreement) with respect to the Leases and either Party
shall have the right to cause same to be recorded of record, and this Agreement
shall terminate in accordance with Section 6.1(a).

4.2          Title.  Nothing in this
Agreement shall be construed as conveying title to or any interest in the Leases,
all of which, until such time as the Assignment executed pursuant to Section
4.1 shall become effective, shall remain solely with Owner-Operator.  Should any provision of this Agreement be
construed as conveying an interest in the Leases, where such construction would
result in a termination, breach or release of the Leases, then such provision
shall be null and void ab initio
and of no force or effect.  If any such
nullified provision alters the overall economic effect between the Parties
hereunder, the Parties shall use good faith efforts to amend this Agreement to
create the economic effect that would have existed but for such nullification.

ARTICLE V

INDEMNIFICATION

5.1          Owner-Operator Indemnification.  Owner-Operator
shall release, defend, indemnify and hold harmless Counterparty from and
against any and all loss, cost, expense, damage and liability arising out of or
related to the Lease Operations or the ownership or operation of the Lease
Assets, in each case (i) to the extent resulting from Owner-Operator’s breach
of this Agreement, gross negligence or willful misconduct or (ii) to the extent
attributable to periods prior to the date hereof.

5.2          Counterparty Indemnification.  Counterparty shall
release, defend, indemnify and hold harmless Owner-Operator from and against
any and all loss, cost, expense, damage and liability arising out of or related
to the Lease Operations or the ownership or operation of the Lease Assets
(other than to the extent of Owner-Operator’s indemnification set forth in
Section 5.1 above) to the extent attributable to periods from and after the
date hereof.

ARTICLE VI

TERMINATION

6.1          Termination.  This Agreement
shall terminate upon the first to occur of:

(a)           the Assignment executed pursuant to
Section 4.1 becoming effective in accordance with its terms;

(b)           Owner-Operator and Counterparty
ceasing to be Affiliates; and

(c)           Owner-Operator and Counterparty
mutually agree in writing to such termination.

For purposes of this Section, “Affiliate”
shall mean, with respect to a given person or entity, any other person or
entity (i) that directly or indirectly (through one or more intermediaries)
controls, or is controlled by, or is under common control with, such first
mentioned person or entity, (ii)

 4
 

 

that beneficially owns, holds or controls 50% or more of the interest
of such first mentioned person or entity, or (iii) for which 50% or more of the
interest therein is beneficially owned, held or controlled by such first
mentioned person or entity.

6.2.         Final Accounting Statement.  Upon termination of
this Agreement, Owner-Operator shall promptly deliver to Counterparty a final
Accounting Statement effective as of the date of such termination (taking into
account the balance of any reserve or operating accounts existing as of the
date of such termination) and the Parties shall promptly pay any final Net
Profits or Net Loss in accordance with the terms of Section 2.3.

6.3          Survival.  Notwithstanding the
termination of this Agreement, Section 6.2 shall survive until such time as the
Parties have fulfilled their obligations thereunder; Section 2.3 shall survive
to the extent required for the effectiveness of Section 6.2; Section 3.2 shall
survive for a period of 1 year; Sections 5.1 and 5.2 shall survive
indefinitely; and this Section 6.3 shall survive to the extent necessary to
give effect to terms hereof.

ARTICLE VII

MISCELLANEOUS

7.1          Choice of Law.  This Agreement shall be governed by the laws
of the State of California without regard to choice of law principles that
would apply the laws of another jurisdiction.

7.2          Severability.  If any provision of
this Agreement contravenes, or is unenforceable under, applicable laws such
provision shall be deemed severable and of no force or effect to the extent of
such contravention or unenforceability but all other provisions hereof shall
nevertheless remain in full force and effect. If any such severed provision
alters the overall economic effect between the Parties hereunder, the Parties
shall use good faith efforts to amend this Agreement to create the economic
effect that would have existed but for such severing.

7.3          Assignments.  Neither Party shall
assign this Agreement without the express prior written consent of the other
Party.  Owner-Operator shall not assign
the Leases without the express prior written consent of Counterparty.

 5
 

 

7.4          Headings.  The headings of
Articles and Sections of this Agreement are used for convenience of reference
only and shall not limit or affect the legal construction of any provision
hereof.

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

	
   

  	
  BREITBURN ENERGY COMPANY
  L.P.,

  
	
   

  	
  a Delaware
  limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
  Name:

  	
  Randall H. Breitenbach

  
	
   

  	
  Title:

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING L.P., a Delaware limited

  
	
   

  	
  partnership

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  BreitBurn Operating GP, LLC, a Delaware

  
	
   

  	
   

  	
   

  	
  limited liability company, its general

  
	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Randall H. Breitenbach

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-Chief Executive Officer

  
							

 

 6

EXHIBIT
B-2

to that Certain Contribution, Conveyance and Assumption Agreement

dated October 10, 2006

Among Pro GP Corp., Pro LP Corp., BreitBurn Energy Corporation,

BreitBurn Energy Company L.P., BreitBurn Management Company, LLC,

BreitBurn GP, LLC, BreitBurn Energy Partners L.P.,

BreitBurn Operating G.P., LLC and BreitBurn Operating L.P.

BreitBurn
Operating G.P., LLC and BreitBurn Operating L.P.

Operations
and Proceeds Agreement [Long Beach]

 

 

OPERATIONS AND PROCEEDS
AGREEMENT

This Operations and
Proceeds Agreement (this “Agreement”)
is entered into this 10th day of October, 2006, by and between BreitBurn Energy
Company L.P. (“Owner-Operator”)
and BreitBurn Operating L.P. (“Counterparty”).  Owner-Operator and Counterparty are sometimes
collectively referred to herein as the “Parties” and individually as a “Party.”

WITNESSETH

WHEREAS, references is
made to that certain Contribution, Conveyance and Assumption Agreement dated October
10, 2006 (the “Contribution Agreement”) in
connection with that certain MLP transaction and related public offering (the “Transaction”), pursuant to which Owner-Operator
has agreed to assign certain Non-Consent Assets (as defined in the Contribution
Agreement) to Counterparty as a capital contribution, and in exchange for an
assumption by Counterparty of Owner-Operator’s debt, only upon the receipt of certain
consents with respect thereto; and

WHEREAS, pending the
receipt of such consents, Owner-Operator has agreed to continue to hold title
and all other interest in and to such Non-Consent Assets and to enter into this
agreement with Counterparty with respect to the conduct of operations and the
allocation of income, cost and liability thereunder; and

WHEREAS, entering into
this Agreement will further the Transaction for the mutual benefit of the
Parties;

NOW, THEREFORE, for and
in consideration of the benefits herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties hereby agree as follows:

ARTICLE I

OPERATIONS

1.1          Operations.  During the term of
this Agreement, Owner-Operator shall conduct all operations with respect to the
oil and gas leases and other properties more particularly described in Exhibit
A hereto (the “Leases”) and all other assets (including
hydrocarbons), contracts and interests held in connection therewith or produced
therefrom (collectively with the Leases, the “Lease
Assets”) (such operations being herein referred to as the “Lease Operations”) as instructed by
Counterparty from time to time.

1.2          Notification.  Owner-Operator
shall, as soon as reasonably practicable, notify Counterparty of:

(a)           any material adverse
change to the Lease Assets or any event that, with the passage of time or
otherwise, is reasonably likely to result in a material adverse change to the
Lease Assets;

 1
 

 

(b)           Owner-Operator becoming
aware of any violation of law or breach of contract (or assertion alleging
same) involving the Lease Assets or Lease Operations; and

(c)           any asserted claim or
demand with respect to the Lease Assets or Lease Operations or for which
Counterparty could bear ultimate financial responsibility or liability under
the terms hereof or otherwise.

1.3          Standard of Care.  Owner-Operator
shall conduct the Lease Operations, and maintain the Lease Assets, as would a
reasonable and prudent operator.  If at
any time Owner-Operator determines that complying with Counterparty’s
instructions hereunder would be inconsistent with the standards of a reasonable
and prudent operator, Owner-Operator shall promptly notify Owner-Operator of
its specific concerns and the Parties shall agree on how to proceed but failing
such agreement Owner-Operator shall proceed as instructed by Counterparty;
provided that Owner-Operator shall never be obligated to violate any law or any
good industry standard for protecting health, safety and the environment and
provided that Counterparty shall fully release, indemnify and hold harmless
Owner-Operator from any loss, cost, expense, damage or liability arising from
such action(s) (other than to the extent resulting from Owner-Operator’s gross
negligence or willful misconduct) regardless of simple negligence or strict
liability.

ARTICLE II

ACCOUNTING

2.1          Accounts.  Owner-Operator
shall maintain an accounting, in accordance with prudent and accepted
accounting practices and separately for each operating property subject to this
Agreement, of all income actually received (“Lease
Income”) and all costs actually paid (“Lease Costs”), in each case as attributable to its interest in
the Lease Assets and taking into account any pre-payments by Counterparty under
Section 2.5 (the “Lease Accounting”).

2.2          Statements.  As requested by
Counterparty, but no more often than monthly, during the term of this Agreement
Owner-Operator shall prepare and deliver to Counterparty a statement setting
forth the Lease Accounting for such requested period (each, an “Accounting Statement”), including such
supporting material as is reasonably necessary to document same, or as
Counterparty may reasonably request, and indicating whether, and the extent to
which, Lease Income exceeded Lease Costs for such period (a “Net Profit”) or vice versa (a “Net Loss”). 
On at least a monthly basis, Owner-Operator shall compute the Net Profit
or the Net Loss attributable to each operating property subject to this
Agreement.  Owner-Operator shall obtain
the consent of Counterparty for any non-recurring expenses or any costs outside
normal operations in connection with the Lease Operations in excess of $25,000.

2.3          Payment.  With respect to
each month for which there is a Net Profit, Owner-Operator shall pay
Counterparty, on or before the 25th day of the following month, an amount equal
to such Net Profit.  With respect to each
month for which there is a Net Loss, Counterparty shall pay Owner-Operator, on
or before the 25th day of the following month, an amount equal to such Net
Loss.  All payments hereunder shall be to
accounts of the Parties as indicated to each other in writing from time to
time.

 2
 

 

2.4          Operating/Reserve
Accounts. 
Notwithstanding the obligation of Owner-Operator to pay to Counterparty
the Net Profit for each month, Owner-Operator shall, during the term of this
Agreement until the final Accounting Statement issued in connection with the
termination of this Agreement, be entitled to maintain from month to month, an
account containing a balance reasonably approximating the following month’s
anticipated expenses with respect to the Lease Operations and a reasonable
emergency reserve (not exceeding five month’s operating expenses with respect
to the Lease Operations).

2.5          Pre-Payments.  If Owner-Operator
determines, acting reasonably, that any Lease Cost anticipated for the
following month is likely to result in a Net Loss for such month, it shall
promptly notify Counterparty of same and Counterparty shall use reasonable
endeavors to pay such Lease Cost to Owner-Operator in advance of same being
paid by Owner-Operator.

ARTICLE III

INFORMATION ACCESS

3.1          Access.  Owner-Operator
shall:

(a)           permit Counterparty to
observe Lease Operations, have access to the Lease Assets and inspect all
files, records and contracts related thereto; and

(b)           timely provide
Counterparty such information as it may reasonably need (as determined by
Owner-Operator acting in good faith), or as Counterparty may reasonably request
from time to time, in order to (i) be fully and fairly informed as to the state
of the Lease Assets and the Lease Operations conducted and to be conducted,
(ii) make reasonably informed decisions with respect to instructions for Lease
Operations or disposition of the Lease Assets, and (iii) fully document Lease
Operations, Lease Costs and Lease Income hereunder;

in each case except to the extent prohibited by applicable
confidentiality restrictions or other contractual or legal obligations.  Owner-Operator shall reasonably cooperate
with Counterparty’s access to and inspection of such information and the Lease
Assets and Counterparty shall not unreasonably interfere with the operations
and activities of Owner-Operator.

3.2          Audit. 
Counterparty shall have the right, at reasonable intervals and at is own
expense, to audit Owner-Operator’s books and records to confirm compliance with
the terms of this Agreement; provided that if any such audit conclusively
identifies material errors on the part of Owner-Operator, the expense of such
audit shall be for the account of Owner-Operator (notwithstanding Section 5.2).

ARTICLE IV

ASSIGNMENT

4.1          Assignment.  Owner-Operator
shall continue to use commercially reasonable efforts to obtain all necessary
consents for the contribution of the Lease Assets; provided however that
nothing in this Agreement shall require Owner-Operator to incur or agree to
incur any liability or cost, or to make any payment, in conjunction with
obtaining such consent.  Upon 

 3
 

 

the receipt of all
such necessary consents, the Parties shall execute the Assignment (as defined
in the Contribution Agreement) with respect to the Leases and either Party
shall have the right to cause same to be recorded of record, and this Agreement
shall terminate in accordance with Section 6.1(a).

4.2          Title.  Nothing in this
Agreement shall be construed as conveying title to or any interest in the Leases,
all of which, until such time as the Assignment executed pursuant to Section
4.1 shall become effective, shall remain solely with Owner-Operator.  Should any provision of this Agreement be
construed as conveying an interest in the Leases, where such construction would
result in a termination, breach or release of the Leases, then such provision shall
be null and void ab initio and of
no force or effect.  If any such
nullified provision alters the overall economic effect between the Parties
hereunder, the Parties shall use good faith efforts to amend this Agreement to
create the economic effect that would have existed but for such nullification.

ARTICLE V

INDEMNIFICATION

5.1          Owner-Operator
Indemnification.  Owner-Operator shall release, defend,
indemnify and hold harmless Counterparty from and against any and all loss,
cost, expense, damage and liability arising out of or related to the Lease
Operations or the ownership or operation of the Lease Assets, in each case (i)
to the extent resulting from Owner-Operator’s breach of this Agreement, gross negligence
or willful misconduct or (ii) to the extent attributable to periods prior to
the date hereof.

5.2          Counterparty
Indemnification.  Counterparty shall release, defend, indemnify
and hold harmless Owner-Operator from and against any and all loss, cost,
expense, damage and liability arising out of or related to the Lease Operations
or the ownership or operation of the Lease Assets (other than to the extent of Owner-Operator’s
indemnification set forth in Section 5.1 above) to the extent attributable to
periods from and after the date hereof.

ARTICLE VI

TERMINATION

6.1          Termination.  This Agreement
shall terminate upon the first to occur of:

(a)           the Assignment executed
pursuant to Section 4.1 becoming effective in accordance with its terms;

(b)           Owner-Operator and
Counterparty ceasing to be Affiliates; and

(c)           Owner-Operator and
Counterparty mutually agree in writing to such termination.

For purposes of this Section, “Affiliate”
shall mean, with respect to a given person or entity, any other person or
entity (i) that directly or indirectly (through one or more intermediaries)
controls, or is controlled by, or is under common control with, such first
mentioned person or entity, 

 4
 

 

(ii) that beneficially owns, holds or controls 50% or more of the
interest of such first mentioned person or entity, or (iii) for which 50% or
more of the interest therein is beneficially owned, held or controlled by such
first mentioned person or entity.

6.2.         Final Accounting
Statement. 
Upon termination of this Agreement, Owner-Operator shall promptly
deliver to Counterparty a final Accounting Statement effective as of the date
of such termination (taking into account the balance of any reserve or
operating accounts existing as of the date of such termination) and the Parties
shall promptly pay any final Net Profits or Net Loss in accordance with the
terms of Section 2.3.

6.3          Survival.  Notwithstanding the
termination of this Agreement, Section 6.2 shall survive until such time as the
Parties have fulfilled their obligations thereunder; Section 2.3 shall survive
to the extent required for the effectiveness of Section 6.2; Section 3.2 shall
survive for a period of 1 year; Sections 5.1 and 5.2 shall survive
indefinitely; and this Section 6.3 shall survive to the extent necessary to
give effect to terms hereof.

ARTICLE VII

MISCELLANEOUS

7.1          Choice of Law.  This Agreement shall be governed by the laws
of the State of California without regard to choice of law principles that
would apply the laws of another jurisdiction.

7.2          Severability.  If any provision of
this Agreement contravenes, or is unenforceable under, applicable laws such
provision shall be deemed severable and of no force or effect to the extent of
such contravention or unenforceability but all other provisions hereof shall
nevertheless remain in full force and effect. If any such severed provision
alters the overall economic effect between the Parties hereunder, the Parties
shall use good faith efforts to amend this Agreement to create the economic
effect that would have existed but for such severing.

7.3          Assignments.  Neither Party shall
assign this Agreement without the express prior written consent of the other
Party.  Owner-Operator shall not assign
the Leases without the express prior written consent of Counterparty.

 5
 

 

7.4          Headings.  The headings of
Articles and Sections of this Agreement are used for convenience of reference
only and shall not limit or affect the legal construction of any provision
hereof.

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

	
   

  	
  BREITBURN ENERGY COMPANY
  L.P.,

  
	
   

  	
  a Delaware
  limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
  Name:

  	
  Randall H. Breitenbach

  
	
   

  	
  Title:

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BREITBURN OPERATING L.P., a Delaware limited
  partnership

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  BreitBurn Operating GP, LLC, a Delaware

  
	
   

  	
   

  	
   

  	
  limited liability company, its general

  
	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Randall H. Breitenbach

  
	
   

  	
   

  	
   

  	
  Title: 

  	
  Co-Chief Executive Officer

  
								

 

 6

EXHIBIT C

SURFACE
OPERATING AGREEMENT

 

 

SURFACE OPERATING AGREEMENT

This Surface Operating Agreement
(this “Agreement”) is entered into
this 10th day of October, 2006, by and between BreitBurn Energy Company L.P. and
its predecessor BreitBurn Energy Corporation (collectively “Surface Operator”) and BreitBurn Operating
L.P. (“Owner”).  Surface Operator and Owner are sometimes
collectively referred to herein as the “Parties” and individually as a “Party.”

WITNESSETH

WHEREAS, reference is
made to that certain Contribution, Conveyance and Assumption Agreement dated
October 10, 2006, in connection with that certain MLP transaction and related
public offering (the “Transaction”),
pursuant to which Surface Operator has assigned that certain oil and gas lease
more particularly described in Exhibit A (the “Lease”)
to Owner as a capital contribution and in exchange for an assumption by Owner
of Surface Operator’s debt; and

WHEREAS, reference is
made to that certain Agreement between United States of America and Hancock Oil
Company dated the 19th day of August, 1954, pursuant to which Surface Operator,
as successor in interest to Hancock Oil Company, has the right to conduct
operations on the surface of the lands covered by the Lease (the “Surface Use Agreement”); and

WHEREAS, assignment of
the Surface Use Agreement requires the prior written consent of the government,
which consent has not yet been obtained as of the date of the closing of the
Transaction; and

WHEREAS, pending the
receipt of such consent, Surface Operator has agreed to continue to conduct all
operations with respect to such Lease to the extent requiring access to the surface
of the lands governed by the Surface Use Agreement in consideration for Owner
assuming all obligations of Surface Operator thereunder, all in accordance with
the terms hereof; and

WHEREAS, entering into
this Agreement will further the Transaction for the mutual benefit of the
Parties;

NOW, THEREFORE, for and
in consideration of the benefits herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties hereby agree as follows:

ARTICLE I

OPERATIONS

1.1          Operations.  During the term of this Agreement, Surface
Operator shall conduct such operations with respect to the Lease and all other
assets (including hydrocarbons), contracts and interests held in connection
therewith or produced therefrom (collectively with the Lease, the “Lease Assets”) to the extent requiring
access to the surface of the lands covered by, or 

 2
 

 

otherwise
related to or arising under, the Surface Use Agreement (such operations being
herein referred to as the “Surface Operations”),
if any, as instructed by Owner from time to time.

1.2          Standard of Care.  Surface Operator shall conduct the Surface
Operations in a good and workmanlike manner in accordance with all applicable
laws and good industry standards for protecting health, safety and the
environment.  If at any time Surface
Operator determines that complying with Owner’s instructions hereunder would be
inconsistent with such standards, Surface Operator shall promptly notify Surface
Operator of its specific concerns and the Parties shall agree on how to proceed,
but failing such agreement Surface Operator shall proceed as instructed by Owner;
provided that Surface Operator shall never be obligated to violate any law or
any good industry standard for protecting health, safety and the environment
and provided that Owner shall fully release, indemnify and hold harmless
Surface Operator from any loss, cost, expense, damage or liability arising from
such action(s) (other than to the extent resulting from Surface Operator’s
gross negligence or willful misconduct in conducting Surface Operations)
regardless of simple negligence or strict liability.

ARTICLE II

ACCOUNTING

2.1          Invoices.  The Parties shall use reasonable efforts to
cause all third party invoices for services rendered in connection with the
Surface Operations (each, a “Third Party
Invoice”) to be delivered directly to Owner for payment.  Surface Operator shall promptly forward to
Owner all Third Party Invoices it receives, in order for Owner to have
sufficient time to pay same, together with such supporting material as is
reasonably necessary to document any Third Party Invoice or as Owner may
reasonably request. Surface Operator shall obtain the consent of Owner for
non-recurring expenses or any costs outside the ordinary operations in
connection with the Surface Operations in excess of $25,000.

2.2          Out of Pocket
Expenses.  Owner shall reimburse Surface
Operator on a monthly basis for all direct and indirect expenses including
reasonable overhead and indirect costs, incurred by Surface Operator in
conducting operations on behalf of Owner hereunder.  Such reimbursement shall be determined pursuant
to the Administrative Services Agreement by and among Owner, Surface Operator
and BreitBurn Management Company, LLC, or its equivalent, as amended from time
to time.  If Surface Operator reasonably
incurs any direct out-of-pocket expenses in connection with conducting the
Surface Operations during a given month, Owner shall reimburse Surface Operator
as follows.  With respect to the
reimbursement of operating costs or out-of-pocket expenses, Surface Operator
shall, within 30 days following the end of such month, prepare and deliver to
Owner an invoice setting forth the amount of such expenses, including such
supporting material as is reasonably necessary to document same, or as Owner
may reasonably request.  Owner shall pay Surface
Operator, within 15 days following receipt of such invoice, all amounts set
forth therein other than amounts subject to a good faith dispute among the
Parties.  All payments to Surface
Operator hereunder shall be to the account it designates in writing from time
to time.

 3
 

 

ARTICLE III

REPORTING

3.1          Reporting.  Surface Operator shall timely provide Owner
such information as it may reasonably need (as determined by Surface Operator
acting in good faith), or as Owner may reasonably request from time to time, in
order to (i) be fully and fairly informed as to the Surface Operations, (ii)
make reasonably informed decisions with respect to instructions for changes to
or additional Surface Operations, and (iii) fully document Surface Operations,
operating fee, Third Party Invoices and Direct Expenses hereunder.  Without limiting the generality of the
foregoing, Operator shall, as soon as reasonably practicable following becoming
aware of same in connection with conducting the Surface Operations, notify
Owner of:

(a)           any material adverse
change to the Lease Assets or any event that, with the passage of time or
otherwise, is reasonably likely to result in a material adverse change to the
Lease Assets;

(b)           any violation of law or
breach of contract (or assertion alleging same) involving the Lease Assets or
Surface Operations; and

(c)           any asserted claim or
demand with respect to the Lease Assets or Surface Operations or for which
Owner could bear ultimate financial responsibility or liability under the terms
hereof or otherwise.

ARTICLE IV

SURFACE USE ASSIGNMENT

4.1          Consent.  Surface Operator shall take such steps as the
Parties shall mutually agree for the purposes of obtaining all necessary
consents to assign the Surface Use Agreement to Owner.

4.2          No-Conveyance.  Nothing in this Agreement shall be construed
as conveying the Surface Use Agreement to Owner, which, until such time as all
necessary consents have been received, shall remain solely with Surface
Operator.  Should any provision of this
Agreement be construed as conveying the Surface Use Agreement, where such
construction would result in a termination, breach or release of the Surface
Use Agreement, then such provision shall be null and void ab initio and of no force or effect.  If any such nullified provision alters the
overall economic effect between the Parties hereunder, the Parties shall use
good faith efforts to amend this Agreement to create the economic effect that
would have existed but for such nullification.

ARTICLE V

ASSUMPTION AND INDEMNIFICATION

5.1          Assumed Obligations.  Owner hereby assumes all costs and
liabilities of Surface Operator or any predecessors in interest, including
costs and liabilities attributable to 

 4
 

 

abandonment,
operations, plugging and remediation, arising under the Surface Use Agreement
(the “Assumed Obligations”).

5.2          Indemnification.  Owner shall release, defend, indemnify and
hold harmless Surface Operator from and against any and all loss, cost,
expense, damage and liability (including but not limited to reasonable attorney’s
fees) arising out of or related to the Surface Operations, the Surface Use
Agreement or the ownership of the Lease, including without limitation all
Assumed Obligations (other than to the extent resulting from Surface Operator’s
material breach of this Agreement, or gross negligence or willful misconduct in
conducting Surface Operations), regardless of
Surface Operator’s simple negligence or strict liability.

ARTICLE VI

TERMINATION

6.1          Termination.  This Agreement shall terminate upon the first
to occur of:

(a)           the assignment by Surface
Operator to Owner of the Surface Use Agreement following the receipt of all consents
necessary therefor;

(b)           Surface Operator and Owner
ceasing to be Affiliates; and

(c)           the Owner and Surface
Operator mutually agree in writing to such termination.

For purposes of this Section, “Affiliate” shall mean, with respect to a
given person or entity, any other person or entity (i) that directly or
indirectly (through one or more intermediaries) controls, or is controlled by,
or is under common control with, such first mentioned person or entity, (ii)
that beneficially owns, holds or controls 50% or more of the interest of such
first mentioned person or entity, or (iii) for which 50% or more of the
interest therein is beneficially owned, held or controlled by such first
mentioned person or entity.

6.2          Survival.  Article V shall survive the termination of
this Agreement.

ARTICLE VII

MISCELLANEOUS

7.1          Choice of Law.  This Agreement shall be governed by the laws
of the State of California without regard to choice of law principles that
would apply the laws of another jurisdiction.

7.2          Severability.  If any provision of this Agreement
contravenes, or is unenforceable under, applicable laws such provision shall be
deemed severable and of no force or effect to the 

 5
 

 

extent of such contravention or unenforceability but all other
provisions hereof shall nevertheless remain in full force and effect. If any
such severed provision alters the overall economic effect between the Parties
hereunder, the Parties shall use good faith efforts to amend this Agreement to
create the economic effect that would have existed but for such severing.

7.3          Assignments.  Neither Party shall assign this Agreement
without the express prior written consent of the other Party.

7.4          Headings.  The headings of Articles and Sections of this
Agreement are used for convenience of reference only and shall not limit or
affect the legal construction of any provision hereof.

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

	
   

  	
  BREITBURN ENERGY COMPANY
  L.P.,

  
	
   

  	
  a Delaware
  limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
  Name:

  	
  Randall H. Breitenbach

  
	
   

  	
  Title:

  	
  Co-Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BREITBURN ENERGY
  CORPORATION,

  
	
   

  	
  a California
  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
  Name:

  	
  Randall H. Breitenbach

  
	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BREITBURN
  OPERATING L.P., a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  BreitBurn
  Operating GP, LLC, a Delaware

  
	
   

  	
   

  	
   

  	
  limited liability company, its general

  
	
   

  	
   

  	
   

  	
  partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ RANDALL H. BREITENBACH

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Randall H. Breitenbach

  
	
   

  	
   

  	
   

  	
  Title: 

  	
  Co-Chief Executive Officer

  
								

 

 

 6

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