Document:

Exhibit 10.10

 

EXECUTION COPY

 

 

CANADIAN COLLATERAL AGREEMENT 

(INTERCOMPANY NOTES)

 

dated as of

 

November 15, 2007

 

among

 

NOVAMERICAN STEEL INC.

and

 

BNY TRUST COMPANY OF CANADA

 

as Canadian Collateral Agent

 

THIS CANADIAN COLLATERAL AGREEMENT IS SUBJECT TO THE PROVISIONS OF THE
LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT OF EVEN DATE HEREWITH AMONG
SYMMETRY HOLDINGS INC., NOVAMERICAN STEEL FINCO INC., NOVAMERICAN STEEL INC.,
OTHER SUBSIDIARIES OF SYMMETRY HOLDINGS INC. IDENTIFIED THEREIN, JPMORGAN CHASE
BANK, N.A., AS ADMINISTRATIVE AGENT, AND THE BANK OF NEW YORK, AS COLLATERAL
AGENT UNDER THE FINANCING DOCUMENTS, AS MORE FULLY SET FORTH IN SECTION 5.15
HEREOF.

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I Definitions

  	
  1

  
	
   

  	
   

  
	
  SECTION 1.01. Terms Generally

  	
  1

  
	
  Other Defined Terms

  	
  2

  
	
   

  	
   

  
	
  ARTICLE II Pledge of Securities

  	
  9

  
	
   

  	
   

  
	
  SECTION 2.01. Pledge

  	
  9

  
	
  SECTION 2.02. Delivery
  of the Pledged Collateral

  	
  10

  
	
  SECTION 2.03.
  Representations, Warranties and Covenants

  	
  11

  
	
  SECTION 2.04.
  Registration in Nominee Name; Denominations

  	
  13

  
	
  SECTION 2.05. Voting
  Rights; Dividends and Interest

  	
  13

  
	
   

  	
   

  
	
  ARTICLE III Security Interests
  in Personal Property

  	
  15

  
	
   

  	
   

  
	
  SECTION 3.01. Security Interest

  	
  15

  
	
  SECTION 3.02. Representations and
  Warranties

  	
  16

  
	
  SECTION 3.03. Covenants

  	
  17

  
	
  SECTION 3.04. Other Actions

  	
  21

  
	
  SECTION 3.05. Covenants Regarding Patent,
  Trademark and Copyright Collateral

  	
  23

  
	
   

  	
   

  
	
  ARTICLE IV Remedies

  	
  24

  
	
   

  	
   

  
	
  SECTION 4.01. Remedies Upon Default

  	
  24

  
	
  SECTION 4.02. Application of Proceeds

  	
  27

  
	
  SECTION 4.03. Grant of License to Use
  Intellectual Property

  	
  27

  
	
  SECTION 4.04. Securities Act

  	
  28

  
	
  SECTION 4.05. Registration

  	
  28

  
	
   

  	
   

  
	
  ARTICLE V Miscellaneous

  	
  29

  
	
   

  	
   

  
	
  SECTION 5.01. Notices

  	
  29

  
	
  SECTION 5.02. Waivers; Amendment

  	
  30

  
	
  SECTION 5.03. Canadian Collateral Agent’s
  Fees and Expenses; Indemnification

  	
  30

  
	
  SECTION 5.04. Successors and Assigns

  	
  31

  
	
  SECTION 5.05. Survival of Agreement

  	
  31

  
	
  SECTION 5.06. Counterparts; Effectiveness;
  Several Agreement

  	
  31

  
	
  SECTION 5.07. Severability

  	
  32

  
	
  SECTION 5.08. Governing Law; Jurisdiction;
  Consent to Service of Process

  	
  32

  
	
  SECTION 5.09. Judgment Currency

  	
  32

  
	
  SECTION 5.10. WAIVER OF JURY TRIAL

  	
  33

  
	
  SECTION 5.11. Headings

  	
  34

  
	
  SECTION 5.12. Security Interest Absolute

  	
  34

  
	
  SECTION 5.13. Termination or Release

  	
  34

  

 

 

	
  SECTION 5.14. Canadian Collateral Agent
  Appointed Attorney-in-Fact

  	
  34

  
	
  SECTION 5.15. Intercreditor Agreement

  	
  35

  
	
  SECTION 5.16. Acknowledgments

  	
  36

  

 

 

	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule I

  	
  Pledged Equity Interests; Pledged Debt Securities

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule II

  	
  Intellectual Property

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit I

  	
  Form of
  Perfection Certificate

  	
   

  
	
  Exhibit II

  	
  Form of
  Patent and Trademark Security Agreement

  	
   

  
	
  Exhibit III

  	
  Form of
  Copyright Security Agreement

  	
   

  

 

 

CANADIAN COLLATERAL AGREEMENT dated as of
November 15, 2007, (as amended, supplemented or otherwise modified from time to
time, this “Agreement”), among, NOVAMERICAN STEEL INC. a Canadian corporation
(together with its successors and permitted assignees, the “Grantor”), and BNY
TRUST COMPANY OF CANADA, as collateral agent for the Secured Parties (in such
capacity, the “Canadian Collateral Agent”).

 

Reference is
made to (a) the Indenture dated as of November 15, 2007 (as amended,
supplemented or otherwise modified from time to time, the “Indenture”), among Symmetry Holdings Inc. (“Symmetry”), Novamerican Steel
Finco Inc. (the “Company”), the Subsidiary
Guarantors identified therein and The Bank of New York, as trustee (in such
capacity, the “Trustee”), (b) the Purchase
Agreement dated as of November 15, 2007, (as supplemented by the Joinder
Agreement dated as of November 15, 2007, the “Purchase
Agreement”) among Symmetry, the Company, the Subsidiary Guarantors
identified therein and J.P. Morgan Securities Inc. and CIBC World Markets Corp.
as initial purchasers (the “Initial Purchasers”),
and (c) the Intercompany Notes dated as of November 15, 2007, granted by
Grantor in favour of the Company (as amended, supplemented or otherwise
modified from time to time), and each of the other Intercompany Notes
referenced in the Indenture (collectively, the “Intercompany
Notes”). The Trustee has agreed to enter into the Indenture and the
Initial Purchasers have agreed to purchase the Initial Securities of the
Company, in each case on the terms and subject to the conditions set forth in
the Indenture and the Purchase Agreement, respectively. The Company has agreed
to advance the Intercompany Loans (as defined in the Indenture) to Grantor from
the proceeds of the Initial Securities and to advance additional Intercompany
Loans from time to time, as evidenced by the Intercompany Notes. The
obligations of the Initial Purchasers to purchase the Initial Securities and
the obligations of the Company to advance the Intercompany Loans, are
conditioned on, among other things, the execution and delivery by Grantor of
this Agreement. Grantor is a Subsidiary of the Company, will derive substantial
benefits from the issuance of the Initial Securities pursuant to the Indenture
and from the making of the Intercompany Loans by the Company pursuant to the
Intercompany Notes and is willing to execute and deliver this Agreement in
order to induce the Initial Purchasers to purchase the Initial Securities and
to induce the Company to make the Intercompany Loans. Accordingly, the parties
hereto agree as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01. Terms
Generally

 

The
definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall be construed to have the same meaning and
effect as the word “shall”. Unless the context requires otherwise (a) any
definition of or reference 

 

 

to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any
definition of or reference to any statute, regulation or other law herein shall
be construed (i) as referring to such statute, regulation or other law as from
time to time amended, supplemented or otherwise modified (including by
succession of comparable successor statutes, regulations or other laws) and
(ii) to include all official rulings and interpretations thereunder having the
force of law or with which affected Persons customarily comply, (c) any
reference herein to any Person shall be construed to include such Person’s
successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (e) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement, and
(f) the words “asset” and “property” shall be construed to have the same meaning
and effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.

 

Other Defined Terms.
All terms defined in the PPSA (as defined below) and not defined in this
Agreement have the meanings specified therein, including, without limitation, “Accessions”,
“Accounts”, “Chattel Paper”, “Document of Title”, “Equipment”, “Goods”, “Instruments”,
“Inventory”, “Investment Property”, “Money”, “financing statement”, “financing
change statement” “Fixtures” and “Proceeds”. All terms defined in the STA (as
defined herein) and not defined in this Agreement have the meanings specified
therein, including, without limitation, “Certified Security”, “Entitlement
Holder”, “Entitlement Order”, “Financial Asset”, “Securities Account”, “Securities
Intermediary”, “Security Entitlement” and “Uncertificated Security”.

 

As used in
this Agreement, the following terms have the meanings specified below:

 

“ABL Collateral”  means any and all of the
following:  (a) all Accounts Receivable and related records;
(b) all Chattel Paper; (c) all Deposit Accounts other than the
Intercompany Note Collateral Account; (d) all cash, cheques and other
negotiable instruments, funds and other evidences of payment (excluding any
cash or other assets held in the Intercompany Note Collateral Account in
accordance with the Indenture, as in effect on the date hereof); (e) all
Inventory; (f) to the extent evidencing, governing, securing or otherwise
related to the items referred to in the preceding clauses (a), (b), (c),
(d) and (e), all Documents of Title, Intangibles, Instruments and Investment
Property; (g) all books and records related to the foregoing; (h) all
collateral security and guarantees given by any Person with respect to any of
the foregoing; and (i) all Proceeds, including insurance Proceeds, of any
and all of the foregoing.

 

“Account Debtor”
means any Person who is or who may become obligated to Grantor under, with
respect to or on account of an Account.

 

2

 

“Accounts Receivable”
means all Accounts and other rights to payment, in each case for the sale of
Inventory or the performance of services, existing on the date of this
Agreement or hereafter arising, whether or not earned by performance.

 

“Agreement” has the meaning assigned to such term in the
preamble to this Agreement.

 

“Business
Day” means any day that is not a Saturday, Sunday or
other day on which commercial banks in Toronto and New York are authorized or
required by law to remain closed.

 

“Canadian Collateral Agent”
has the meaning assigned to such term in the preamble to this Agreement.

 

 “Collateral” means all Other Collateral in
which a security interest has been granted hereunder and all Pledged Collateral.

 

“Collateral Access Agreement” means any landlord waiver or
other agreement, in customary form and substance, between the Canadian
Collateral Agent and any third party (including any bailee, consignee, customs
broker, or other similar Person) in possession of any Collateral or any
landlord of Grantor for any real property where any Collateral is located, as
such landlord waiver or other agreement may be amended, restated, or otherwise
modified from time to time.

 

“Collateral Agent” means The Bank of New York, as the
collateral agent under the Indenture and its successors and assigns and any
replacement thereof under any other Financing Document.

 

“Collateral Agreement” means the Collateral Agreement as
defined under the Indenture and any similar collateral agreement granting Liens
to secure any other Financing Document.

 

“Company” has the meaning assigned to such term in the
preliminary statement of this Agreement.

 

“Control” means, with respect to a specific form of
Investment Property, “control” as defined in sections 23 through 26 of the STA
as applicable to such form of Investment Property.

 

“Copyright License”
means any written agreement, now or hereafter in effect, granting any right to
any third party under any copyright now or hereafter owned by Grantor or that
Grantor otherwise has the right to license, or granting any right to Grantor
under any copyright now or hereafter owned by any third party, and all rights
of Grantor under any such agreement.

 

“Copyrights”
means all of the following now owned or hereafter acquired by Grantor:  (a) all copyright rights in any work
subject to the copyright laws of Canada or any other country, whether as
author, assignee, transferee or otherwise, and (b) all 

 

3

 

registrations
and applications for registration of any such copyright in Canada or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the Canadian Intellectual Property
Office, including those listed on Schedule II.

 

“Default” means any event which is, or after notice or
passage of time or both would be, an Event of Default.

 

“Deposit Accounts” means any demand, time, savings, passbook
or like account maintained with a depository institution.

 

“Effective Date” means November 15, 2007.

 

“Equity Interests” means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person, and any
warrants, options or other rights entitling the holder thereof to purchase or
acquire any of the foregoing.

 

“Event of Default” shall mean an event of default under any
Financing Document and each of the following: 
(a) Grantor defaults in any payment of interest on any Intercompany
Notes when the same becomes due and payable on the applicable due date and such
default continues for a period of 30 days, or (b) Grantor defaults in any
payment of principal on the Intercompany Notes when the same becomes due and
payable on the applicable due date, upon demand, acceleration or otherwise.

 

“Excluded
Equity Interest” has the meaning assigned to such term
in Section 2.01(a).

 

“Financing Documents”  means the
Indenture and any financing agreement or indenture in respect of any
refinancing of the Initial Securities, to the extent that such refinancing is
permitted under the terms of the Indenture, and is secured by a pledge of the
Intercompany Notes.

 

“Financing Document Obligations” means the Notes Obligations
(as defined under the Indenture) and any similar obligations under any
Financing Documents.

 

“Grantor”
has the meaning assigned to such term in the preliminary statement of this
Agreement.

 

“Indemnitees” has the meaning assigned to such term in Section 5.03

 

“Indenture”
has the meaning assigned to such term in the
preliminary statement of this Agreement.

 

“Initial
Purchasers”  has
the meaning assigned to such term in the preliminary statement of this
Agreement.

 

4

 

“Initial
Securities” has the meaning assigned to such term in
the Indenture.

 

 “Intangibles” has the meaning assigned to it in
the PPSA, and includes, whether now owned or hereafter acquired by Grantor,
including corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or
lessee, Hedging Agreements and other agreements), Intellectual Property,
goodwill, registrations, franchises, tax refund claims and any letter of
credit, guarantee, claim, security interest or other security held by or
granted to Grantor to secure payment by an Account Debtor of any of the
Accounts.

 

“Intellectual Property”
means all intellectual and similar property of every kind and nature now owned
or hereafter acquired by Grantor, including inventions, designs, Patents,
Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary
technical and business information, know-how, show-how or other data or
information, software and databases and all embodiments or fixations thereof
and related documentation, registrations and franchises, and all additions,
improvements and accessions to, and books and records describing or used in
connection with, any of the foregoing.

 

“Intercompany Loans” means (a) the Company’s loan of
$125,000,000 of the gross proceeds from the sale of the Initial Securities to
632421 N.B Ltd. (a wholly owned Subsidiary to be amalgamated into the Grantor
on the Effective Date, which loan obligations shall be assumed by the Grantor
by operation of law upon consummation of the Transactions (as defined in the
Indenture)), on the Effective Date and (b) any additional amounts from time to
time loaned by the Company to the Grantor on or after the Effective Date
(excluding loans made in the ordinary course of business in connection with
centralized cash management arrangements).

 

“Intercompany Note” means one or more senior secured demand
promissory notes evidencing Intercompany Loans.

 

“Intercompany Note Collateral Account” has the meaning
assigned to such term in the Indenture.

 

“Intercompany Notes Documents”
means the Intercompany Notes, the Intercompany Note Security
Documents and all other instruments, agreements and other documents evidencing
or governing the loan evidenced by the Intercompany Notes, and all schedules,
exhibits and annexes to each of the foregoing executed and delivered pursuant
to the foregoing, as such documents and instruments may be amended, restated,
supplemented or otherwise modified from time to time.

 

“Intercompany Note Security Documents” means one or more
security agreements, control agreements, pledge agreements, mortgages, deeds of
trust and collateral assignments entered into by the Grantor, the Canadian
Collateral Agent or the Company, defining terms of the security interests in
the Collateral securing the Intercompany Obligations.

 

5

 

“Intercompany Obligations”
means the obligation of Grantor under the Intercompany Notes and
the Intercompany Note Security Documents.

 

“Intercreditor Agreement”
means the Lien Subordination and Intercreditor Agreement dated as of the date
hereof among Symmetry, the Company, Grantor, the other Subsidiaries of Symmetry
described therein, JPMorgan Chase Bank, N.A. as administrative agent, and the
Collateral Agent, as amended or supplemented from time to time.

 

“Investment Property Control Agreement”  means:

 

(a)           with respect to any Uncertificated
Securities included in the Collateral, an agreement between the issuer of such
Uncertificated Securities and another Person whereby such issuer agrees to
comply with instructions that are originated by such Person in respect of such
Uncertificated Securities, without the further consent of Grantor; and

 

(b)           with respect to any Securities Accounts or
Security Entitlements included in the Collateral, an agreement between the
Securities Intermediary in respect of such Security Accounts or Entitlements
and another Person pursuant to which such Securities Intermediary agrees to
comply with any Entitlement orders with respect to such Security Accounts on
Security Entitlements that are original by such Person, without the further
consent of Grantor.

 

“IP Security Agreements” has the meaning assigned to such
term in Section 3.02

 

“Lien” means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.

 

“License”
means any Patent License, Trademark License, Copyright License or other license
or sublicense agreement relating to intellectual property to which Grantor is a
party, including those listed on Schedule II.

 

“Other Collateral”
means any and all of the following: (a) all Accounts and related
Records; (b) all Chattel Paper; (c) all Deposit Accounts;
(d) all cash, checks and other negotiable instruments, funds and other
evidences of payment held therein; (e) all Inventory; (f) all Equipment
(including all Fixtures), g) all Documents of Title, (h) all Intangibles,
(i) all Instruments, (j) all Investment Property, (k) all books and
records related to the foregoing; and (l) all Proceeds (including
insurance Proceeds) and products of any and all of the foregoing and all
collateral security and guarantees given by any Person with respect to any of
the foregoing. The Other Collateral includes, but is not limited to, the ABL
Collateral.

 

6

 

“Patent License”
means any written agreement, now or hereafter in effect, granting to any third
party any right to make, use or sell any invention on which a patent, now or
hereafter owned by Grantor or that Grantor otherwise has the right to license,
is in existence, or granting to Grantor any right to make, use or sell any
invention on which a patent, now or hereafter owned by any third party, is in
existence, and all rights of Grantor under any such agreement.

 

“Patents”
means all of the following now owned or hereafter acquired by Grantor:  (a) all letters patent of Canada or the
equivalent thereof in any other country, all registrations and recordings
thereof, and all applications for letters patent of Canada or the equivalent
thereof in any other country, including registrations, recordings and pending
applications in Canada Patent and Trademark Office or any similar offices in
any other country, including those listed on Schedule II, and (b) all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.

 

“Perfection Certificate” means a certificate in the form of
Exhibit I.

 

“Permitted Liens” means Liens permitted under the Financing
Documents.

 

“Person” means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
governmental authority or other entity.

 

“Pledged Collateral”
has the meaning assigned to such term in Section 2.01.

 

“Pledged Debt Securities”
has the meaning assigned to such term in Section 2.01.

 

“Pledged Equity Interests”
has the meaning assigned to such term in Section 2.01.

 

“Pledged Securities”
means any promissory notes, stock certificates or other securities certificates
or instruments now or hereafter included in the Pledged Collateral, including
all certificates, instruments or other documents representing or evidencing any
Pledged Collateral.

 

“PPSA” means the Personal Property Security
Act (Ontario), including the regulations thereto, provided that, if
perfection or the effect of perfection or non-perfection or the priority of any
Lien created hereunder on the Collateral is governed by the personal property
security as in effect in a jurisdiction other than Ontario, “PPSA” means the Personal Property Security Act or such other applicable
legislation as in effect from time to time in such other jurisdiction for
purposes of the provisions hereof relating to such perfection, effect of
perfection or non-perfection or priority.

 

7

 

“Purchase Agreement” has the meaning assigned to such term in
the preliminary statement of this Agreement.

 

“Secured Parties”
means, collectively, (a) the Company, (b) Canadian Collateral Agent,
(c) each other Person to whom any Intercompany Obligations are owed, and
(d) the successors and assigns of each of the foregoing.

 

“Securities” means:

 

(a)           “securities” as defined in the STA, or if no
STA is in force in the applicable jurisdiction, the PPSA of such jurisdiction;

 

(b)           any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as “securities”
or any certificates of interest, shares or participations in temporary or
interim certificates for the purchase or acquisition of, or any right to
subscribe to, purchase or acquire, any of the foregoing; and

 

(c)           any Security Entitlements to any of the
foregoing.

 

“Security Interest”
means, the security interest created under paragraph (a) of Section 3.01.

 

“Special Equity Interest” means an interest in a partnership
or a limited liability company.

 

“STA” means the Securities Transfer Act,
2006 (Ontario), provided that, to the extent that perfection or the
effect of perfection or non-perfection or the priority of any Lien created
hereunder on Collateral that is Investment Property is governed by the laws in
effect in any province or territory of Canada other than Ontario in which there
is in force legislation substantially the same as the Securities
Transfer Act, 2006 (Ontario) (an “Other STA Province”), then “STA”
shall mean such other legislation as in effect from time to time in such Other
STA Province for purposes of the provisions hereof referring to or
incorporating by reference provisions of the STA; and to the extent that such
perfection or the effect of perfection or non-perfection or the priority of any
Lien created hereunder on the Collateral is governed by the laws of a
jurisdiction other than Ontario or an Other STA Province, then references
herein to the STA shall be disregarded except for the terms “Certificated
Security” and “Uncertificated Security”, which shall have the meanings herein
as defined in the Securities Transfer Act, 2006
(Ontario) regardless of whether the STA is in force in the applicable
jurisdiction.

 

“Subsidiary”
means, with respect to any Person, any corporation,
association, partnership, limited liability company or other business entity of
which more than 50% of the total voting power of shares of Voting Stock (as
defined in the Indenture) is at the time owned or controlled, directly or
indirectly, by: (1) such Person, (2) such 

 

8

 

Person and one
or more Subsidiaries of such Person or (3) one or more Subsidiaries of such
Person.

 

 “Trademark License” means any written
agreement, now or hereafter in effect, granting to any third party any right to
use any trademark now or hereafter owned by Grantor or that Grantor otherwise
has the right to license, or granting to Grantor any right to use any trademark
now or hereafter owned by any third party, and all rights of Grantor under any
such agreement.

 

“Trademarks”
means all of the following now owned or hereafter acquired by Grantor:
(a) all trademarks, service marks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, trade dress,
logos, other source or business identifiers, designs and general intangibles of
like nature, now existing or hereafter adopted or acquired, all registrations
and recordings thereof, and all registration and recording applications filed
in connection therewith, including registrations and registration applications
in Canada Patent and Trademark Office or any similar offices in any State of
Canada or any other country or any political subdivision thereof, and all
extensions or renewals thereof, including those listed on Schedule II,
(b) all goodwill associated therewith or symbolized thereby and
(c) all other assets, rights and interests that uniquely reflect or embody
such goodwill.

 

ARTICLE II

 

Pledge of Securities

 

SECTION 2.01. Pledge.

 

As security
for the payment or performance, as the case may be, in full of the Intercompany
Obligations, Grantor hereby assigns and pledges to the Canadian Collateral
Agent, its successors and assigns, for the benefit of the Secured Parties, and
hereby grants to the Canadian Collateral Agent, its successors and assigns, for
the benefit of the Secured Parties, a security interest in, all of Grantor’s
right, title and interest in, to and under the following assets:

 

(a)           the shares of capital stock and other Equity
Interests held by it or credited to a Securities Account maintained by or for
the benefit of Grantor or the Canadian Collateral Agent on the date hereof
(including those listed on Schedule II), any other Equity Interests
obtained by Grantor in the future and the certificates representing all such
Equity Interests whether or not delivered to or subject to the Control of the
Canadian Collateral Agent pursuant this Agreement (the “Pledged
Equity Interests”); provided that the Pledged Equity Interests shall
not include Equity Interests in any Person that is not a wholly-owned
Subsidiary (or a Special Purpose Holdco (as defined under the Indenture) with
respect to such Person) where, pursuant to the organizational documents of such
Person and any related joint venture or similar agreement, such assignment,
pledge or grant of security interest is prohibited without the consent of the
equity holders of such Person (other than Symmetry or any of its Subsidiaries)
(the Equity Interests so excluded are collectively referred to herein as the “Excluded
Equity Interests”).

 

9

 

(b)           the debt securities owned by it on the date
hereof (including those listed on Schedule II) any debt securities
obtained by Grantor in the future and the promissory notes and any other
instruments evidencing all such debt securities (the “Pledged Debt
Securities”);

 

(c)           all other property that may be delivered to
and held by the Canadian Collateral Agent pursuant to the terms of this Section
including all Securities, Securities Accounts, and all Securities Entitlements
carried in any Securities Account;

 

(d)           subject to Section 2.05, all payments
of principal or interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of, in
exchange for or upon the conversion of, and all other Proceeds received in
respect of, the securities referred to in clauses (a) and (b) above (other
than, for greater certainty, the Excluded Equity Interests);

 

(e)           subject to Section 2.05 all rights and
privileges of Grantor with respect to the securities and other property
referred to in clauses (a), (b), (c) and (d) above; and

 

(f)            all Proceeds of any of the foregoing

 

(the items
referred to in the foregoing clauses (a) through (f) above being collectively
referred to as the “Pledged Collateral”).

 

TO HAVE AND TO
HOLD the Pledged Collateral, together with all right, title, interest, powers,
privileges and preferences pertaining or incidental thereto, unto the Canadian
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.

 

SECTION 2.02. Delivery of the Pledged Collateral.

 

(a)           Grantor agrees promptly to deliver or cause
to be delivered to the Canadian Collateral Agent any and all Pledged Securities
at any time owned by Grantor, including all security certificates evidencing
Certificated Securities, all Instruments and all certificates evidencing any
Special Equity Interests, whether or not such Special Equity Interests
constitute Securities, and to hold in trust for the Canadian Collateral Agent
upon receipt and immediately thereafter deliver to the Canadian Collateral
Agent any Securities, security certificates evidencing Certificated Securities,
Instruments and certificates evidencing any Special Equity Interests, in each case
constituting Collateral, that are hereafter acquired by Grantor.

 

(b)           Grantor will cause any Indebtedness for
borrowed money owed to Grantor by any Person to be evidenced by a duly executed
promissory note that is pledged and delivered to the Canadian Collateral Agent
pursuant to the terms hereof.

 

(c)           Upon delivery to the Canadian Collateral
Agent, (i) any Pledged Securities shall be accompanied by stock powers duly
executed in blank or other instruments of transfer satisfactory to the Canadian
Collateral Agent and by such other instruments and 

 

10

 

documents as the Canadian Collateral Agent
may reasonably request and (ii) all other property comprising part of the
Pledged Collateral shall be accompanied by proper instruments of assignment
duly executed by Grantor and such other instruments or documents as the
Canadian Collateral Agent may reasonably request. For greater certainty, any
security certificates evidencing Certificated Securities or any certificates
evidencing Special Equity Interests delivered to the Canadian Collateral Agent
pursuant to this Section 2.02 shall be duly endorsed to the Canadian Collateral
Agent or its nominee or in blank by an effective endorsement within the meaning
of the STA (such endorsement to include, for greater certainty, a duly executed
instrument of transfer or stock power of attorney in favour of the Canadian
Collateral Agent or its nominee in blank). Each delivery of Pledged Securities
after the date of this Agreement shall be accompanied by a schedule describing
the Pledged Securities so delivered, which schedule shall be attached hereto
and shall become part of Schedule I hereto; provided
that failure to attach any such schedule shall not affect the validity of the
pledge of such Pledged Securities.

 

(d)           The assignment, pledges and security
interests granted in Section 2.01 are granted as security only and shall
not subject the Canadian Collateral Agent or any other Secured Party to, or in
any way alter or modify, any obligation or liability of Grantor with respect to
or arising out of the Pledged Collateral.

 

SECTION 2.03. Representations, Warranties and Covenants.

 

Grantor
represents, warrants and covenants to and with the Canadian Collateral Agent,
for the benefit of the Secured Parties, that:

 

(a)           each agreement between Grantor and a
Securities Intermediary that governs any Securities Account included in the
Collateral or to which any Collateral that is Investment Property has been
credited either (i) specifies that the Province of Ontario is the Securities
Intermediary’s jurisdiction for the purposes of the STA of Ontario or (ii) is
expressed to be governed by the laws of the Province of Ontario.

 

(b)           Schedule II sets forth, as of the date
hereof a true and complete list of, (i) all the Equity Interests owned by
Grantor, setting forth the percentage of the issued and outstanding units of
each class of the Equity Interests of the issuer thereof so owned and the
number of each certificate representing the same, if applicable, and
(ii) all debt securities owned by Grantor, setting forth all promissory
notes and other instruments evidencing the same;

 

(c)           the Pledged Equity Interests and Pledged
Debt Securities have been duly and validly authorized and issued by the issuers
thereof and (i) in the case of Pledged Equity Interests, are fully paid and
nonassessable and (ii) in the case of Pledged Debt Securities, are legal, valid
and binding obligations of the issuers thereof, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law;

 

11

 

(d)           except for the security interests granted
hereunder, Grantor (i) is and, subject to any transfers made in compliance
with the Financing Document, will continue to be the direct sole beneficial
owner, and the sole holder of record or Entitlement Holder of the Pledged
Securities listed on Schedule II, (ii) holds the same free and clear of
all Liens, other than Liens created by this Agreement, other Permitted Liens
and transfers made in compliance with the Financing Documents, and (iii) will defend its title or interest thereto
or therein against any and all Liens (other than the Lien created by this
Agreement and other Permitted Liens), however, arising, of all Persons
whomsoever;

 

(e)           all Pledged Equity Interests credited to a
Securities Account maintained with a Securities Intermediary of Grantor is
subject to an Investment Property Control Agreement between the Securities
Intermediary and the Canadian Collateral Agent;

 

(f)            except for restrictions and limitations
imposed by the Intercompany Notes Documents, the Credit Agreement, the
Intercreditor Agreement or securities laws generally, (i) the Pledged
Collateral is and will continue to be freely transferable and assignable and
(ii) none of the Pledged Collateral is or will be subject to any option,
right of first refusal, shareholders agreement, charter or bylaw provisions or
contractual restriction of any nature that might prohibit, impair, delay or
otherwise affect the pledge of such Pledged Collateral hereunder, the sale or
disposition thereof pursuant hereto or the exercise by the Canadian Collateral
Agent of rights and remedies hereunder other than, in the case of the Pledged
Collateral constituting Equity Interests in, or debt security of, any
Non-Wholly-Owned Subsidiary, any of the foregoing restrictions and limitations
set forth in the organizational documents of such Non-Wholly Owned Subsidiary
or any related joint venture or similar agreements (to the extent such
restrictions and limitations cannot be waived without the prior consent of any
equityholders of such Non-Wholly Owned Subsidiary (other than Symmetry or any
of its Subsidiaries));

 

(g)           Grantor has the power and authority to
pledge the Pledged Collateral pledged by it hereunder in the manner hereby done
or contemplated;

 

(h)           no consent or approval of any Governmental
Authority, any securities exchange or any other Person was or is necessary to
the validity of the pledge effected hereby (other than such as have been
obtained and are in full force and effect);

 

(i)            by virtue of the execution and delivery by
Grantor of this Agreement, when any Pledged Securities are delivered to the
Canadian Collateral Agent in accordance with this Agreement, the Canadian
Collateral Agent will obtain a legal, valid and perfected lien upon and
security interest in such Pledged Securities as security for the payment and
performance of the Intercompany Obligations;

 

(j)            except as disclosed in Schedule I, all
Pledged Equity Interests that constitute a Special Equity Interest:

 

(i)            is dealt in or traded on any securities
exchange or in any securities market;

 

12

 

(ii)           expressly provides by its terms that it is a
“security” for the purposes of the applicable STA; or

 

(iii)          is held through a Securities Account;

 

(k)           Grantor has not consented to any Person
other than the Canadian Collateral Agent entering into, nor has become a party
to, an Investment Property Control Agreement in respect of any Investment
Property or Securities Account included in the Collateral, and no such
Investment Property Control Agreement is outstanding and in force; and

 

(l)            the pledge effected hereby is effective to
vest in the Canadian Collateral Agent, for the benefit of the Secured Parties,
the rights of the Canadian Collateral Agent in the Pledged Collateral as set
forth herein.

 

SECTION 2.04. Registration in Nominee Name; Denominations. The
Canadian Collateral Agent, on behalf of the Secured Parties, shall have the
right (in its sole and absolute discretion) to hold the Pledged Securities in
its own name as pledgee, the name of its nominee (as pledgee or as sub-agent)
or the name of Grantor, endorsed or assigned in blank or in favor of the
Canadian Collateral Agent. Grantor will promptly give to the Canadian
Collateral Agent copies of any notices or other communications received by it
with respect to Pledged Securities registered in the name of Grantor. The
Canadian Collateral Agent shall at all times have the right to exchange the
certificates representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this Agreement.

 

SECTION 2.05. Voting Rights;
Dividends and Interest.

 

(a)           Unless and until an Event of Default shall
have occurred and be continuing and the Canadian Collateral Agent shall have
notified Grantor that its rights under this Section are being suspended:

 

(i)            Grantor shall be entitled to exercise any
and all voting and other consensual rights and powers inuring to an owner of
Pledged Equity Interests or Pledged Debt Securities or any part thereof for any
purpose consistent with the terms of this Agreement, the Financing Documents
and the other Intercompany Notes Documents; provided
that such rights and powers shall not be exercised in any manner that could
reasonably be expected to materially and adversely affect the rights inuring to
an owner of any Pledged Equity Interests or Pledged Debt Securities or the
rights and remedies of the Canadian Collateral Agent or the other Secured
Parties under this Agreement, the Financing Documents and the other Intercompany
Notes Documents  or the ability of the Canadian
Collateral Agent or the other Secured Parties to exercise the same.

 

(ii)           The Canadian Collateral Agent shall execute
and deliver to Grantor, or cause to be executed and delivered to Grantor, all such
proxies, powers of attorney and other instruments as Grantor may reasonably
request for the 

 

13

 

purpose of enabling Grantor to exercise the voting and/or consensual
rights and powers it is entitled to exercise pursuant to paragraph (i) above.

 

(iii)          Grantor shall be entitled to receive and
retain any and all dividends, interest, principal and other distributions paid
on or distributed in respect of the Pledged Equity Interests or Pledged Debt
Securities to the extent and only to the extent that such dividends, interest,
principal and other distributions are permitted by, and otherwise paid or
distributed in accordance with, the terms and conditions of the Financing
Documents and the other Intercompany Notes Documents and applicable laws; provided that any noncash dividends,
interest, principal or other distributions that would constitute Pledged Equity
Interests or Pledged Debt Securities, whether resulting from a subdivision,
combination or reclassification of the outstanding Equity Interests of the
issuer of any Pledged Securities or received in exchange for Pledged Securities
or any part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer may
be a party or otherwise, shall be and become part of the Pledged Collateral,
and, if received by Grantor, shall not be commingled by Grantor with any of its
other funds or property but shall be held separate and apart therefrom, shall
be held in trust for the benefit of the Canadian Collateral Agent and shall be
forthwith delivered to the Canadian Collateral Agent in the form in which it
shall have been so received (with any necessary endorsement).

 

(b)           Upon the occurrence and during the
continuance of an Event of Default, after the Canadian Collateral Agent shall
have notified Grantor of the suspension of its rights under paragraph (a)(iii)
of this Section, then all rights of Grantor to dividends, interest, principal
or other distributions that Grantor is authorized to receive pursuant to
paragraph (a)(iii) of this Section shall cease, and all such rights shall
thereupon become vested in the Canadian Collateral Agent, which shall have the
sole and exclusive right and authority to receive and retain such dividends,
interest, principal or other distributions. All dividends, interest, principal
or other distributions received by Grantor contrary to the provisions of this
Section shall be held in trust for the benefit of the Canadian Collateral
Agent, shall be segregated from other property or funds of Grantor and shall be
forthwith delivered to the Canadian Collateral Agent upon demand in the same
form as so received (with any necessary endorsement). Any and all money and
other property paid over to or received by the Canadian Collateral Agent
pursuant to the provisions of this paragraph (b) shall be retained by the
Canadian Collateral Agent in an account to be established by the Canadian
Collateral Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 4.02. After all
Events of Default have been cured or waived and the Canadian Collateral Agent
shall have received a certificate of a Officer of Grantor to that effect, the
Canadian Collateral Agent shall, promptly repay to Grantor (without interest)
all dividends, interest, principal or other distributions that Grantor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of
this Section and that remain in such account.

 

14

 

(c)           Upon the occurrence and during the
continuance of an Event of Default, after the Canadian Collateral Agent shall
have notified Grantor of the suspension of its rights under paragraph (a)(i) of
this Section, then all rights of Grantor to exercise the voting and consensual
rights and powers it is entitled to exercise pursuant to paragraph (a)(i)
of this Section , and the obligations of the Canadian Collateral Agent
under paragraph (a)(ii) of this Section, shall cease, and all such rights
shall thereupon become vested in the Canadian Collateral Agent, which shall
have the sole and exclusive right and authority to exercise such voting and
consensual rights and powers; provided
that, unless otherwise directed by the Collateral Agent, the Canadian
Collateral Agent shall have the right from time to time following the
occurrence and during the continuance of an Event of Default to permit Grantor
to exercise such rights.

 

(d)           Any notice given by the Canadian Collateral
Agent to Grantor suspending its rights under paragraph (a) of this Section
(i) may be given by telephone if promptly confirmed in writing and (ii) may
suspend the rights of Grantor under paragraph (a)(i) or paragraph (a)(iii) in
part without suspending all such rights (as specified by the Canadian
Collateral Agent in its sole and absolute discretion) and without waiving or
otherwise affecting the Canadian Collateral Agent’s rights to give additional
notices from time to time suspending other rights so long as an Event of
Default has occurred and is continuing.

 

ARTICLE III

 

Security Interests in Personal Property

 

SECTION 3.01. Security Interest.

 

(a)           As security for the payment or performance,
as the case may be, in full of the Intercompany Obligations, Grantor hereby
assigns and pledges to the Canadian Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, and hereby grants to the
Canadian Collateral Agent, its successors and assigns, for the benefit of the
Secured Parties, a security interest in, all right, title and interest in, to
or under any and all of the Other Collateral now owned or at any time hereafter
acquired by Grantor or in which Grantor now has or at any time in the future
may acquire any right, title or interest, other than any portion thereof
constituting the Excluded Equity Interest.

 

(b)           Grantor hereby agrees, subject to Section
4.15 of the Indenture, to file in any relevant jurisdiction any financing
statements (including fixture filings) with respect to the Other Collateral in
which a security interest is created by Grantor hereunder or any part thereof
and amendments thereto that contain the information required by the laws of
each applicable jurisdiction for the filing of any financing statement or
amendment, including in the case of a financing statement filed as a fixture
filing or covering Other Collateral constituting minerals or the like to be
extracted or timber to be cut, a sufficient description of the real property to
which such Other Collateral relates. Grantor agrees to provide such information
to the Canadian Collateral Agent promptly upon request.

 

15

 

Grantor also
ratifies its authorization for the Canadian Collateral Agent to file in any
relevant jurisdiction any financing statements or financing change statements
if filed prior to the date hereof.

 

Grantor hereby
also agrees, subject to Section 4.15 of the Indenture, to file with the
Canadian Intellectual Property Office (or any successor office or any similar
office in any other country) such documents as may be necessary or advisable
for the purpose of confirming, continuing, enforcing or protecting the Security
Interest granted by Grantor, without the signature of Grantor, and naming
Grantor as debtor and the Canadian Collateral Agent as secured party.

 

(c)           The Security Interest is granted as security
only and shall not subject the Canadian Collateral Agent or any other Secured
Party to, or in any way alter or modify, any obligation or liability of Grantor
with respect to or arising out of the Other Collateral.

 

(d)           Notwithstanding anything herein to the
contrary, in no event shall the security interest granted hereunder attach to
any contract or agreement to which Grantor is a party or any of its rights or
interests thereunder if and for so long as the grant of security interest shall
constitute or result in (i) the unenforceability of any right of Grantor
thereunder or (ii) a breach or termination under the terms of, or a default
under, any such contract or agreement (other than to the extent that any such
term would be rendered ineffective pursuant to applicable law or principles of
equity), provided, that such security interest
shall attach immediately at such time as the condition causing such
unenforceability, breach or termination shall be remedied or shall otherwise
cease to exist and, to the extent severable, shall attach immediately to any
portion of such contract or agreement that does not result in any of the consequences
specified in this paragraph including Proceeds of such contract or agreement.

 

SECTION 3.02. Representations
and Warranties. Grantor represents and warrants to the Canadian Collateral
Agent and the Secured Parties that:

 

(a)           Grantor has good and valid rights in and
title to the Other Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Canadian Collateral Agent the Security Interest in such Other Collateral pursuant
hereto and to execute, deliver and perform its obligations in accordance with
the terms of this Agreement, without the consent or approval of any other
Person other than any consent or approval that has been obtained.

 

(b)           The Perfection Certificate has been duly
prepared, completed and executed, and the information set forth therein,
including the exact legal name of Grantor, is correct and complete as of the
Effective Date. Grantor shall ensure that, within one month after the Effective
Date, a Patent and Trademark Security Agreement, in the form of Exhibit II
hereto, and a Copyright Security Agreement in the form of Exhibit III hereto
(such agreements being collectively referred to as the “IP Agreements”) has
been received and recorded by the Canadian Intellectual Property Office, to
further protect the security interest in favor of the Canadian Collateral
Agent, for the benefit of the Secured Parties, in respect of all Other
Collateral consisting of Patents, Trademarks and Copyrights in 

 

16

 

which a security interest may be protected by
filing, recording or registration in Canada (or any political subdivision
thereof) and its territories and possessions. No further or subsequent filing,
refiling, recording, rerecording, registration or reregistration is necessary
(other than such actions as are necessary to perfect the Security Interest with
respect to any Other Collateral consisting of Patents, Trademarks and
Copyrights (or registration or application for registration thereof) acquired
or developed after the date hereof).

 

(c)           Schedule II hereto sets forth, as of
the date hereof, (i) all Canadian registered Patents and Patent
applications owned by Grantor, including the name of the registered owner, type,
registration or application number and the expiration date (if already
registered) thereof, (ii) all Canadian registered Trademarks and Trademark
applications owned by Grantor, including the name of the registered owner, the
registration or application number and the expiration date (if already
registered) thereof, and (iii) all Canadian registered Copyrights and
Copyright applications owned by Grantor, including the name of the registered
owner, title and, if applicable, the registration number of each such Copyright
or Copyright application.

 

(d)           The Security Interest constitutes (i) a
legal and valid security interest in all the Other Collateral securing the
payment and performance of the Intercompany Obligations, (ii) subject to the
filings described in Section 3.02(b)  a perfected
security interest in all Other Collateral in which a security interest may be
perfected by filing, recording or registering a financing statement or
analogous document in Canada (or any political subdivision thereof) and its territories
and possessions pursuant to the PPSA (or other applicable personal property
security laws in each province) and (iii) a security interest that shall be
perfected in Other Collateral in which a security interest may be perfected
upon the receipt and recording of the IP Agreements with the Canadian
Intellectual Property Office. The Security Interest is and shall be prior to
any other Lien on any of the Other Collateral, other than Permitted Liens.

 

(e)           The Other Collateral is owned by Grantor
free and clear of any Lien, except for Permitted Liens. Grantor has not filed
or consented to the filing of (i) any financing statement or analogous document
under the PPSA or any other applicable laws covering any Other Collateral with
the Canadian Intellectual Property Office or (iii) any assignment in which
Grantor assigns any Other Collateral or any security agreement or similar
instrument covering any Other Collateral with any foreign governmental,
municipal or other office, which financing statement or analogous document,
assignment, security agreement or similar instrument is still in effect,
except, in each case, for Permitted Liens.

 

SECTION 3.03. Covenants.

 

(a)           Grantor will furnish to the Canadian
Collateral Agent promptly (and, in any event, within 15 days of the occurrence
of any such change) written notice of any change (i) in Grantor’s legal name,
as set forth in its documents or organization, (ii) in the location of Grantor’s
chief executive office, the jurisdiction of its domicile (for purposes of the
Civil Code of Quebec), the jurisdiction of any office in which it maintains
books or records 

 

17

 

relating to the Collateral owned by it or the
jurisdiction of any office or facility at which Collateral owned by it is
located (including the establishment of any such new office or facility in a
new jurisdiction), (iii) in Grantor’s form of organization or corporate
structure (including as a result of any merger or consolidation), or (iv) in
the jurisdiction of Grantor’s organization.

 

(b)           Grantor agrees to maintain, at its own cost
and expense, complete and accurate records with respect to the Other Collateral
owned by it, and in which it has granted a security interest hereunder in
accordance with GAAP and applicable law, and, at such time or times as the
Canadian Collateral Agent may reasonably request, promptly to prepare and
deliver to the Canadian Collateral Agent a duly certified schedule or schedules
in form and detail satisfactory to the Canadian Collateral Agent showing the
identity, amount and location of any and all such Other Collateral.

 

(c)           Within 90 days after the end of each fiscal
year of Grantor, Grantor will furnish to the Collateral Agent a certificate of
an Officer of Grantor setting forth (i) any Equity Interest or Indebtedness
owned by any Grantor, (ii) any Intellectual Property owned by any Grantor and
that, in each case, (A) if so owned or filed by Grantor as of the Effective
Date, would have been required to be set forth on the applicable schedule to
this Agreement pursuant to the terms hereof and (B) have not been set forth on
any such schedule to this Agreement or in a certificate previously delivered
pursuant to this clause (c).

 

(d)           Grantor shall, at its own expense, take any
and all actions necessary to defend title to the Other Collateral in which it
has granted a security interest hereunder against all Persons and to defend the
Security Interest of the Canadian Collateral Agent in such Other Collateral and
the priority thereof against any Lien (other than Permitted Liens). Notwithstanding anything to the contrary
contained herein (including any provision for, reference to, or acknowledgement
of, any Permitted Lien), nothing herein and no approval by the Canadian
Collateral Agent or Secured Parties of any Lien or Permitted Lien (whether such
approval is oral or in writing) shall be construed as or deemed to constitute a
subordination by the Canadian Collateral Agent or the Secured Parties of any security interest or other right, interest
or Lien in or to the Other Collateral or any part thereof in favour of any Lien
or Permitted Lien or any holder of any Lien or Permitted Lien, except as
provided in Section 5.15 and subject to the terms of the Intercreditor
Agreement.

 

(e)           Grantor agrees, at its own expense, to
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Canadian Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith.

 

18

 

Without
limiting the generality of the foregoing, Grantor hereby authorizes the
Canadian Collateral Agent, with prompt notice thereof to Grantor, to supplement
this Agreement by supplementing Schedule II or adding additional schedules
hereto to specifically identify any asset or item that may constitute
Copyrights, Licenses, Patents or Trademarks; provided
that Grantor shall have the right, exercisable within 10 days after it has
been notified by the Canadian Collateral Agent of the specific identification
of such Collateral, to advise the Canadian Collateral Agent in writing of any
inaccuracy of the representations and warranties made by Grantor hereunder with
respect to such Collateral. Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Canadian
Collateral Agent of the specific identification of such Collateral.

 

(f)            The Canadian Collateral Agent and such
Persons as the Canadian Collateral Agent may reasonably designate shall have
the right, at Grantor’s own cost and expense, upon reasonable prior notice, to
inspect the Other Collateral subject to the Security Interest, all records
related thereto (and to make extracts and copies from such records) and the
premises upon which any of such Other Collateral is located, to discuss Grantor’s
affairs, finances and condition with the officers of Grantor and its
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to, the Other Collateral subject to the Security Interest (including,
in the case of Accounts or Other Collateral in the possession of any third
person, by contacting Account Debtors or the third person possessing such Other
Collateral for the purpose of making such a verification), all of such
reasonable times and as often as reasonably requested. The Canadian Collateral
Agent shall have the absolute right to share any information it gains from such
inspection or verification with any other Secured Party.

 

(g)           At its option, the Canadian Collateral Agent
may discharge past due taxes, assessments, charges, fees or Liens at any time
levied or placed on the Other Collateral (other than Permitted Liens), and may
pay for the maintenance and preservation of the Other Collateral subject to the
Security Interest to the extent Grantor fails to do so as required by the
Financing Documents or this Agreement, and Grantor agrees to reimburse the
Canadian Collateral Agent on demand for any payment made or any expense
incurred by the Canadian Collateral Agent pursuant to the foregoing
authorization; provided that
nothing in this paragraph shall be interpreted as excusing Grantor from the performance
of, or imposing any obligation on the Canadian Collateral Agent or any other
Secured Party to cure or perform, any covenants or other promises of Grantor
with respect to taxes, assessments, charges, fees or Liens and maintenance of
properties as set forth herein or in the other Intercompany Notes Documents.

 

(h)           If at any time Grantor shall take a security
interest in any property of an Account Debtor or any other Person to secure
payment and performance of an Account, Grantor shall promptly assign such
security interest to the Canadian Collateral Agent, for the benefit of the
Secured Parties. Such assignment need not be filed of public record unless
necessary to continue the perfected status of the security interest against
creditors of and transferees from the Account Debtor or other Person granting
the security interest.

 

19

 

(i)            Grantor shall remain liable to observe and
perform all the conditions and obligations to be observed and performed by it
under each contract, agreement or instrument relating to the Other Collateral
subject to the Security Interest, all in accordance with the terms and
conditions thereof, and Grantor agrees to indemnify and hold harmless the
Canadian Collateral Agent and the other Secured Parties from and against any
and all liability for such performance.

 

(j)            Grantor shall not make or permit to be made
an assignment, pledge or hypothecation of the Other Collateral subject to the
Security Interest or shall grant any other Lien in respect of such Other
Collateral, except as permitted by the Financing Documents. Grantor shall not
make or permit to be made any transfer of such Other Collateral and Grantor
shall remain at all times in possession of such Other Collateral owned by it,
except that unless and until the Canadian Collateral Agent shall notify Grantor
that an Event of Default shall have occurred and be continuing and that during
the continuance thereof Grantor shall not sell, convey, lease, assign, transfer
or otherwise dispose of any such Other Collateral (which notice may be given by
telephone if promptly confirmed in writing), Grantor may use and dispose of
such Other Collateral in any lawful manner not inconsistent with the provisions
of this Agreement, the Financing Documents or any other Intercompany Notes
Document.

 

(k)           Grantor will not, without the Canadian
Collateral Agent’s prior written consent, grant any extension of the time of
payment of any Accounts included in the Other Collateral, compromise, compound
or settle the same for less than the full amount thereof, release, wholly or
partly, any Person liable for the payment thereof or allow any credit or
discount whatsoever thereon, other than extensions, compromises, settlements,
releases, credits or discounts granted or made in the ordinary course of
business and consistent with its current practices and in accordance with such
prudent and standard practice used in industries that are the same as or
similar to those in which Grantor is engaged.

 

(l)            Grantor will maintain, with financially
sound and reputable insurance companies, insurance in such amounts (with no
greater risk retention) and against such risks as are customarily maintained by
companies of established repute engaged in the same or similar businesses
operating in the same or similar locations. Each such policy of insurance
maintained by Grantor (other than policies of the type in respect of which such
actions customarily are not required) shall (i) in the case of each liability
insurance policy, name the Canadian Collateral Agent, on behalf of the Secured
Parties, as an additional insured thereunder, (ii) in the case of each
casualty insurance policy, contain a loss payable clause or endorsement that
names the Canadian Collateral Agent, on behalf of the Secured Parties, as the
loss payee thereunder and (iii) provide for at least 30 days’ (or such
shorter number of days may be agreed to by the Canadian Collateral Agent) prior
written notice to the Canadian Collateral Agent of any cancellation of such policy.
Upon the Canadian Collateral Agent’s request, Grantor will furnish to the
Canadian Collateral Agent information in reasonable detail as to the insurance
so maintained. Grantor irrevocably makes, constitutes and appoints the Canadian
Collateral Agent (and all officers, employees or agents designated by the
Canadian Collateral Agent) as Grantor’s true and lawful agent (and attorney-in-fact)
for the purpose, during the 

 

20

 

continuance of an Event of Default, of
making, settling and adjusting claims in respect of Other Collateral subject to
the Security Interest under policies of insurance, endorsing the name of
Grantor on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect thereto. In the event that Grantor at any time or times
shall fail to obtain or maintain any of the policies of insurance required
hereby or to pay any premium in whole or part relating thereto, the Canadian
Collateral Agent may, without waiving or releasing any obligation or liability
of Grantor hereunder or any Event of Default, in its sole discretion, obtain
and maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as the Canadian Collateral Agent deems advisable. All
sums disbursed by the Canadian Collateral Agent in connection with this
paragraph, including reasonable attorneys’ fees, court costs, expenses and
other charges relating thereto, shall be payable, upon demand, by Grantor to
the Canadian Collateral Agent and shall be additional Intercompany Obligations
secured hereby.

 

(m)          Grantor shall maintain, in form and manner
reasonably satisfactory to the Canadian Collateral Agent, records of its
Chattel Paper and its books, records and documents evidencing or pertaining
thereto.

 

SECTION 3.04. Other
Actions. In order to further ensure the attachment, perfection and
priority of, and the ability of the Canadian Collateral Agent to enforce, the
Security Interest, Grantor agrees, in each case at Grantor’s own expense, to
take the following actions with respect to the following Other Collateral owned
by it and subject to the Security Interest:

 

(a)           Instruments. If
Grantor shall at any time hold or acquire any Instruments subject to the
Security Interest, Grantor shall forthwith endorse, assign and deliver the same
to the Canadian Collateral Agent, accompanied by such instruments of transfer
or assignment duly executed in blank as the Canadian Collateral Agent may from
time to time reasonably request.

 

(b)           Investment Property.

 

(i)            Except to the extent otherwise provided in
Article II, if Grantor shall at any time hold or acquire any certificated
securities subject to the Security Interest, Grantor shall forthwith endorse,
assign and deliver the same to the Canadian Collateral Agent, accompanied by
such instruments of transfer or assignment duly executed in blank as the
Canadian Collateral Agent may from time to time specify.

 

(ii)           In respect of any Uncertificated Securities
included in the Pledged Collateral,

 

(A)          on request by the Canadian Collateral Agent,
Grantor shall cause and hereby authorizes and constitutes the Canadian
Collateral Agent as its attorney-in-fact from time to time to cause each issuer
of such Uncertificated Securities to register the Canadian 

 

21

 

Collateral Agent or its nominee as the registered owner of such
Uncertificated Securities.

 

(B)           Grantor hereby consents to the Canadian
Collateral Agent entering into an Investment Property Control Agreement with
the issuer of any such Uncertificated Securities.

 

(iii)          Grantor shall not consent to the entering
into by any issuer of any Uncertificated Securities included in or relating to
the Pledged Collateral of an Investment Property Control Agreement in respect
of such Uncertificated Securities with any Person other than the Canadian
Collateral Agent or its nominee.

 

(iv)          With respect to any Pledged Collateral that
is an interest in a partnership or a limited liability company which as of the
date hereof does not satisfy one of the requirements listed in (j),  if at any time hereafter any such requirement
is satisfied,  Grantor shall immediately
give notice to such effect to the Collateral Agent.

 

(v)           In respect of any Securities Accounts
included in the Pledged Collateral or any Security Entitlements carried
therein,

 

(A)          on request by the Canadian Collateral Agent,
Grantor shall direct the Securities Intermediary in respect of such Security
Entitlements to transfer the Financial Assets to which such Security
Entitlements relate to a Securities Account designated by the Canadian
Collateral Agent; and

 

(B)           Grantor hereby consents to the Canadian
Collateral Agent entering into an Investment Property Control Agreement with
the Securities Intermediary in respect of any such Security Entitlements.

 

(vi)          Grantor shall not consent to the entering
into by any Securities Intermediary for any Security Entitlements included in
or relating to the Pledged Collateral of an Investment Property Control
Agreement in respect of such Security Entitlements with any Person other than
the Canadian Collateral Agent or its nominee.

 

(vii)         Grantor shall not enter into any agreement
with any Securities Intermediary that governs any Securities Account included
in or relating to any Pledged Collateral that specifies any such Securities
Intermediary’s jurisdiction to be a jurisdiction other than the Province of
Ontario for the purposes of the STA or which is governed by the laws of a
jurisdiction other than the Province of Ontario or consent to any amendment to
any such agreement that would change such Securities Intermediary’s
jurisdiction to a jurisdiction other than the Province of Ontario for the 

 

22

 

purposes of the STA or its governing law to a jurisdiction other than
the Province of Ontario.

 

(c)           Collateral Access
Agreements. Grantor shall use commercially reasonable efforts to
obtain a Collateral Access Agreement from the lessor of each leased property,
mortgagee of owned property or bailee or consignee with respect to any
warehouse, processor or converter facility or other location where Collateral
is stored or located, which agreement or letter shall provide access rights and
contain a waiver or subordination of all Liens or claims that the landlord,
mortgagee, bailee or consignee may assert against the Collateral at that
location. Grantor shall timely and fully pay and perform its obligations under
all leases and other agreements with respect to each leased location or third
party warehouse where any Collateral is or may be located.

 

SECTION 3.05. Covenants Regarding Patent, Trademark and Copyright
Collateral.

 

(a)           Grantor agrees that it will not take or omit
to take any action (and will exercise commercially reasonable efforts to
prevent its licensees from taking or omitting to take any action) whereby any
Patent that is material to the conduct of Grantor’s business may become
invalidated or dedicated to the public, and agrees that it shall continue to
mark any products covered by a Patent with the relevant patent number as
necessary and sufficient to establish and preserve its maximum rights under
applicable patent laws.

 

(b)           Grantor (either itself or through its
licensees or its sublicensees) will, for each Trademark material to the conduct
of Grantor’s business, (i) maintain such Trademark in full force free from
any claim of abandonment or invalidity for non-use, (ii) maintain the
quality of products and services offered under such Trademark,
(iii) display such Trademark with notice of Federal or foreign
registration to the extent necessary and sufficient to establish and preserve
its maximum rights under applicable law and (iv) not knowingly use or knowingly
permit the use of such Trademark in violation of any third party rights.

 

(c)           Grantor (either itself or through its
licensees or sublicensees) will, for each work covered by a material Copyright,
continue to publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to establish and
preserve its maximum rights under applicable copyright laws.

 

(d)           Grantor shall notify the Canadian Collateral
Agent promptly if it knows or has reason to know that any Patent, Trademark or
Copyright material to the conduct of its business may become abandoned, lost or
dedicated to the public, or of any materially adverse determination or
development (including the institution of, or any such determination or development
in, any proceeding in the Canadian Intellectual Property Office or any court or
similar office of any country) regarding Grantor’s ownership of any Patent,
Trademark or Copyright, its right to register the same, or its right to keep
and maintain the same.

 

23

 

(e)           In no event shall Grantor, either itself or
through any agent, employee, licensee or designee, file an application for any
Patent, Trademark or Copyright (or for the registration of any Trademark or
Copyright) with the Canadian Intellectual Property Office or any office or
agency in any political subdivision of Canada or in any other country or any
political subdivision thereof, unless it promptly informs the Canadian
Collateral Agent, and, upon request of the Canadian Collateral Agent, executes
and delivers any and all agreements, instruments, documents and papers as the
Canadian Collateral Agent may reasonably request to evidence the Canadian
Collateral Agent’s security interest in such Patent, Trademark or Copyright,
and Grantor hereby appoints the Canadian Collateral Agent as its attorney-in-fact
to execute and file such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power, being coupled with an
interest, is irrevocable.

 

(f)            Grantor will take all necessary steps that
are consistent with the practice in any proceeding before the Canadian
Intellectual Property Office or any office or agency in any political
subdivision of Canada or in any other country or any political subdivision
thereof, to maintain and pursue each material application relating to the
Patents, Trademarks or Copyrights (and to obtain the relevant grant or
registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of Grantor’s
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference
and cancellation proceedings against third parties.

 

(g)           In the event that Grantor has reason to
believe that any Other Collateral consisting of a Patent, Trademark or
Copyright material to the conduct of Grantor’s business has been or is about to
be infringed, misappropriated or diluted by a third party, Grantor promptly
shall notify the Canadian Collateral Agent and shall, if consistent with good
business judgment, promptly sue for infringement, misappropriation or dilution
and to recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as are appropriate under the
circumstances to protect such Other Collateral.

 

(h)           Upon and during the continuance of an Event
of Default, Grantor shall use its best efforts to obtain all requisite consents
or approvals by the licensor of each Copyright License, Patent License or
Trademark License to effect the assignment of all Grantor’s right, title and
interest thereunder to the Canadian Collateral Agent or its designee.

 

ARTICLE IV

 

Remedies

 

SECTION 4.01. Remedies
Upon Default.  Upon the occurrence and during the continuance of an
Event of Default, Grantor agrees to deliver each item of Collateral to the Canadian
Collateral Agent on demand, and it is agreed that the Canadian Collateral Agent
shall have the right to take any of or all the following actions at the same or
different times: (a) with respect to any Other Collateral consisting of
Intellectual 

 

24

 

Property, on demand, to cause the Security
Interest to become an assignment, transfer and conveyance of any of or all such
Other Collateral by Grantor to the Canadian Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or nonexclusive basis, any such Other Collateral throughout the world on such
terms and conditions and in such manner as the Canadian Collateral Agent shall
determine (other than in violation of any then-existing licensing arrangements
to the extent that waivers cannot be obtained), and (b) with or without
legal process and with or without prior notice or demand for performance, to
take possession of the Other Collateral and without liability for trespass to
enter any premises where the Other Collateral may be located for the purpose of
taking possession of or removing the Other Collateral and, generally, to
exercise any and all rights afforded to a secured party under the PPSA or other
applicable law. Without limiting the generality of the foregoing, Grantor
agrees that the Canadian Collateral Agent shall have the right, subject to the
mandatory requirements of applicable law, to sell or otherwise dispose of all
or any part of the Collateral at a public or private sale or at any broker’s
board or on any securities exchange, for cash, upon credit or for future
delivery as the Canadian Collateral Agent shall deem appropriate. The Canadian
Collateral Agent shall be authorized at any such sale of securities (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers
to Persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Canadian Collateral
Agent shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at any sale of
Collateral shall hold the property sold absolutely, free from any claim or
right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay and appraisal which Grantor
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted.

 

The Canadian
Collateral Agent shall give Grantor 15 days’ written notice (which Grantor
agrees is reasonable notice) of the Canadian Collateral Agent’s intention to
make any sale of Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker’s
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Canadian Collateral Agent may fix and state
in the notice (if any) of such sale. At any such sale, the Collateral, or
portion thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Canadian Collateral Agent may (in its sole and
absolute discretion) determine. The Canadian Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do
so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Canadian Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the same was
so adjourned. In case any sale of all or any part of the Collateral is made on
credit or for 

 

25

 

future
delivery, the Collateral so sold may be retained by the Canadian Collateral
Agent until the sale price is paid by the purchaser or purchasers thereof, but
the Canadian Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so
sold and, in case of any such failure, such Collateral may be sold again upon
like notice. At any public (or, to the extent permitted by law, private) sale
made pursuant to this Agreement, any Secured Party may bid for or purchase,
free (to the extent permitted by law) from any right of redemption, stay, valuation
or appraisal on the part of Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part
thereof offered for sale and may make payment on account thereof by using any
claim then due and payable to such Secured Party from Grantor as a credit
against the purchase price, and such Secured Party may, upon compliance with
the terms of sale, hold, retain and dispose of such property without further
accountability to Grantor therefor. For purposes hereof, a written agreement to
purchase the Collateral or any portion thereof shall be treated as a sale
thereof; the Canadian Collateral Agent shall be free to carry out such sale
pursuant to such agreement and Grantor shall not be entitled to the return of
the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Canadian Collateral Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Intercompany
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Canadian Collateral Agent may proceed by a suit
or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court
or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.

 

The Canadian
Collateral Agent may, in addition to any other rights it may have, appoint by
instrument in writing a receiver or receiver and manager (both of which are
herein called a “Receiver”) of all or any part of the Collateral or may
institute proceedings in any court of competent jurisdiction for the
appointment of such a Receiver. Any such Receiver is hereby given and shall
have the same powers and rights and exclusions and limitations of liability as
the Canadian Collateral Agent has under this Agreement, at law or in equity. In
exercising any such powers, any such Receiver shall, to the extent permitted by
law, act as and for all purposes shall be deemed to be the agent of Grantor and
the Canadian Collateral Agent shall not be responsible for any act or default
of any such Receiver. The Canadian Collateral Agent may appoint one or more
Receivers hereunder and may remove any such Receiver or Receivers and appoint
another or others in his or their stead from time to time. Any Receiver so
appointed may be an officer or employee of the Canadian Collateral Agent. A
court need not appoint, ratify the appointment by the Canadian Collateral Agent
of or otherwise supervise in any manner the actions of any Receiver. Upon
Grantor receiving notice from the Canadian Collateral Agent of the taking of
possession of the Collateral or the appointment of a Receiver, all powers,
functions, rights and privileges of each of the directors and officers of
Grantor with respect to the Collateral shall, to the extent permitted by
applicable law, cease, unless specifically continued by the written consent of
the Canadian Collateral Agent.

 

26

 

SECTION 4.02. Application
of Proceeds.  Subject to applicable laws, the Canadian Collateral
Agent shall apply the proceeds of any collection or sale of any Collateral, and
any Collateral consisting of cash, as follows:

 

FIRST, to the
payment of all costs and expenses incurred by the Canadian Collateral Agent in
connection with such collection or sale or otherwise in connection with this
Agreement, any other Intercompany Notes Document or any of the Intercompany
Obligations, including all court costs and the fees and expenses of its agents
and legal counsel, the repayment of all advances made by the Canadian
Collateral Agent hereunder or under any other Intercompany Notes Document on
behalf of Grantor and any other costs or expenses incurred in connection with
the exercise of any right or remedy hereunder or under any other Intercompany
Notes Document and any other amounts due to the Canadian Collateral Agent under
Section 5.03.

 

SECOND, to the
payment in full of the other Intercompany Obligations secured by such
Collateral (the amounts so applied to be distributed among the applicable
Secured Parties pro rata in accordance with the amounts of such Intercompany
Obligations owed to them on the date of any such distribution); and

 

THIRD, to
Grantor, its successors or assigns, or as a court of competent jurisdiction may
otherwise direct.

 

The Canadian
Collateral Agent shall have absolute discretion as to the time of application
of any such proceeds, moneys or balances in accordance with this Agreement. Upon
any sale of Collateral by the Canadian Collateral Agent (including pursuant to
a power of sale granted by statute or under a judicial proceeding), the receipt
of the Canadian Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Canadian
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.

 

SECTION 4.03. Grant
of License to Use Intellectual Property.  For the purpose of enabling
the Canadian Collateral Agent to exercise rights and remedies under this
Agreement at such time as the Canadian Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, Grantor hereby grants to the
Canadian Collateral Agent an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to Grantor) to use, license or
sublicense any of the Other Collateral consisting of Intellectual Property now
owned or hereafter acquired by Grantor, and wherever the same may be located,
and including in such license reasonable access to all media in which any of
the licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof. The rights conferred by
such license may be exercised, at the option of the Canadian Collateral Agent,
upon the occurrence and during the continuation of an Event of Default; provided that any license, sublicense or
other transaction entered into by the Canadian 

 

27

 

Collateral Agent in accordance herewith shall
be binding upon Grantor notwithstanding any subsequent cure of an Event of
Default.

 

SECTION 4.04. Securities Act

 

In view of the
position of Grantor in relation to the Pledged Collateral, or because of other
current or future circumstances, a question may arise under the Securities Act
(Ontario), or any similar statute in any other applicable jurisdiction
hereafter enacted analogous in purpose or effect (the Securities Act and any
such similar statute as from time to time in effect being called the “Securities Laws”) with
respect to any disposition of the Pledged Collateral permitted hereunder. Grantor
understands that compliance with the Securities Laws might very strictly limit
the course of conduct of the Canadian Collateral Agent if the Canadian
Collateral Agent were to attempt to dispose of all or any part of the Pledged
Collateral, and might also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Collateral could dispose of the same. Grantor
recognizes that in light of such restrictions and limitations the Canadian
Collateral Agent may, with respect to any sale of the Pledged Collateral, limit
the purchasers to those who will agree, among other things, to acquire such
Pledged Collateral for their own account, for investment, and not with a view
to the distribution or resale thereof. Grantor acknowledges and agrees that in
light of such restrictions and limitations, the Canadian Collateral Agent, in
its sole and absolute discretion (a) may proceed to make such a sale
whether or not a registration statement for the purpose of registering such
Pledged Collateral or part thereof shall have been filed under the Securities
Laws and (b) may approach and negotiate with a single potential purchaser
to effect such sale. Grantor acknowledges and agrees that any such sale might
result in prices and other terms less favorable to the seller than if such sale
were a public sale without such restrictions. In the event of any such sale,
the Canadian Collateral Agent shall incur no responsibility or liability for
selling all or any part of the Pledged Collateral at a price that the Canadian
Collateral Agent, in its sole and absolute discretion, may in good faith deem
reasonable under the circumstances, notwithstanding the possibility that a substantially
higher price might have been realized if the sale were deferred until after
registration as aforesaid or if more than a single purchaser were approached. The
provisions of this Section will apply notwithstanding the existence of a public
or private market upon which the quotations or sales prices may exceed
substantially the price at which the Canadian Collateral Agent sells.

 

SECTION 4.05. Registration.Grantor
agrees that, upon the occurrence and during the continuance of an Event of
Default, if for any reason the Canadian Collateral Agent desires to sell any of
the Pledged Collateral at a public sale, it will, at any time and from time to
time, upon the written request of the Canadian Collateral Agent, use its best
efforts to take or to cause the issuer of such Pledged Collateral to take such
action and prepare, distribute and/or file such documents, as are required or
advisable in the reasonable opinion of counsel for the Canadian Collateral
Agent to permit the public sale of such Pledged Collateral. Grantor further
agrees to indemnify, defend and hold harmless the Canadian Collateral Agent,
each other Secured Party, any underwriter and their respective officers,
directors, affiliates and controlling persons from and against all loss,
liability, expenses, costs of counsel (including, without limitation, 

 

28

 

reasonable
fees and expenses to the Canadian Collateral Agent of legal counsel), and
claims (including the costs of investigation) that they may incur insofar as
such loss, liability, expense or claim arises out of or is based upon any
alleged untrue statement of a material fact contained in any prospectus (or any
amendment or supplement thereto) or in any notification or offering circular,
or arises out of or is based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements in thereof
not misleading, except insofar as the same may have been caused by any untrue
statement or omission based upon information furnished in writing to Grantor or
the issuer of such Pledged Collateral by the Canadian Collateral Agent or any
other Secured Party expressly for use therein. Grantor further agrees, upon
such written request referred to above, to use its best efforts to qualify,
file or register, or cause the issuer of such Pledged Collateral to qualify,
file or register, any of the Pledged Collateral under applicable securities
laws of such states or provinces as may be requested by the Canadian Collateral
Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. Grantor will bear all costs and
expenses of carrying out its obligations under this Section. Grantor
acknowledges that there is no adequate remedy at law for failure by it to
comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.

 

ARTICLE V

 

Miscellaneous

 

SECTION 5.01. Notices.All
communications and notices hereunder shall (except as otherwise expressly
permitted herein) be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by facsimile as
follows:

 

If to the
Canadian Collateral Agent:

 

BNY Trust
Company of Canada

Suite 1101

4 King Street
West

Toronto,
Ontario M5H 1B6

 

Attention:         Senior Trust Officer

Facsimile:         416-360-1711
or 469-360-1727

 

If to the
Grantor:

 

c/o Symmetry
Holdings Inc.

28 West 44th
Street, 16th Floor

New York, New
York 10036

 

Attention:         General Counsel

Facsimile:         (646)
429-1541

 

29

 

SECTION 5.02. Waivers;
Amendment.(a) No failure or delay by the Canadian Collateral Agent, or any
other Secured Party in exercising any right or power hereunder or under any
other Intercompany Notes Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Canadian Collateral Agent, and the other Secured
Parties hereunder and under the other Intercompany Notes Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or any other
Intercompany Notes Document or consent to any departure by Grantor therefrom
shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on Grantor in any case shall entitle Grantor to any other or
further notice or demand in similar or other circumstances.

 

(b)           Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Canadian Collateral Agent and Grantor
with respect to which such waiver, amendment or modification is to apply,
subject to any consent required under the Financing Documents. The Canadian
Collateral Agent shall enter into such waivers, amendments or modifications of
this Agreement as it may be directed (subject to the immediately preceding
sentence) to enter into by the Collateral Agent; provided that the Canadian
Collateral Agent shall not be obligated to execute any such waiver, amendment
or modification that adversely affects the rights, duties, liabilities or
immunities of the Canadian Collateral Agent.

 

SECTION 5.03. Canadian
Collateral Agent’s Fees and Expenses; Indemnification. (a) Grantor agrees to
pay all reasonable out-of-pocket expenses incurred by the Canadian Collateral
Agent, including the reasonable fees, charges and disbursements of its counsel,
in connection with (i) the preparation, execution, delivery and administration
of this Agreement and any other Security Document, (ii) the custody or
preservation of, or the sale of, collection from or other realization upon any
of the Collateral, (iii) the exercise, enforcement or protection of any of the
rights of the Collateral Agent hereunder or under any other Security Document
or (iv) the failure of Grantor to perform or observe any of the provisions
hereof.

 

(b)           Without limitation of its indemnification
obligations under the other Intercompany Notes Documents, Grantor agrees to
indemnify the Canadian Collateral Agent, its Affiliates and their respective
officers, directors, employees, agents and representatives (the “Indemnitees”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of,
the execution, delivery or performance of this Agreement or any claim,
litigation, investigation or proceeding relating to any of the foregoing, or
any agreement or instrument contemplated hereby, or to the Collateral, whether
or not any Indemnitee is a party thereto; provided

 

30

 

that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or wilful misconduct of such Indemnitee or any of its
Affiliates.

 

(c)           Any such amounts payable as provided
hereunder shall be additional Intercompany Obligations secured hereby and by
the other Intercompany Note Security Documents. The provisions of this Section
shall remain operative and in full force and effect regardless of the
termination of this Agreement or any other Intercompany Notes Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Intercompany Obligations, the invalidity or unenforceability of any term or
provision of this Agreement or any other Intercompany Document, or any
investigation made by or on behalf of the Canadian Collateral Agent or any
other Secured Party. All amounts due under this Section shall be payable on
written demand therefor.

 

SECTION 5.04. Successors
and Assigns. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the permitted successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of Grantor or the Canadian Collateral Agent that are contained in this
Agreement shall bind and inure to the benefit of their respective successors
and assigns.

 

SECTION 5.05. Survival
of Agreement. All covenants, agreements, representations and warranties made by
Grantor in the Intercompany Notes Documents and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Intercompany Notes Document shall be considered to have
been relied upon by the Secured Parties and shall survive the execution and
delivery of the Intercompany Notes Documents issuance of the Securities,
regardless of any investigation made by any Secured Party or on its behalf and
shall continue in full force and effect until this, Agreement shall terminate.

 

SECTION 5.06. Counterparts;
Effectiveness; Several Agreement. This Agreement may be executed in
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute a single contract. Delivery of an executed
signature page to this Agreement by facsimile or electronic transmission shall
be as effective as delivery of a manually signed counterpart of this Agreement.
This Agreement shall become effective as to Grantor when a counterpart hereof
executed on behalf of Grantor shall have been delivered to the Canadian
Collateral Agent and a counterpart hereof shall have been executed on behalf of
the Canadian Collateral Agent, and thereafter shall be binding upon Grantor and
the Canadian Collateral Agent and their respective permitted successors and
assigns, and shall inure to the benefit of Grantor, the Canadian Collateral
Agent and the other Secured Parties and their respective successors and
assigns, except that Grantor shall not have the right to assign or transfer its
rights or obligations hereunder or any interest herein or in the Collateral
(and any such assignment or transfer shall be void) except as expressly
provided in this Agreement or the Financing Documents.

 

31

 

SECTION 5.07. Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction. The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

 

SECTION 5.08. Governing
Law; Jurisdiction; Consent to Service of Process. This Agreement and the rights
and obligations of the parties under this agreement shall be construed in
accordance with and governed by the law of the province of Ontario, and the
laws of Canada applicable therein.

 

(b)                                 Grantor hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of the courts of the Province of Ontario or Quebec,
the courts of Canada, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to this Agreement or any other
Intercompany Security Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such Province. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Intercompany Notes
Document shall affect any right that the Canadian Collateral Agent, or any
other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or any other Intercompany Notes Document against
Grantor, or its properties in the courts of any jurisdiction.

 

(c)                                  Grantor hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or any other Intercompany Notes Document in any court referred
to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

 

(d)                                 Each party to this
Agreement irrevocably consents to service of process in the manner provided for
notices in Section 5.01. Nothing in this Agreement or any other
Intercompany Notes Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.

 

SECTION 5.09. Judgment
Currency.

 

(a)                                  The obligations of
any party to this Agreement hereunder and under the other Intercompany Notes
Document to make payments in Canadian Dollars or in US Dollars,

 

32

 

as the case may be (for the purposes of this
Section, the “Intercompany Obligation Currency”), shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than the Intercompany Obligation Currency,
except to the extent that such tender or recovery results in the effective
receipt by the Canadian Collateral Agent or a Secured Party of the full amount
of the Intercompany Obligation Currency expressed to be payable to the Canadian
Collateral Agent or a Secured Party under this Agreement or the other
Intercompany Notes Documents. If, for the purpose of obtaining or enforcing
judgment against any party to this Agreement or any Secured Parties in any
court or in any jurisdiction, it becomes necessary to convert into or from any
currency other than the Intercompany Obligation Currency (for the purposes of
this Section, such other currency being hereinafter referred to as the “Judgment
Currency”) an amount due in the Intercompany Obligation Currency, the
conversion shall be made, at the rate of exchange prevailing, in each case, as
of the date immediately preceding the day on which the judgment is given (for
the purposes of this Section, such Business Day being hereinafter referred to
as the “Judgment Currency Conversion Date”).

 

(b)                                 If there is a change
in the rate of exchange prevailing between the Judgment Currency Conversion
Date and the date of actual payment of the amount due, Grantor covenants and
agrees to pay, or cause to be paid, such additional amounts, if any (but in any
event not a lesser amount), as may be necessary to ensure that the amount paid
in the Judgment Currency, when converted at the rate of exchange prevailing on
the date of payment, will produce the amount of the Intercompany Obligation
Currency which could have been purchased with the amount of Judgment Currency
stipulated in the judgment or judicial award at the rate of exchange prevailing
on the Judgment Currency Conversion Date.

 

(c)                                  For purposes of
determining the prevailing rate of exchange, such amounts shall include any
premium and costs payable in connection with the purchase of the Intercompany
Obligation Currency.

 

SECTION 5.10. WAIVER
OF JURY TRIAL.  EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER INTERCOMPANY NOTES DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

33

 

SECTION 5.11. Headings.  Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.

 

SECTION 5.12. Security
Interest Absolute.  All rights of the
Canadian Collateral Agent hereunder, the Security Interest, the grant of a
security interest in the Pledged Collateral and all obligations of Grantor
hereunder shall be absolute and unconditional irrespective of (a) any lack
of validity or enforceability of the Financing Documents, any other
Intercompany Notes Document, any agreement with respect to any of the
Intercompany Obligations or any other agreement or instrument relating to any
of the foregoing, (b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Intercompany Obligations, or any
other amendment or waiver of or any consent to any departure from the Financing
Documents, any other Intercompany Notes Document or any other agreement or
instrument, (c) any exchange, release or non-perfection of any Lien on
other collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the Intercompany
Obligations, or (d) any other circumstance that might otherwise constitute
a defense available to, or a discharge of, Grantor in respect of the
Intercompany Obligations or this Agreement.

 

SECTION 5.13. Termination or Release.

 

(a)                                  This Security
Interest and all other security interests granted hereby shall terminate when
all the Intercompany Obligations (other than contingent obligations) have been
indefeasibly paid in full pursuant to the terms thereof and not in violation of
any restriction set forth in any Financing Document.

 

(b)                                 Upon any sale or other transfer by the
Grantor of any Collateral, which sale or transfer is permitted under this
Agreement and each of the Financing Documents, or upon a sale or other
disposition of the ABL Collateral permitted pursuant to the terms of the
Intercreditor Agreement, or upon the effectiveness of any written direction to
release of such Lien by the Collateral Agent, the security interest and Lien
created in such Collateral under each of the Intercompany Note Security
Documents shall be automatically released. In connection with any release
pursuant to this Section, the Canadian Collateral Agent shall execute and
deliver to the Grantor and the Collateral Agent, at the Grantor’s expense, all
documents that the Grantor or Collateral Agent shall reasonably request to
evidence such release; provided however, that the Canadian Collateral Agent
shall not be required to execute or deliver any such documents unless it shall
have been directed to do so by the Collateral Agent. Any such execution and
delivery of documents pursuant to this Section shall be without recourse to or
warranty by the Canadian Collateral Agent.

 

SECTION 5.14. Canadian
Collateral Agent Appointed Attorney-in-Fact. 
Grantor hereby appoints the Canadian Collateral Agent the
attorney-in-fact of Grantor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument that the Canadian
Collateral Agent may deem

 

34

 

necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, the Canadian Collateral Agent
shall have the right, upon the occurrence and during the continuance of an
Event of Default, with full power of substitution either in the Canadian
Collateral Agent’s name or in the name of Grantor (a) to receive, endorse,
assign or deliver any and all notes, acceptances, checks, drafts, money orders
or other evidences of payment relating to the Collateral or any part thereof;
(b) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (c) to sign the
name of Grantor on any invoice or bill of lading relating to any of the
Collateral; (d) to send verifications of Accounts Receivable to any
Account Debtor; (e) to commence and prosecute any and all suits, actions
or proceedings at law or in equity in any court of competent jurisdiction to
collect or otherwise realize on all or any of the Collateral or to enforce any
rights in respect of any Collateral; (f) to settle, compromise, compound,
adjust or defend any actions, suits or proceedings relating to all or any of
the Collateral; (g) to notify, or to require Grantor to notify, Account
Debtors to make payment directly to the Canadian Collateral Agent; and
(h) to use, sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with all or any of the Collateral, and to do all other
acts and things necessary to carry out the purposes of this Agreement, as fully
and completely as though the Canadian Collateral Agent were the absolute owner
of the Collateral for all purposes; provided
that nothing herein contained shall be construed as requiring or obligating the
Canadian Collateral Agent to make any commitment or to make any inquiry as to
the nature or sufficiency of any payment received by the Canadian Collateral
Agent, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become
due in respect thereof or any property covered thereby. The Canadian Collateral
Agent and the other Secured Parties shall be accountable only for amounts
actually received as a result of the exercise of the powers granted to them
herein, and neither they nor their officers, directors, employees or agents
shall be responsible to Grantor for any act or failure to act hereunder, except
for their own gross negligence or wilful misconduct.

 

SECTION 5.15. Intercreditor
Agreement.  Notwithstanding anything
herein to the contrary: (a) the Liens granted to the Canadian Collateral Agent
or any agent or trustee thereof under this Agreement or any other Intercompany
Note Security Document on the ABL Collateral shall be junior and subordinated
in all respects to all Liens of the Revolving Credit Agent (as defined under
the Intercreditor Agreement) or any agent or trustee thereof in the ABL
Collateral, and (b) the exercise of the rights and remedies of the Canadian
Collateral Agent hereunder are otherwise subject to the provisions of the
Intercreditor Agreement binding on the Collateral Agent and the Senior Notes
Secured Parties (as defined in the Intercreditor Agreement). In the event of any
conflict between the terms of the Intercreditor Agreement and this Agreement or
any other Intercompany Note Security Document, the terms of the Intercreditor
Agreement shall govern and control. At any time prior to the Discharge of
Canadian Revolving Credit Obligations (as defined in the Intercreditor
Agreement), no Grantor shall be required to take or refrain from taking any
action at the request of the Canadian Collateral Agent with respect to any ABL
Collateral if such action or inaction would be inconsistent

 

35

 

with (i) any action or inaction affirmatively
requested by the Revolving Credit Agent (as defined in the Intercreditor
Agreement) or any agent or trustee thereof or (ii) any action or inaction affirmatively
required by any of the provisions of the Revolving Credit Agreement (as defined
in the Intercreditor Agreement).

 

SECTION 5.16. Acknowledgments.

 

Grantor
acknowledges that all right title and interest of the Company in and under this
Agreement is, simultaneous with its execution and delivery to the Canadian
Collateral Agent, subject to a Lien granted by the Company to secure the
Financing Document Obligations. The Collateral Agent, on behalf of the Secured
Parties (as defined in the Collateral Agreement) is a third party beneficiary
of this Agreement and may enforce this Agreement against Grantor to the extent
set forth in the Financing Documents and the Collateral Agreement. Grantor
further acknowledges that it has received a copy of the Financing Documents.
The Canadian Collateral Agent shall not be obligated to take any action under
this Agreement or any other Intercompany Note Security Document except for the
performance of such duties and obligations as are specifically set forth herein
or in such other Intercompany Note Security Document. The Canadian Collateral
Agent shall take only such enforcement actions and exercise remedies hereunder
and under the other Intercompany Note Security Documents as it is from time to
time directed, in writing, to take or exercise by the Collateral Agent (as
pledgee of the Intercompany Notes pursuant to the Collateral Agreement),
provided that such actions or such exercise of remedies is not inconsistent
with or contrary to the provisions of this Agreement.

 

36

 

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

 

 

	
   

  	
  NOVAMERICAN STEEL INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Corrado De Gasperis

  
	
   

  	
   Name: Corrado De Gasperis

  
	
   

  	
   Title: President

  

 

37

 

	
   

  	
  BNY TRUST COMPANY OF CANADA, AS

  
	
   

  	
  CANADIAN COLLATERAL AGENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia Benjamin

  
	
   

  	
  Name: Patricia Benjamin

  
	
   

  	
  Title: Authorized Officer

  

 

38

 

Schedule I to the

Intercompany Note

Security Agreement

 

PLEDGED EQUITY INTERESTS; DEBT SECURITIES

EQUITY INTERESTS

 

	
  Issuer

  	
   

  	
  Number of

  Certificate

  	
   

  	
  Registered

  Owner

  	
   

  	
  Number and

  Class of

  Equity Interest

  	
   

  	
  Percentage

  of Equity Interests

  
	
  632422 N.B.
  Ltd.

  	
   

  	
  3

  	
   

  	
  Novamerican Steel Inc.

  	
   

  	
  1 share of Common Stock

  	
   

  	
  100%

  

 

 

DEBT SECURITIES

 

	
  Issuer

  	
   

  	
  Principal

  Amount

  	
   

  	
  Date of Note

  	
   

  	
  Maturity Date

  
	
  American
  Steel and Aluminum Coporation

  	
   

  	
  US$

  	
  33,400,000.00

  	
   

  	
  December 5, 2006

  	
   

  	
  On Demand

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nova Tube and Steel Inc.

  	
   

  	
  US$

  	
  11,600,000.00

  	
   

  	
  December 5, 2006

  	
   

  	
  On Demand

  

 

 

Schedule II to the

Intercompany Note

Security Agreement

 

INTELLECTUAL PROPERTY

COPYRIGHTS OWNED BY GRANTOR

 

Canadian  Copyright Registrations

 

None

 

Pending Canadian  Copyright Applications for Registration

 

None

 

Non- Canadian  Copyright Registrations

 

None

 

Non- Canadian  Pending Copyright Applications for Registration

 

None

 

 

Schedule II to the

Canadian Collateral

Agreement

 

LICENSES

 

I. Licenses/Sublicensees
Grantor as Licensor on Date Hereof

 

A.  Copyrights

 

Canadian  Copyrights

 

None

 

Non-  Canadian Copyrights

 

None

 

B.  Patents

 

Canadian Patents

 

None

 

Canadian Patent Applications

 

None

 

Non-Canadian Patents

 

None

 

Non-Canadian Patent Applications

 

None

 

 

C.  Trademarks

 

Canadian Trademarks

 

None

 

Canadian Trademark Applications

 

None

 

Non-Canadian Trademarks

 

None

 

Non-Canadian Trademark Applications

 

None

 

D.  Others

 

None

 

 

II. Licensees/Sublicenses of Grantor as Licensee on Date Hereof

 

A.  Copyrights

 

Canadian Copyrights

 

None

 

Non-Canadian Copyrights

 

None

 

B.  Patents

 

Canadian Patents

 

None

 

Canadian Patent Applications

 

None

 

Non-Canadian Patents

 

None

 

Non-Canadian Patent Applications

 

None

 

C.  Trademarks

 

Canadian Trademarks

 

None

 

Canadian Trademark Applications

 

None

 

Non-Canadian Trademarks

 

None

 

 

Non-Canadian Trademark Applications

 

None

 

D.  Others

 

None

 

 

PATENTS OWNED BY NAME OF GRANTOR

 

Canadian Patent Registrations

 

	
  OWNER

  	
   

  	
  REGISTRATION

  NUMBER

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Novamerican
  Steel

  Inc. / Acier

  Novamerican
  Inc.(1)

  	
   

  	
  CA
  2298865

  	
   

  	
  Impact
  blow actuated pneumatic fastener driving tool

  

 

NOTE:

 

(1)
Was filed in the name of Industries Cresswell Inc.

 

Canadian Patent Applications

 

	
  OWNER

  	
   

  	
  APPLICATION

  NUMBER

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Novamerican
  Steel

  Inc. / Acier

  Novamerican Inc.(1)

  	
   

  	
  CA
  2535104

  	
   

  	
  Cargo
  Restraint System

  
	
  Novamerican
  Steel

  Inc. / Acier

  Novamerican
  Inc.(1)

  	
   

  	
  CA
  2517798

  	
   

  	
  Nailer
  with ratchet-provided plunger mechanism

  

 

NOTE:

 

(1)
Was filed in the name of Industries Cresswell Inc.

 

Non-Canadian
Patent Registrations

 

None

 

Non-Canadian
Patent Applications

 

None

 

 

TRADEMARK/TRADE NAMES OWNED BY

 

Canadian Trademark Registrations

 

	
  OWNER

  	
   

  	
  REGISTRATION

  NUMBER

  	
   

  	
  TRADEMARK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Novamerican
  Steel

  Inc. / Acier

  Novamerican
  Inc.(1)

  	
   

  	
  TMA373,515
  (Canada)

  	
   

  	
  

  

 

NOTE:

 

(1) Filed in the name of Cresswell Roll Forming Inc. / Profilage
Cresswell Inc.

 

Canadian Trademark Applications

 

None

 

State Trademark Registrations

 

None

 

Non-Canadian Trademark Registrations

 

	
  OWNER

  	
   

  	
  REGISTRATION

  NUMBER

  	
   

  	
  TRADEMARK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Novamerican
  Steel

  Inc. / Acier

  Novamerican Inc.

  	
   

  	
  2,314,474

  	
   

  	
  NOVAMERICAN

  

 

Non-Canadian Trademark Applications

 

	
  OWNER

  	
   

  	
  APPLICATION

  NUMBER

  	
   

  	
  TRADEMARK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nova
  Steel Ltd.

  	
   

  	
  Abandoned

  	
   

  	
  NOVAMERICAN

  

 

 

Trade Names

 

None

 

 

Exhibit I to the

Canadian Collateral

Agreement

 

FORM OF PERFECTION CERTIFICATE

 

Reference is made to
(a) the Bridge Loan Agreement dated as of November [15], 2007 (as
amended, supplemented or otherwise modified from time to time, the “Bridge
Loan Agreement”), among Symmetry Holdings Inc. (“Symmetry”), Novamerican
Steel Finco Inc. (the “Borrower”), the lenders from time to time party
thereto (the “Lenders”), CIBC World Markets Corp., as Syndication Agent,
JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative
Agent”), and The Bank of New York, as Collateral Agent (the “Collateral
Agent”), and (b) the Guarantee and Collateral Agreement dated as of
November [15], 2007 (the “Collateral Agreement”) among Symmetry,
the Borrower, the subsidiaries of Symmetry party thereto and the Collateral
Agent. Capitalized terms used but not defined herein have the meanings assigned
in the Credit Agreement or the Collateral Agreement, as applicable.

 

The undersigned, a Financial
Officer, of Symmetry and each Borrower, hereby certifies to the Administrative
Agent and each other Secured Party as follows:

 

1.  Names. (a)   The exact legal name of each Grantor, as
such name appears in its respective certificate of organization, is as follows:

 

(b)  Set forth
below is each other legal name each Grantor has had in the past five years,
together with the date of the relevant change:

 

(c)  Except as set
forth in Schedule 1 hereto, no Grantor has changed its identity or
corporate structure in any way within the past five years. Changes in identity
or corporate structure would include mergers, amalgamations, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
organization. If any such change has occurred, include in Schedule 1 the
information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger, amalgamation or consolidation.

 

(d)  The following
is a list of all other names (including trade names or similar appellations)
used by each Grantor or any of its divisions or other business units in
connection with the conduct of its business or the ownership of its properties
at any time during the past five years:

 

 

Exhibit III to the

Canadian Collateral

Agreement

 

(e)  Set forth
below is the Organizational Identification Number, if any, issued by the
jurisdiction of organization of each Grantor that is a registered organization:

 

(f)  Set forth
below is the Federal Taxpayer Identification Number (if available) of each
Grantor:

 

2.  Current
Locations. (a)  The chief executive office of each Grantor is
located at the address set forth opposite its name below:

 

	
  Grantor

  	
   

  	
  Mailing Address

  	
   

  	
  County

  	
   

  	
  State / Province /

  Territory

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(b)  Set
forth below opposite the name of each Grantor are all locations where such
Grantor maintains any books or records relating to any Accounts Receivable
(with each location at which chattel paper, if any, is kept being indicated by
an “*”):

 

	
  Grantor

  	
   

  	
  Mailing Address

  	
   

  	
  County

  	
   

  	
  State / Province /

  Territory

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(c)  The
jurisdiction of formation of each Grantor that is a registered organization is
set forth opposite its name below:

 

	
  Grantor

  	
   

  	
  Jurisdiction

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

(d)
Set forth below opposite the name of each Grantor are all the locations where
such Grantor maintains any Equipment or other Collateral not identified above:

 

	
  Grantor

  	
   

  	
  Mailing Address

  	
   

  	
  County

  	
   

  	
  State / Province /

  Territory

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(e)  Set
forth below opposite the name of each Grantor are all the places of business of
such Grantor not identified in paragraph (a), (b), (c) or (d) above:

 

	
  Grantor

  	
   

  	
  Mailing Address

  	
   

  	
  County

  	
   

  	
  State/Province/

  Territory

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(f)
Set forth below opposite the name of each Grantor are the names and addresses
of all Persons other than such Grantor that have possession of any of the
Collateral of such Grantor:

 

	
  Grantor

  	
   

  	
  Mailing Address

  	
   

  	
  County

  	
   

  	
  State/Province/

  Territory

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

3.  Unusual
Transactions. All Accounts have been originated by the Grantors and all
Inventory has been acquired by the Grantors in the ordinary course of business.

 

4.  File Search
Reports. File search reports with respect to each Grantor organized or
maintaining an establishment in a jurisdiction in the United States or Canada
or having assets located in a jurisdiction in Canada have been obtained from
the appropriate Uniform Commercial Code filing office (or other personal
property security registry office) in each jurisdiction identified with respect
to such Grantor in Section 2 hereof, and such search reports reflect no liens
against any of the Collateral other than those permitted under the Credit
Agreement.

 

5.  Filings. Financing
statements in appropriate form have been prepared for filing in the proper
Uniform Commercial Code filing office in each jurisdiction in the United States
in which any Grantor is organized and, to the extent any of the collateral is
comprised of fixtures, timber to be cut or as extracted collateral from the
wellhead or minehead, in the proper local jurisdiction, in each case as set
forth with respect to such Grantor in Section 2 hereof. Personal Property
Security Act [(Ontario)] (“PPSA”) filings or other applicable personal
property security filings

 

 

have been prepared for
filing in proper personal property security filing offices in the proper local
jurisdiction, in each case as set forth with respect to such Grantor in Section
2.

 

6.  Schedule of
Filings. Attached hereto as Schedule 6 is a schedule setting forth, with
respect to the filings described in Section 5 above, each filing and the filing
office in which such filing is to be made.

 

7.  Stock
Ownership and other Equity Interests. Attached hereto as Schedule 7 is a
true and correct list of all the issued and outstanding Equity Interest of the
Borrower and each other Subsidiary and the record and beneficial owners of such
Equity Interests. Also set forth on Schedule 7 is each equity investment of
Symmetry, the Borrower or any Subsidiary that represents 50% or more of the
equity of the entity in which such investment was made.

 

8.  Debt
Instruments. Attached hereto as Schedule 8 is a true and correct list
of all promissory notes and other evidence of indebtedness held by Symmetry,
the Borrower and each other Subsidiary that are required to be pledged under
the Collateral Agreement, the [Intercompany Note Collateral Agreement] or any
other collateral agreement, including all intercompany notes between Symmetry,
the Borrower and each other Subsidiary and each Subsidiary and any other
Subsidiary.

 

9.  Advances. Attached
hereto as Schedule 9 is a true and correct list of all advances made by
Symmetry or the Borrower to any other Subsidiary or made by any Subsidiary to
Symmetry, the Borrower or any other Subsidiary (other than those identified on
Schedule 8), which advances will be on and after the date hereof evidenced by
one or more intercompany notes pledged to the Administrative Agent under the
Collateral Agreement, the [Intercompany Note Collateral Agreement] or any other
collateral agreement.

 

10.  Mortgage
Filings. Attached hereto as Schedule 10 is a schedule setting forth,
with respect to each Mortgaged Property, (a) the exact name of the Person
that owns such property as such name appears in its certificate of
incorporation or other organizational document, (b) if different from the
name identified pursuant to clause (a), the exact name of the current record
owner of such property reflected in the records of the filing office for such
property identified pursuant to the following clause (or the registered owner
of such property), (c) the filing office in which a Mortgage with respect
to such property must be filed or recorded in order for the Administrative
Agent to obtain a perfected security interest therein, (d) the legal
description of such property and (e) the municipal address of such property.

 

11.  Intellectual
Property. Attached hereto as Schedule 11(A) in proper form for filing
with the United States Patent and Trademark Office or the Canadian Intellectual
Property Office, as applicable, is a schedule setting forth all of each Grantor’s
Patents and Patent Applications, including the name of the registered owner,
type, registration or application number and the expiration date (if already
registered) of each Patent and Patent Application owned by any Grantor.

 

Attached hereto as
Schedule 11(B) in proper form for filing with the United States Patent and
Trademark Office or the Canadian Intellectual Property Office, as applicable,
is a schedule setting forth all of each Grantor’s Trademarks and Trademark
Applications, including the name of the registered owner, the registration or
application number and the expiration date (if already registered) of each
Trademark and Trademark application owned by any Grantor.

 

 

Attached hereto as
Schedule 11(C) in proper form for filing with the United States Copyright
Office or the Canadian Intellectual Property Office, as applicable, is a
schedule setting forth all of each Grantor’s Copyrights (including the name of
the registered owner, title and the registration number) and Copyright
Applications (including the name of the registered owner and title) of each
Copyright or Copyright Application owned by any Grantor.

 

12.  Commercial
Tort Claims. Attached hereto as Schedule 12 is a true and correct list
of commercial tort claims in excess of $1,000,000 held by any Grantor,
including a brief description thereof.

 

13.  Deposit
Accounts. Attached hereto as Schedule 13 is a true and correct list of
deposit accounts maintained by each Grantor, including the name and address of
the depositary institution, the type of account and the account number.

 

14. Securities Accounts. Attached
hereto as Schedule 14 is a true and correct list of securities accounts
maintained by each Grantor, including the name and address of the intermediary
institution, the type of account and the account number.

 

 

FORM OF PATENT AND TRADEMARK SECURITY
AGREEMENT, dated as of [l],
2007, among NOVAMERICAN STEEL INC. (“Grantor”) and BNY TRUST COMPANY OF CANADA
as Canadian Collateral Agent (the “Canadian Collateral Agent”).

 

Reference is
made to the Canadian Collateral Agreement dated as of November 15, 2007 (as
amended, supplemented or otherwise modified from time to time, the “Canadian
Collateral Agreement”), among Grantor, Novamerican Steel Inc. (“Company”)
and the Canadian Collateral Agent. The Company has agreed to extend credit to
the Grantor subject to the terms and conditions set forth in certain
intercompany notes including the Intercompany Notes dated as of November 15,
2007 (as amended, supplemented or otherwise modified from time to time, the “Intercompany
Notes”). The obligations of the Company to extend such credit are
conditioned upon, among other things, the execution and delivery of this
Agreement. Accordingly, the parties hereto agree as follows:

 

SECTION 1. Terms.
Capitalized terms used in this Agreement and not otherwise defined herein
have the meanings specified in the Canadian Collateral Agreement. The rules of
construction specified in Section 1.01 of the Canadian Collateral Agreement
also apply to this Agreement.

 

SECTION 2. Grant
of Security Interest. As security for the payment or performance, as the
case may be, in full of the Financing Document Obligations, Grantor, pursuant
to the Canadian Collateral Agreement, did and hereby does grant to the Canadian
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, a security interest in, all right, title or interest in or to any and
all of the following assets and properties now owned or at any time hereafter
acquired by Grantor or in which Grantor now has or at any time in the future
may acquire any right, title or interest:

 

(a)  all letters patent of Canada
or the equivalent thereof in any other country, all registrations and
recordings thereof, and all applications for letters patent of Canada or the
equivalent thereof in any other country, including registrations, recordings
and pending applications in the Canadian Intellectual Property Office or any
similar offices in any other country, including those listed on Schedule I (the
“Patents”), and all reissues, continuations, divisions, continuations-in-part,
renewals or extensions thereof, and the inventions disclosed or claimed
therein, including the right to make, use and/or sell the inventions disclosed
or claimed therein (collectively, the “Patent Collateral”;

 

(b)  all trademarks, service
marks, trade names, corporate names, company names, business names, fictitious
business names, trade styles, trade dress, logos, other source or business
identifiers, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all registration and recording applications filed in connection therewith,
including registrations and registration applications in the Canadian 

 

 

Intellectual
Property Office or any similar offices in any other country or any political
subdivisions thereof, and all extensions or renewals thereof, including those
listed on Schedule II (the “Trademarks”);

 

(c)  all goodwill associated with
or symbolized by the Trademarks; and

 

(d)  all assets, rights and
interests that uniquely reflect or embody the Trademarks.

 

SECTION 3. Canadian
Collateral Agreement. The security interests granted to the Canadian
Collateral Agent herein are granted in furtherance, and not in limitation of,
the security interests granted to the Canadian Collateral Agent pursuant to the
Canadian Collateral Agreement. Grantor hereby acknowledges and affirms that the
rights and remedies of the Canadian Collateral Agent with respect to the Patent
Collateral and the Trademark Collateral are more fully set forth in the
Canadian Collateral Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein. In the event of
any conflict between the terms of this Agreement and the Canadian Collateral
Agreement, the terms of the Canadian Collateral Agreement shall govern.

 

SECTION 4. Governing
Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE PROVINCE OF ONTARIO  AND THE LAWS
OF CANADA APPLICABLE THEREIN.

 

2

 

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

 

	
   

  	
  NOVAMERICAN STEEL INC.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Name:

  
	
   

  	
   

  	
   Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BNY TRUST COMPANY OF CANADA,

  
	
   

  	
  as Canadian Collateral Agent,

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Name:

  
	
   

  	
   

  	
   Title:

  
					

 

3

 

Schedule I

 

I. Patents

 

	
  Registered Owner

  	
   

  	
  Type

  	
   

  	
  Registration

  Number

  	
   

  	
  Expiration

  Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

II. Patent
Applications

 

	
  Registered Owner

  	
   

  	
  Type

  	
   

  	
  Registration

  Number

  	
   

  	
  Date

  Filed

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

III. Patent Licenses

 

	
  Licensee

  	
   

  	
  Licensor

  	
   

  	
  Type

  	
   

  	
  Registration

  Number

  	
   

  	
  Expiration

  Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule II

 

I. Trademarks

 

	
  Registered Owner

  	
   

  	
  Mark

  	
   

  	
  Registration

  Number

  	
   

  	
  Expiration

  Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

II. Trademark
Applications

 

	
  Registered Owner

  	
   

  	
  Mark

  	
   

  	
  Registration

  Number

  	
   

  	
  Date

  Filed

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

III. Trademark Licenses

 

	
  Licensee

  	
   

  	
  Licensor

  	
   

  	
  Mark

  	
   

  	
  Registration

  Number

  	
   

  	
  Expiration

  Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

FORM OF

COPYRIGHT SECURITY AGREEMENT

 

This
COPYRIGHT SECURITY AGREEMENT (this “Agreement”),  dated as of                          ,
20   , between Novamerican Steel Inc. (“Grantor”), and
BNY Trust Company of Canada, acting in the capacity of agent for the benefit of
itself and the other Secured Parties (in such capacity, the “Canadian
Collateral Agent”).

 

WITNESSETH:

 

WHEREAS pursuant to the terms of that certain
Canadian Collateral Agreement dated as of November 15, 2007 (as amended,
supplemented or otherwise modified from time to time, the “Canadian
Collateral Agreement”), among Grantor, Novamerican Steel Inc. (“Company”)
and the Canadian Collateral Agent. The Company has agreed to extend credit to
the Grantor subject to the terms and conditions set forth in certain
intercompany notes including the Intercompany Notes dated as of November 15,
2007 (as amended, supplemented or otherwise modified from time to time, the “Intercompany
Notes”); and

 

WHEREAS the obligations of the Company to
extend such credit are conditioned upon, among other things, the execution and
delivery of this Agreement.

 

NOW, THEREFORE, in consideration of the
premises and the agreements, provisions and covenants herein contained, Grantor
agrees as follows:

 

Section 1.                                          Defined Terms

 

Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings specified in the Canadian
Collateral Agreement. The rules of construction specified in Section 1.01 of
the Canadian Collateral Agreement also apply to this Agreement.

 

Section 2.                                          Grant of Security Interest in Copyrights

 

Grantor hereby grants to the Canadian
Collateral Agent a security interest and continuing lien on all of Grantor’s
right, title and interest in, to and under the Copyrights, including the
Copyrights listed in Schedule A, in each case whether owned or existing
or hereafter acquired or arising and wherever located (collectively, the “Copyright
Collateral”).

 

Section 3.                                          Security for Obligations

 

This Agreement secures, and the Copyright
Collateral is collateral security for, the prompt and complete payment and
performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise of all Financing
Document Obligations.

 

6

 

Section 4.                                          Security Agreement

 

The security interests granted pursuant to
this Agreement are granted in conjunction with the security interests granted
to the Canadian Collateral Agent pursuant to the Canadian Collateral Agreement
and Grantor hereby acknowledges and affirms that the rights and remedies of the
Canadian Collateral Agent with respect to the security interest in the
Copyright Collateral made and granted hereby are more fully set forth in the
Canadian Collateral Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein. In the event of
any irreconcilable conflict between the terms of this Agreement and the terms
of the Canadian Collateral Agreement, the terms of the Canadian Collateral
Agreement shall control.

 

[SIGNATURE PAGE FOLLOWS]

 

7

 

Schedule II to the

Canadian Collateral

Agreement

 

IN WITNESS WHEREOF, Grantor has caused this
Agreement to be duly executed and delivered by its duly authorized officer as
of the date first set forth above.

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NOVAMERICAN STEEL INC.

  
	
   

  	
  as Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

ACCEPTED AND AGREED

as of the date first above written:

 

BNY TRUST COMPANY OF CANADA

as Canadian Collateral Agent

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

2

 

Schedule I

to

Copyright Security Agreement

 

 

REGISTERED
COPYRIGHTS

 

[Include
Registration Number and Date]

 

1.                                       COPYRIGHT
APPLICATIONS

 

3Exhibit 10.1

 

AMENDED AND
RESTATED

CREDIT AGREEMENT

DATED AS OF NOVEMBER 19, 2007

AMONG

WARREN RESOURCES, INC.,

MERRILL LYNCH CAPITAL,

a Division of Merrill Lynch Business Financial Services Inc.,

as Administrative Agent, as a Lender and

as Sole Bookrunner and Sole Lead Arranger

AND

THE ADDITIONAL LENDERS

FROM TIME TO TIME PARTY HERETO

 

 

 

TABLE OF CONTENTS

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE 1 DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
   

  	
  Section 1.1

  	
  Certain Defined Terms

  	
  1

  
	
   

  	
  Section 1.2

  	
  Accounting Terms and Determinations

  	
  22

  
	
   

  	
  Section 1.3

  	
  Other Definitional Provisions and
  References

  	
  23

  
	
   

  	
   

  
	
  ARTICLE 2 LOANS AND LETTERS OF CREDIT

  	
  23

  
	
   

  	
   

  
	
   

  	
  Section 2.1

  	
  Revolving Loans and Borrowings

  	
  23

  
	
   

  	
  Section 2.2

  	
  Advancing Revolving Loans

  	
  24

  
	
   

  	
  Section 2.3

  	
  Mandatory Prepayments

  	
  24

  
	
   

  	
  Section 2.4

  	
  All Prepayments

  	
  26

  
	
   

  	
  Section 2.5

  	
  Optional Prepayments of Revolving Loans

  	
  26

  
	
   

  	
  Section 2.6

  	
  Termination or Reduction of Revolving Loan
  Commitment

  	
  26

  
	
   

  	
  Section 2.7

  	
  Interest, Interest Calculations and Certain
  Fees

  	
  27

  
	
   

  	
  Section 2.8

  	
  Notes

  	
  29

  
	
   

  	
  Section 2.9

  	
  Letters of Credit and Letter of Credit Fees

  	
  29

  
	
   

  	
  Section 2.10

  	
  General Provisions Regarding Payment

  	
  33

  
	
   

  	
  Section 2.11

  	
  Loan Account

  	
  33

  
	
   

  	
  Section 2.12

  	
  Maximum Interest

  	
  33

  
	
   

  	
  Section 2.13

  	
  Taxes

  	
  34

  
	
   

  	
  Section 2.14

  	
  Capital Adequacy

  	
  35

  
	
   

  	
  Section 2.15

  	
  Mitigation Obligations

  	
  36

  
	
   

  	
  Section 2.16

  	
  Borrowing Base

  	
  36

  
	
   

  	
   

  
	
  ARTICLE 3 REPRESENTATIONS AND WARRANTIES

  	
  38

  
	
   

  	
   

  
	
   

  	
  Section 3.1

  	
  Existence and Power

  	
  39

  
	
   

  	
  Section 3.2

  	
  Organization and Governmental
  Authorization; No Contravention

  	
  39

  
	
   

  	
  Section 3.3

  	
  Binding Effect

  	
  39

  
	
   

  	
  Section 3.4

  	
  Capitalization

  	
  39

  
	
   

  	
  Section 3.5

  	
  Financial Information

  	
  40

  
	
   

  	
  Section 3.6

  	
  Litigation

  	
  40

  
	
   

  	
  Section 3.7

  	
  Ownership of Property

  	
  41

  
	
   

  	
  Section 3.8

  	
  No Default

  	
  41

  
	
   

  	
  Section 3.9

  	
  Labor Matters

  	
  41

  
	
   

  	
  Section 3.10

  	
  Regulated Entities

  	
  41

  
	
   

  	
  Section 3.11

  	
  Margin Regulations

  	
  41

  
	
   

  	
  Section 3.12

  	
  Compliance With Laws; Anti-Terrorism Laws

  	
  41

  
	
   

  	
  Section 3.13

  	
  Taxes

  	
  42

  
	
   

  	
  Section 3.14

  	
  Compliance with ERISA

  	
  42

  
	
   

  	
  Section 3.15

  	
  Brokers

  	
  43

  
	
   

  	
  Section 3.16

  	
  [Reserved]

  	
  43

  
	
   

  	
  Section 3.17

  	
  [Reserved]

  	
  43

  
	
   

  	
  Section 3.18

  	
  Environmental Compliance

  	
  43

  
	
   

  	
  Section 3.19

  	
  Intellectual Property

  	
  43

  

 

i

 

	
   

  	
  Section 3.20

  	
  [Reserved]

  	
  43

  
	
   

  	
  Section 3.21

  	
  Solvency

  	
  43

  
	
   

  	
  Section 3.22

  	
  Full Disclosure

  	
  43

  
	
   

  	
  Section 3.23

  	
  Reserve Reports, Imbalances, Marketing and
  Borrowing Base Matters

  	
  44

  
	
   

  	
  Section 3.24

  	
  Maintenance and Development of Properties

  	
  45

  
	
   

  	
   

  
	
  ARTICLE 4 AFFIRMATIVE COVENANTS

  	
  45

  
	
   

  	
   

  
	
   

  	
  Section 4.1

  	
  Financial Statements and Other Reports

  	
  45

  
	
   

  	
  Section 4.2

  	
  Payment and Performance of Obligations

  	
  49

  
	
   

  	
  Section 4.3

  	
  Maintenance of Existence

  	
  49

  
	
   

  	
  Section 4.4

  	
  Maintenance of Property; Insurance

  	
  49

  
	
   

  	
  Section 4.5

  	
  Compliance with Laws

  	
  51

  
	
   

  	
  Section 4.6

  	
  Inspection of Property, Books and Records

  	
  51

  
	
   

  	
  Section 4.7

  	
  Use of Proceeds

  	
  51

  
	
   

  	
  Section 4.8

  	
  Lenders’ Meetings

  	
  52

  
	
   

  	
  Section 4.9

  	
  Hazardous Materials; Remediation

  	
  52

  
	
   

  	
  Section 4.10

  	
  Further Assurances

  	
  52

  
	
   

  	
   

  
	
  ARTICLE 5 NEGATIVE COVENANTS

  	
  55

  
	
   

  	
   

  
	
   

  	
  Section 5.1

  	
  Debt

  	
  55

  
	
   

  	
  Section 5.2

  	
  Liens

  	
  56

  
	
   

  	
  Section 5.3

  	
  Contingent Obligations

  	
  57

  
	
   

  	
  Section 5.4

  	
  Restricted Payments

  	
  58

  
	
   

  	
  Section 5.5

  	
  Restrictive Agreements

  	
  58

  
	
   

  	
  Section 5.6

  	
  Swap Contracts

  	
  59

  
	
   

  	
  Section 5.7

  	
  Consolidations, Mergers and Sales of Assets

  	
  59

  
	
   

  	
  Section 5.8

  	
  Investments

  	
  60

  
	
   

  	
  Section 5.9

  	
  Transactions with Affiliates

  	
  62

  
	
   

  	
  Section 5.10

  	
  Modification of Organizational Documents

  	
  62

  
	
   

  	
  Section 5.11

  	
  [Reserved]

  	
  62

  
	
   

  	
  Section 5.12

  	
  Fiscal Year

  	
  62

  
	
   

  	
  Section 5.13

  	
  Conduct of Business

  	
  62

  
	
   

  	
  Section 5.14

  	
  [Reserved]

  	
  62

  
	
   

  	
  Section 5.15

  	
  Capital Stock

  	
  62

  
	
   

  	
  Section 5.16

  	
  Limitation on Sale and Leaseback
  Transactions

  	
  63

  
	
   

  	
  Section 5.17

  	
  Bank Accounts

  	
  63

  
	
   

  	
  Section 5.18

  	
  Compliance with Anti-Terrorism Laws

  	
  63

  
	
   

  	
   

  
	
  ARTICLE 6 FINANCIAL COVENANTS

  	
  64

  
	
   

  	
   

  
	
   

  	
  Section 6.1

  	
  Interest Coverage Ratio

  	
  64

  
	
   

  	
  Section 6.2

  	
  Current Ratio

  	
  64

  
	
   

  	
   

  
	
  ARTICLE 7 CONDITIONS

  	
  64

  
	
   

  	
   

  
	
   

  	
  Section 7.1

  	
  Conditions to Closing

  	
  64

  
	
   

  	
  Section 7.2

  	
  Conditions to Each Loan, Support Agreement
  and Lender Letter of Credit

  	
  64

  
	
   

  	
   

  
	
  ARTICLE 8 EVENTS OF DEFAULT

  	
  65

  

 

ii

 

	
   

  	
  Section 8.1

  	
  Events of Default

  	
  65

  
	
   

  	
  Section 8.2

  	
  Acceleration and Suspension or Termination
  of Revolving Loan Commitment

  	
  67

  
	
   

  	
  Section 8.3

  	
  Cash Collateral

  	
  68

  
	
   

  	
  Section 8.4

  	
  Default Rate of Interest and Suspension of
  LIBOR Rate Options

  	
  68

  
	
   

  	
  Section 8.5

  	
  Setoff Rights

  	
  68

  
	
   

  	
  Section 8.6

  	
  Application of Proceeds

  	
  68

  
	
   

  	
   

  
	
  ARTICLE 9 EXPENSES AND INDEMNITY

  	
  70

  
	
   

  	
   

  
	
   

  	
  Section 9.1

  	
  Expenses

  	
  70

  
	
   

  	
  Section 9.2

  	
  Indemnity

  	
  70

  
	
   

  	
   

  
	
  ARTICLE 10 ADMINISTRATIVE AGENT

  	
  71

  
	
   

  	
   

  
	
   

  	
  Section 10.1

  	
  Appointment and Authorization

  	
  71

  
	
   

  	
  Section 10.2

  	
  Administrative Agent and Affiliates

  	
  72

  
	
   

  	
  Section 10.3

  	
  Action by Administrative Agent

  	
  72

  
	
   

  	
  Section 10.4

  	
  Consultation with Experts

  	
  72

  
	
   

  	
  Section 10.5

  	
  Liability of Administrative Agent

  	
  72

  
	
   

  	
  Section 10.6

  	
  Indemnification

  	
  73

  
	
   

  	
  Section 10.7

  	
  Right to Request and Act on Instructions

  	
  73

  
	
   

  	
  Section 10.8

  	
  Credit Decision

  	
  73

  
	
   

  	
  Section 10.9

  	
  Collateral Matters

  	
  74

  
	
   

  	
  Section 10.10

  	
  Agency for Perfection

  	
  74

  
	
   

  	
  Section 10.11

  	
  Notice of Default

  	
  75

  
	
   

  	
  Section 10.12

  	
  Successor Administrative Agent

  	
  75

  
	
   

  	
  Section 10.13

  	
  Disbursements of Revolving Loans; Payment
  and Sharing of Payment

  	
  76

  
	
   

  	
  Section 10.14

  	
  Right to Perform, Preserve and Protect

  	
  79

  
	
   

  	
  Section 10.15

  	
  Additional Titled Agents

  	
  79

  
	
   

  	
  Section 10.16

  	
  Funding and Settlement Provisions
  Applicable When Non-Funding Lenders Exist

  	
  79

  
	
   

  	
   

  
	
  ARTICLE 11 MISCELLANEOUS

  	
  81

  
	
   

  	
   

  
	
   

  	
  Section 11.1

  	
  Survival

  	
  81

  
	
   

  	
  Section 11.2

  	
  No Waivers

  	
  81

  
	
   

  	
  Section 11.3

  	
  Notices

  	
  81

  
	
   

  	
  Section 11.4

  	
  Severability

  	
  82

  
	
   

  	
  Section 11.5

  	
  Amendments and Waivers

  	
  82

  
	
   

  	
  Section 11.6

  	
  Assignments; Participations; Replacement of
  Lenders

  	
  83

  
	
   

  	
  Section 11.7

  	
  Headings

  	
  86

  
	
   

  	
  Section 11.8

  	
  Confidentiality

  	
  86

  
	
   

  	
  Section 11.9

  	
  Waiver of Consequential and Other Damages

  	
  86

  
	
   

  	
  Section 11.10

  	
  Marshaling; Payments Set Aside

  	
  87

  
	
   

  	
  Section 11.11

  	
  GOVERNING LAW; SUBMISSION TO JURISDICTION

  	
  87

  
	
   

  	
  Section 11.12

  	
  WAIVER OF JURY TRIAL

  	
  88

  
	
   

  	
  Section 11.13

  	
  Publication; Advertisement

  	
  88

  
	
   

  	
  Section 11.14

  	
  Counterparts; Integration

  	
  89

  
	
   

  	
  Section 11.15

  	
  No Strict Construction

  	
  89

  

 

iii

 

	
   

  	
  Section 11.16

  	
  USA PATRIOT Act Notification

  	
  89

  
	
   

  	
  Section 11.17

  	
  Amendment and Restatement

  	
  89

  

 

iv

 

ANNEXES,
EXHIBITS AND SCHEDULES

 

ANNEXES

 

	
  Annex A

  	
  –

  	
  Commitment
  Annex

  
	
  Annex B

  	
  –

  	
  Closing
  Checklist

  

 

EXHIBITS

 

	
  Exhibit A

  	
  –

  	
  Assignment
  Agreement

  
	
  Exhibit B

  	
  –

  	
  Compliance
  Certificate

  
	
  Exhibit C

  	
  –

  	
  Notice of
  Borrowing

  
	
  Exhibit D

  	
  –

  	
  Payment
  Notification

  

 

SCHEDULES

 

	
  Schedule 3.1

  	
  -

  	
  Existence,
  Organizational Identification Numbers, Foreign Qualification, Prior Names

  
	
  Schedule 3.4

  	
  -

  	
  Capitalization

  
	
  Schedule 3.6

  	
  -

  	
  Litigation

  
	
  Schedule
  3.15

  	
  -

  	
  Brokers

  
	
  Schedule
  3.18

  	
  -

  	
  Environmental
  Compliance

  
	
  Schedule
  3.23

  	
  -

  	
  Reserve
  Reports

  
	
  Schedule
  3.24

  	
  -

  	
  Maintenance;
  Permits

  
	
  Schedule 5.1

  	
  -

  	
  Debt

  
	
  Schedule 5.2

  	
  -

  	
  Liens

  
	
  Schedule 5.3

  	
  -

  	
  Contingent
  Obligations

  
	
  Schedule 5.5

  	
  -

  	
  Restrictive
  Agreements

  
	
  Schedule 5.9

  	
  -

  	
  Affiliate
  Transactions

  
	
  Schedule
  5.13

  	
  -

  	
  Business
  Description

  

 

v

 

AMENDED AND
RESTATED

CREDIT AGREEMENT

 

AMENDED AND RESTATED CREDIT AGREEMENT dated as of
November 19, 2007 among Warren Resources, Inc, a Maryland corporation, as
Borrower, the financial institutions or other entities from time to time
parties hereto, each as a Lender, and MERRILL LYNCH CAPITAL, a division of
Merrill Lynch Business Financial Services Inc., individually as a Lender, as
Administrative Agent, Sole Bookrunner and Sole Lead Arranger.

 

RECITALS:

 

WHEREAS, Borrower desires that Lenders extend a
revolving credit facility to Borrower to provide funds for the purposes
described herein; and

 

WHEREAS, Borrower desires to secure all of the
Obligations by granting to Administrative Agent, for the benefit of
Administrative Agent and Lenders, a first priority perfected Lien upon
substantially all of its personal and real property (subject to Permitted
Liens), including without limitation all outstanding Capital Stock of each
Restricted Subsidiary; and

 

WHEREAS, subject to the limitations set forth herein,
each Restricted Subsidiary is willing to guaranty all of the Obligations, and
to grant to Administrative Agent, for the benefit of Administrative Agent and
Secured Parties, a first priority perfected Lien upon substantially all of its
personal and real property (subject to Permitted Liens);

 

NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained, Borrower, Lenders
and Administrative Agent agree as follows:

 

ARTICLE 1

DEFINITIONS

 

Section 1.1            Certain Defined Terms.

 

The following terms have the following meanings:

 

“Acceleration Event”
means the occurrence of an Event of Default (i) in respect of which
Administrative Agent has declared all or any portion of the Obligations to be
immediately due and payable pursuant to Section 8.2, (ii) pursuant to Section
8.1(a) in respect of which Administrative Agent has suspended or terminated the
Revolving Loan Commitment pursuant to Section 8.2 and/or (iii) pursuant to
either Section 8.1(f) and/or Section 8.1(g).

 

“Additional Titled Agents”
has the meaning set forth in Section 10.15.

 

“Adjusted EBITDAX”
has the meaning provided in the Compliance Certificate.

 

“Administrative Agent”
means Merrill Lynch in its capacity as administrative agent for itself and for
Lenders hereunder, as such capacity is established in, and subject to the
provisions of, Article 10, and the successors of Merrill Lynch in such
capacity.

 

1

 

“Affected Lender”
has the meaning set forth in Section 11.6(c).

 

“Affiliate”
means with respect to any Person (i) any Person that directly or indirectly
controls such Person, (ii) any Person which is controlled by or is under common
control with such controlling Person and (iii) each of such Person’s (other
than, with respect to any Lender, any Lender’s) officers or directors (or
Persons functioning in substantially similar roles) and the spouses, parents,
descendants and siblings of such officers, directors or other Persons. As used
in this definition, the term “control” of a Person means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise
majority voting power, by contract or otherwise.

 

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

 

“Anti-Terrorism Laws”
means any Laws relating to terrorism or money laundering, including Executive
Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws
comprising or implementing the Bank Secrecy Act, and the Laws administered by
OFAC.

 

“Approved Fund”
means any (i) investment company, fund, trust, securitization vehicle or
conduit that is (or will be) engaged in making, purchasing, holding or
otherwise investing in commercial loans and similar extensions of credit in the
ordinary course of its business or (ii) any Person (other than a natural
person) which temporarily warehouses loans for any Lender or any entity described
in the preceding clause (i) and that, with respect to each of the preceding
clauses (i) and (ii), is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) a Person (other than a natural person) or an
Affiliate of a Person (other than a natural person) that administers or manages
a Lender.

 

“Asset Disposition”
means any sale, lease, license, transfer, assignment or other consensual
disposition by any Credit Party of any asset, but excluding (i) dispositions of
inventory or used, obsolete, worn-out or surplus equipment, all in the Ordinary
Course of Business, (ii) dispositions of Permitted Investments, (iii) sales,
transfers and other dispositions of accounts receivable in connection with the
compromise, settlement or collection thereof in the Ordinary Course of
Business, (iv) the lease, assignment, license, sub-license or sub-lease of any
real or personal property in the Ordinary Course of Business to the extent the
same does not materially interfere with the business of Borrower or any
Subsidiary; (v) any disposition of property or issuance of Capital Stock by
Borrower or any Domestic Subsidiary to Borrower or any other Domestic
Subsidiary; (vi) dispositions of equipment to the extent that (a) such
equipment is exchanged for credit against the purchase price of similar
replacement equipment or (b) within 180 days after such disposition the
proceeds of such disposition are applied to the purchase price of such
replacement equipment; (vii) the sale in the ordinary course of business of
Hydrocarbons produced from the Credit Parties’ Hydrocarbon Interests; (viii) a
disposition between Credit Parties; (ix) dispositions of Equity Interests in
Unrestricted Subsidiaries; (x) the creation of a Permitted Lien; (xi) the
surrender or waiver of contract rights or the disposition, settlement, release
or surrender of contract, tort or other claims of any kind; (xii) a Restricted
Payment permitted by Section 5.4; (xiii) dispositions permitted by Section
5.7(a); and (xiv) an Investment permitted by Section 5.8.

 

2

 

“Assignment Agreement”
means an agreement substantially in the form of Exhibit A hereto, or in the
event Administrative Agent institutes a Settlement Service pursuant to Section
11.6(a)(v), such other agreement as may be prescribed by such Settlement
Service.

 

“Bankruptcy Code”
means Title 11 of the United States Code entitled “Bankruptcy”.

 

“Base Rate”
means a variable per annum rate, as of any date of determination, equal to the
greater of (i) the Federal Funds Rate plus one-half of one percent (0.50%) per
annum and (ii) the rate of interest which is identified and normally published
by Bloomberg Professional Service Page Prime as the “Prime Rate”
(or, if more than one rate is published as the Prime Rate, then the highest of
such rates). Any change in the Base Rate will become effective as of the date
the rate of interest which is so identified as the “Prime Rate”
is different from that published on the preceding Business Day. If Bloomberg
Professional Service no longer reports the Prime Rate, or if such Page Prime no
longer exists, or Administrative Agent determines in good faith that the rate
so reported no longer accurately reflects an accurate determination of the
prevailing Prime Rate, Administrative Agent may select a reasonably comparable
index or source to use as the basis for the Base Rate.

 

“Base Rate Loans”
means Loans which accrue interest by reference to the Base Rate, in accordance
with the terms of this Agreement.

 

“Base Rate Margin”
means for any day, the applicable percent per annum set forth in the Pricing
Table corresponding to the Borrowing Base Usage as of the end of such day.

 

“Blocked Person”
means any Person:  (i) listed in the
annex to, or is otherwise subject to the provisions of, Executive Order No.
13224, (ii) owned or controlled by, or acting for or on behalf of, any Person
that is listed in the annex to, or is otherwise subject to the provisions of,
Executive Order No. 13224, (iii) with which any Lender is prohibited from
dealing or otherwise engaging in any transaction by any Anti-Terrorism Law,
(iv) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224; or (v)
that is named a “specially designated national” or “blocked person” on the most current list published by OFAC
or other similar list.

 

“Bond” means any
completion bond, performance bond, bid bond, appeal bond, surety bond,
insurance obligation or bond or any similar bond or obligation, or any letter
of credit or guarantee functioning as or supporting any of the foregoing bonds
or obligations, incurred by Borrower or any Subsidiary in the ordinary course
of business.

 

“Borrower” means
Warren Resources, Inc., a Maryland corporation.

 

“Borrower’s Account”
means the account specified on the signature pages hereof below Borrower’s name
into which Loans shall, absent other instructions, be made, or such other
account as Borrower may specify by notice to Administrative Agent.

 

“Borrowing Base”
means, at any time, either the amount provided for in Section 2.16(a), or the
amount determined in accordance with the provisions of Section 2.16(b) or (c),
in each case, as reduced pursuant to Section 2.16(d).

 

3

 

“Borrowing Base Deficiency”
means the amount by which the Revolving Loan Outstandings exceeds the sum of
(i) the Borrowing Base plus (ii) during the Overadvance Period the Overadvance
Amount.

 

“Borrowing Base Period”
means the period commencing any Determination Date or Special Determination
Date and ending on the next succeeding Determination Date or Special
Determination Date.

 

“Borrowing Base Usage”
means on any date the percentage, at the close of business on such day,
equivalent to the Revolving Loan Outstandings divided by the Borrowing Base.

 

“Business Day”
means any day except a Saturday, Sunday or other day on which either the New
York Stock Exchange is closed, or on which commercial banks in Chicago and New
York City are authorized by Law to close and, in the case of a Business Day
which relates to a LIBOR Loan, a day on which dealings are carried on in the
London interbank eurodollar market.

 

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

 

“Capital Stock”
means any and all shares, interests, participations or other equivalents
(however designated) of capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation) and any and all
warrants, rights or options to purchase any of the foregoing.

 

“CERCLA” means
the Comprehensive Environmental Response, Compensation and Liability Act of
1980.

 

“Change in Control”
means (a) the acquisition of ownership, directly or indirectly, beneficially or
of record, by any Person or group (within the meaning of the Securities
Exchange Act of 1934 and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof), of Capital Stock representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of Borrower; or (b) occupation of a majority of the
seats (other than vacant seats) on the board of directors of Borrower by
Persons who were neither (i) nominated by the board of directors of Borrower,
nor (ii) appointed by directors so nominated.

 

“Closing Checklist”
means Annex B to this Agreement.

 

“Closing Date”
means the date of this Agreement.

 

“Code” means the
Internal Revenue Code of 1986.

 

“Collateral”
means all property, now existing or hereafter acquired, mortgaged or pledged
to, or purported to be subjected to a Lien in favor of, Administrative Agent,
for the benefit of Administrative Agent, Lenders and Eligible Swap
Counterparties, pursuant to the Security Documents.

 

4

 

“Collateral
Documents” means, collectively, the Deeds of Trust, any Guaranty,
and any Security Agreements, in each case executed pursuant to this Agreement,
and all financing statements filed in connection therewith.

 

“Commitment Annex”
means Annex A to this Agreement.

 

“Commitment Expiry Date”
means November 19, 2012.

 

“Compliance Certificate”
means a certificate, duly executed by a Responsible Officer, appropriately
completed and substantially in the form of Exhibit B hereto.

 

“Consolidated Current Assets” means
the total of the consolidated current assets of Borrower (excluding assets of
Unrestricted Subsidiaries), plus the amount available for borrowing under the
Borrowing Base plus the Overadvance Amount, if any; provided, however,
that in determining consolidated current assets, such determination shall not
include the account included in such consolidated current assets to the extent
resulting from (i) any non-cash gains required under SFAS 133 or under
SFAS 143, or (ii)  any non-cash stock option accrual under FAS Statement
123.

 

“Consolidated Current Liabilities”
means the total of the consolidated current liabilities of Borrower (excluding
liabilities of Unrestricted Subsidiaries), provided, however, that in
determining consolidated current liabilities, such determination shall not
include the accounts included in such consolidated current liabilities
resulting from non-cash losses or charges required under SFAS 133, under SFAS
143 or under FAS Statement 123.

 

“Consolidated Subsidiary”
means at any date any Subsidiary the accounts of which would be consolidated
with those of Borrower (or any other Person, as the context may require
hereunder) in its consolidated financial statements if such statements were
prepared as of such date.

 

“Contingent Obligation”
means, with respect to any Person, any direct or indirect liability of such
Person:  (i) with respect to any
debt, lease, dividend or other obligation of another Person if the purpose or
intent of such Person incurring such liability, or the effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreement relating thereto will be complied
with, or that any holder of such liability will be protected, in whole or in
part, against loss with respect thereto, (ii) with respect to any undrawn
portion of any letter of credit issued for the account of such Person or as to
which such Person is otherwise liable for the reimbursement of any drawing,
(iii) under any Swap Contract, to the extent not yet due and payable, (iv) to
make take-or-pay or similar payments if required regardless of nonperformance
by any other party or parties to an agreement; or (v) for any obligations of
another Person pursuant to any agreement to purchase, repurchase or otherwise
acquire any obligation or any property constituting security therefor, to
provide funds for the payment or discharge of such obligation or to preserve
the solvency, financial condition or level of income of another Person. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determinable amount, the maximum amount so guaranteed or otherwise supported.

 

5

 

“Credit Exposure”
means any period of time during which the Revolving Loan Commitment is
outstanding or any Loan, Reimbursement Obligation or other Obligation remains
unpaid, or any Letter of Credit or Support Agreement not supported with cash
collateral required by this Agreement remains outstanding; provided, that no
Credit Exposure shall be deemed to exist solely due to the existence of
contingent indemnification liability, absent the assertion of a claim, or the
known existence of a claim reasonably likely to be asserted, with respect
thereto.

 

“Credit Party”
means any of Borrower and each Restricted Subsidiary of Borrower, whether now
existing or hereafter acquired or formed; and “Credit
Parties” means all such Persons, collectively.

 

“Debt” of a
Person means at any date, without duplication, (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, except
trade accounts payable, accrued expenses and deferred compensation and other
pension benefit and welfare expenses, in each case arising in the Ordinary
Course of Business and not overdue by more than 60 days, (iv) all Capital
Leases of such Person, (v) all non contingent obligations of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter of
credit, banker’s acceptance or similar instrument, (vi) all obligations of
such Person under conditional sale or other title retention agreements relating
to property acquired by such Person, (vii) all Debt secured by a Lien on any
asset of such Person, whether or not such Debt is otherwise Debt of such
Person, and (vii) all Debt of others Guaranteed by such Person. Without
duplication of any of the foregoing, Debt of Borrower shall include any and all
Loans and Letter of Credit Liabilities.

 

“Default” means
any condition or event which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

 

“Defaulted Lender”
means, so long as such failure shall remain in existence and uncured, any
Lender which shall have failed to make any Loan or other credit accommodation,
disbursement, settlement or reimbursement required pursuant to the terms of any
Financing Document.

 

“Defensible Title”
means, with respect to the assets of Borrower or any Restricted Subsidiary (a)
the title of Borrower or such Restricted Subsidiary to such assets is free and
clear of all Liens of any kind whatsoever (except Permitted Liens, (b) with
respect to the Mortgaged Properties, the title of Borrower or such Restricted
Subsidiary as is deducible from applicable public records, and (c) with respect
to the Mortgaged Properties, the representations and warranties set forth in
Section 3.23(a) are true and correct.

 

“Designated Title Exceptions”
has the meaning assigned to such term in Section 3.23(a).

 

“Determination Date”
has the meaning assigned to such term in Section 2.16(b).

 

“Domestic Subsidiary”
means a Restricted Subsidiary organized, incorporated or otherwise formed under
the laws of the United States or any state thereof.

 

6

 

“Draw Limit”
means the amount Borrower may elect to be available for Loans and Letters of
Credit hereunder, provided that the amount elected by Borrower shall not, once
so elected, be increased without the consent of Administrative Agent in its
sole discretion.

 

“EBITDAX” has
the meaning provided in the Compliance Certificate.

 

“Eligible Assignee”
means (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund, and
(iv) any other Person (other than a natural person) approved by (A)
Administrative Agent (such approval not to be unreasonably withheld) and (B)
unless an Event of Default has occurred and is continuing, Borrower (such
approval not to be unreasonably withheld, and shall be deemed provided unless
expressly withheld by Borrower within five (5) Business Days of request
therefor); provided that notwithstanding the foregoing, (x) Eligible Assignee
shall not include Borrower or any of Borrower’s Affiliates or Subsidiaries and
(y) no proposed assignee intending to assume all or any portion of the
Revolving Loan Commitment shall be an Eligible Assignee unless such proposed
assignee either already holds a portion of the Revolving Loan Commitment, or
has been approved as an Eligible Assignee by Administrative Agent.

 

“Eligible Swap Counterparty”
means Administrative Agent, any Affiliate of Administrative Agent, any Lender
and/or any Affiliate of any Lender that (i) either (A) is party to a Swap
Contract permitted hereunder with Borrower or any Subsidiary on the Closing
Date or (B) at any time it occupies such role or capacity (whether or not it
remains in such capacity) enters into a Swap Contract permitted hereunder with
Borrower or any Subsidiary and (ii) in the case of a Lender or an Affiliate of
a Lender (other than an Affiliate of Administrative Agent), maintains a
reporting system acceptable to Administrative Agent with respect to Swap
Contract exposure and agrees with Administrative Agent to provide regular
reporting to Administrative Agent in form and substance reasonably satisfactory
to Administrative Agent, with respect to such exposure. In addition thereto,
any Affiliate of a Lender shall, upon Administrative Agent’s request, execute
and deliver to Administrative Agent a letter agreement pursuant to which such
Affiliate designates Administrative Agent as its agent and agrees to share, pro
rata, all expenses relating to liquidation of the Collateral for the benefit of
such Affiliate.

 

“Environmental Laws”
means any and all Laws relating to the environment or the effect of the
environment on human health or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Materials or wastes into the environment,
including ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, Hazardous
Materials or wastes or the clean up or other remediation thereof.

 

“Environmental Liability”
means any liability, contingent or otherwise (including any liability for
damages, costs of environmental remediation, fines, penalties or indemnities),
of Borrower or any Restricted Subsidiary directly or indirectly resulting from
or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment, or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with respect to
any of the foregoing.

 

7

 

“ERISA” means
the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate”
means any trade or business (whether or not incorporated) that, together with
Borrower, is treated as a single employer under Section 414(b) or (c) of
the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.

 

“ERISA Event”
means (a) any “reportable event, as defined in Section 4043 of ERISA
or the regulations issued thereunder with respect to a Plan (other than an
event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an “accumulated funding deficiency” (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived;
(c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by Borrower
or any of its ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by Borrower or any
ERISA Affiliate from the PBGC or a plan administrator of any notice relating to
an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by Borrower
or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan
from Borrower or any ERISA Affiliate of any notice, concerning the imposition
of Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.

 

“Event of Default”
has the meaning set forth in Section 8.1.

 

“Existing Credit Facility”
means that certain Credit Agreement dated November 16, 2006, among Borrower,
the Lenders party hereto and JPMorgan Chase Bank, N.A.

 

“Existing Letters of Credit”
means the letters of credit issued and outstanding under the Existing Credit
Facility on the Closing Date.

 

“Federal Funds Rate”
means, for any day, the rate of interest per annum (rounded upwards, if
necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day and (ii) if no such rate is so published on such
next preceding Business Day, the Federal Funds Rate for such day shall be the
average rate quoted to Administrative Agent on such day on such transactions as
determined by Administrative Agent.

 

“Financing Documents”
means this Agreement, any Notes, the Security Documents, any fee letter between
Merrill Lynch and Borrower relating to the transactions contemplated hereby,
any subordination or intercreditor agreement pursuant to which any Debt and/or
any Liens securing such Debt is subordinated to all or any portion of the Obligations,
and all other

 

8

 

documents, instruments
and agreements (other than any Swap Contract) contemplated herein or thereby
and heretofore executed, executed concurrently herewith or executed at any time
and from time to time hereafter, as any or all of the same may be amended,
supplemented, restated or otherwise modified from time to time.

 

“Fiscal Year”
means a fiscal year of Borrower, ending on December 31 of each calendar year.

 

“Foreign Lender”
has the meaning set forth in Section 2.13(c).

 

“Foreign Subsidiary”
means any Restricted Subsidiary other than a Domestic Subsidiary.

 

“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 United States accounting
profession), which are applicable to the circumstances as of the date of
determination.

 

“Governmental Authority”
means any nation or government, any state or other political subdivision
thereof, and any agency, department or Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any corporation or other Person owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing, whether
domestic or foreign.

 

“Guarantee” by
any Person means any obligation, contingent or otherwise, of such Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
other obligation (whether arising by virtue of partnership arrangements, by
agreement to keep well, to purchase assets, goods, securities or services, to
take or pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such Debt or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided that
the term Guarantee shall not include endorsements for collection or deposit in
the Ordinary Course of Business. The term “Guarantee” used
as a verb has a corresponding meaning.

 

“Guarantor”  means (i) initially, Warren Resources of California, Inc., a California
corporation, and Warren E&P, Inc., a New Mexico corporation, and (ii) each
other Restricted Subsidiary that hereafter executes and delivers to Administrative
Agent and the Lenders a Guaranty, in each case until such Person ceases to be a
Guarantor in accordance with the terms hereof.

 

“Hazardous Materials”
means (i) any “hazardous substance” as defined in CERCLA, (ii) any “hazardous
waste” as defined by the Resource Conservation and Recovery Act, (iii)
asbestos, (iv) polychlorinated biphenyls, (v) petroleum, its derivatives, by
products and other

 

9

 

hydrocarbons, (vi) mold
and (vii) any other pollutant, toxic, radioactive, caustic or otherwise
hazardous substance regulated under Environmental Laws.

 

“Hazardous Materials
Contamination” means contamination (whether now existing or
hereafter occurring) of the improvements, buildings, facilities, personalty,
soil, groundwater, air or other elements on or of the relevant property by
Hazardous Materials, or any derivatives thereof, or on or of any other property
as a result of Hazardous Materials, or any derivatives thereof, generated on,
emanating from or disposed of in connection with the relevant property.

 

“Hydrocarbons” means oil, gas, casinghead gas, coalbed
methane, drip gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom
and all other minerals.

 

“Hydrocarbon Interests”  means all of Borrower’s and the Guarantors’ rights, titles, interests
and estates in and to oil and gas leases, oil, gas and mineral leases, or other
liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
and royalty interests, net profit interests and production payment interests,
including any reserved or residual interest of similar nature, in and under the
Oil and Gas Properties that are subject to Lenders Liens.

 

“Indemnitees”
has the meaning set forth in Section 9.2.

 

“Initial Reserve Report” “ means the reserve report dated September 14, 2007, as of July 31, 2007,
prepared by Williamson Petroleum Consultants, Inc., an independent petroleum
engineer, concerning the Oil and Gas Properties based on reasonable assumptions
specified by Administrative Agent and Borrower (including discount rates and
projected hydrocarbon price assumptions), a copy of which has been delivered to
each Lender.

 

“Intellectual Property”
means, with respect to any Person, all patents, trademarks, trade names, trade
styles, trade dress, service marks, logos and other business identifiers,
copyrights, technology, know-how and processes, computer hardware and software
and all applications and licenses therefor, used in or necessary for the
conduct of business by such Person.

 

“Interest Coverage Ratio”
has the meaning provided in the Compliance Certificate.

 

“Interest Period”
means, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed
or continued as, or converted into, a LIBOR Loan and ending on the date one
(1), two (2), three (3), six (6) months or, if all applicable Lenders are
capable thereof, nine (9) or twelve (12) months thereafter, as selected by
Borrower pursuant to Section 2.7(e); provided, that:  (i) if any Interest Period would otherwise
end on a day that is not a Business Day, such Interest Period shall be extended
to the following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day, (ii) any Interest
Period that begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period shall end on the last
Business Day of the calendar month at the end of such Interest Period, and
(iii) Borrower may not select any Interest Period for a Revolving Loan which
would extend beyond the Commitment Expiry Date.

 

10

 

“Investment”
means any investment in any Person, whether by means of acquiring (whether for
cash, property, services, Capital Stock or otherwise), making or holding Debt
securities, Capital Stock, capital contributions, loans, time deposits,
advances, Guarantees or otherwise. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect thereto.

 

“Laws” means any
and all federal, state, local and foreign statutes, laws, judicial decisions,
regulations, guidances, guidelines, ordinances, rules, judgments, orders,
decrees, codes, plans, injunctions, permits, concessions, grants, franchises,
governmental agreements and governmental restrictions, whether now or hereafter
in effect.

 

“LC Issuer”
means one or more banks, trust companies or other Persons in each case
expressly identified by Administrative Agent from time to time, in its sole
discretion, as an LC Issuer for purposes of issuing one or more Letters of
Credit hereunder. Without limitation of Administrative Agent’s discretion to
identify any Person as an LC Issuer, no Person shall be designated as an LC
Issuer unless such Person maintains reporting systems acceptable to
Administrative Agent with respect to letter of credit exposure and agrees to
provide regular reporting to Administrative Agent satisfactory to it with
respect to such exposure.

 

“Lender” means
each of (i) Merrill Lynch, (ii) each other Person party hereto in its capacity
as a lender, (iii) each other Eligible Assignee that becomes a party hereto
pursuant to Section 11.6, (iv) Administrative Agent, to the extent of any
Revolving Loans made by Administrative Agent which have not been settled among
Lenders pursuant to Section 10.12, and (v) the respective successors of all of
the foregoing, and “Lenders” means
all of the foregoing. In addition to the foregoing, solely for the purpose of
identifying the Persons entitled to share in payments and collections from the
Collateral as more fully set forth in this Agreement and the Security
Documents, the term “Lender” shall
include Eligible Swap Counterparties. In connection with any such distribution
of payments and collections, Administrative Agent shall be entitled to assume
that no amounts are due to any Eligible Swap Counterparty unless such Eligible
Swap Counterparty has notified Administrative Agent of the amount of any such
liability owed to it prior to such distribution.

 

“Lender Letter of Credit”
means a Letter of Credit issued by an LC Issuer that is also, at the time of
issuance of such Letter of Credit, a Lender.

 

“Lender Liens” means
the Liens granted in the Collateral in favor of Administrative Agent for the
ratable benefit of the Secured Parties or directly for the benefit of any
Secured Party pursuant to the Financing Documents.

 

“Letter of Credit”
means a standby or documentary (trade) letter of credit issued for the account
of Borrower by an LC Issuer which expires by its terms within one year after
the date of issuance and in any event at least thirty (30) days prior to the
Commitment Expiry Date. Notwithstanding the foregoing, a Letter of Credit may
provide for automatic extensions of its expiry date for one or more successive
one (1) year periods provided that the LC Issuer that issued such Letter of
Credit has the right to terminate such Letter of Credit on each such annual
expiration date and no renewal term may extend the term of the Letter of Credit
to a date that is

 

11

 

later than the thirtieth
(30th) day prior to the Commitment Expiry Date. Each Letter of Credit shall be
either a Lender Letter of Credit or a Supported Letter of Credit.

 

“Letter of Credit
Liabilities” means, at any time of calculation, the sum of (i)
without duplication, the amount then available for drawing under all
outstanding Lender Letters of Credit and all Supported Letters of Credit, in
each case without regard to whether any conditions to drawing thereunder can
then be met plus (ii) without duplication, the aggregate unpaid amount of all
reimbursement obligations in respect of previous drawings made under all such
Lender Letters of Credit and Supported Letters of Credit minus (iii) the amount
of cash collateral deposited pursuant to Sections 2.3 or 2.9.

 

“LIBOR” means,
with respect to any LIBOR Loan for any Interest Period, a rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to (i) the
rate of interest which is identified and normally published by Bloomberg
Professional Service Page BBAM 1 as the offered rate for loans in United States
dollars for the applicable Interest Period under the caption British Bankers
Association LIBOR Rates as of 11:00 a.m. (London time), on the second full
Business Day next preceding the first day of such Interest Period (unless such
date is not a Business Day, in which event the next succeeding Business Day
will be used); divided by (ii) the sum of one minus the daily average during
such Interest Period of the aggregate maximum reserve requirement (expressed as
a decimal) then imposed under Regulation D of the Board of Governors of the
Federal Reserve System (or any successor thereto) for “Eurocurrency
Liabilities” (as defined therein). If Bloomberg Professional Service
no longer reports the LIBOR or Administrative Agent determines in good faith
that the rate so reported no longer accurately reflects the rate available to
Administrative Agent in the London Interbank Market or if such index no longer
exists or if Page BBAM 1 no longer exists or accurately reflects the rate
available to Administrative Agent in the London Interbank Market,
Administrative Agent may select a replacement index or replacement page, as the
case may be.

 

“LIBOR Loans”
means any Loans which accrue interest by reference to the LIBOR, in accordance
with the terms of this Agreement.

 

“LIBOR Margin”
means for any day, the applicable percent per annum set forth in the Pricing
Table corresponding to the Borrowing Base Usage as of the end of such day.

 

“Lien” means,
with respect to any asset, any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a security interest, in
respect of such asset. For the purposes of this Agreement and the other
Financing Documents, Borrower or any Subsidiary shall be deemed to own subject
to a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.

 

“Litigation”
means any action, suit or proceeding before any court, mediator, arbitrator or
Governmental Authority.

 

“Loan Account”
has the meaning set forth in Section 2.11.

 

“Loans” means
the Revolving Loans.

 

12

 

“Long Term Indebtedness”
means, at any time, all consolidated Indebtedness of Borrower that should be
classified as “funded indebtedness” or “long term indebtedness” on Borrower’s
balance sheet as of such date, in accordance with GAAP, excluding “funded
indebtedness” or “long term indebtedness” of the Unrestricted Subsidiaries.

 

“Major Casualty Proceeds”
means (i) the aggregate insurance proceeds received in connection with one or
more related events under any Property Insurance Policy or (ii) any award or
other compensation with respect to any eminent domain, condemnation of property
or similar proceedings (or any transfer or disposition of property in lieu of
condemnation).

 

“Margin Stock”
has the meaning assigned thereto in Regulation U of the Federal Reserve Board.

 

“Material Adverse Effect”
means, with respect to any event, act, condition or occurrence of whatever nature
(including any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), whether singly or in conjunction
with any other event or events, act or acts, condition or conditions,
occurrence or occurrences, whether or not related, a material adverse change
in, or a material adverse effect upon, any of (i) the business, assets,
properties, liabilities (actual or contingent), operations, or financial
condition of Borrower and its Subsidiaries taken as a whole, (ii) the rights
and remedies of Administrative Agent or Lenders under any Financing Document,
or the ability of any Credit Party to perform any of its obligations under any
Financing Document to which it is a party, (iii) the legality, validity or
enforceability of any Financing Document, or (iv) the existence, perfection or
priority of any security interest granted in any Financing Document or the
value of any material Collateral.

 

 “Maximum Lawful Rate” has the meaning set forth in Section
2.12(b).

 

“Merrill Lynch”
means Merrill Lynch Capital, a division of Merrill Lynch Business Financial
Services Inc., and its successors.

 

“Mortgage Properties” means the Oil and Gas Properties described
in one or more duly executed, delivered and filed Mortgages evidencing a first
and prior Lender Lien in favor of Administrative Agent for the benefit of the
Secured Parties and subject only to the Permitted Liens.

 

“Mortgages”
means each Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement executed by Borrower
or any Guarantor in favor of Administrative Agent, for the ratable benefit of
the Secured Parties, as it may be amended or modified and in effect from time
to time.

 

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

 

“Net Cash Proceeds”
means, with respect to any transaction or event, an amount equal to the cash
proceeds received by any Credit Party from or in respect of such transaction or
event (including proceeds of any non-cash proceeds of such transaction), less
(i) any underwriting discounts and out-of-pocket expenses paid to a Person that
are reasonably incurred by such Credit Party in connection therewith and (ii)
in the case of an Asset Disposition, the amount of

 

13

 

any Debt secured by a
Lien on the related asset and discharged from the proceeds of such Asset
Disposition and any taxes paid or reasonably estimated by the applicable Credit
Party to be payable by such Person in respect of such Asset Disposition
(provided, that if the actual amount of taxes paid is less than the estimated
amount, the difference shall immediately constitute Net Cash Proceeds).

 

“Net Borrowing Availability”
means, as of any date of calculation, the total amount of Revolving Loans
available to be borrowed by Borrower in accordance with the terms of this
Agreement, excluding any and all outstanding Revolving Loans on such date of
calculation.

 

“Non-Funding Lender”
has the meaning set forth in Section 10.16.

 

“Non-Recourse Debt”
mean Debt of an Unrestricted Subsidiary for which no Credit Party is liable for
payment, and which is not secured by any property of any Credit Party, other
than the Capital Stock of such Unrestricted Subsidiary.

 

“Note” has the
meaning set forth in Section 2.8.

 

“Notice of Borrowing”
means a notice of a Responsible Officer, appropriately completed and
substantially in the form of Exhibit C hereto.

 

“Notice of LC Credit Event”
means a notice from a Responsible Officer to Administrative Agent with respect
to any issuance, increase or extension of a Letter of Credit specifying (i) the
date of issuance or increase of a Letter of Credit, (ii) the identity of LC
Issuer with respect to such Letter of Credit, (iii) the expiry date of such
Letter of Credit, (iv) the proposed terms of such Letter of Credit, including
the face amount; and (v) the transactions that are to be supported or financed
with such Letter of Credit or increase thereof.

 

“Obligations”
means all obligations, liabilities and indebtedness (monetary (including
post-petition interest, whether or not allowed) or otherwise) of each Credit
Party under this Agreement or any other Financing Document, in each case
howsoever created, arising or evidenced, whether direct or indirect, absolute
or contingent, now or hereafter existing, or due or to become due. In addition
to, but without duplication of, the foregoing, the Obligations shall include,
without limitation, all obligations, liabilities and indebtedness arising from
or in connection with (i) all Support Agreements, (ii) all Lender Letters of
Credit and (iii) all Swap Contracts entered into with any Eligible Swap
Counterparty.

 

“OFAC” means the
U.S. Department of Treasury Office of Foreign Assets Control.

 

“OFAC Lists”
means, collectively, the Specially Designated Nationals and Blocked Persons
List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg.
49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted
Persons maintained pursuant to any of the rules and regulations of OFAC or
pursuant to any other applicable Executive Orders.

 

“Oil and Gas Properties”
means all oil, gas and/or mineral leases, oil, gas or mineral properties,
mineral servitudes and/or mineral rights of any kind (including, without
limitation, mineral fee interests, lease interests, farmout interests,
overriding royalty and royalty interests,

 

14

 

net profits interests,
oil payment interests, production payment interests and other types of mineral
interests), and all oil and gas gathering, treating, storage, processing and
handling assets.

 

“Ordinary Course of
Business” means, in respect of any transaction involving any Credit
Party, the ordinary course of such Credit Party’s business, as conducted by
such Credit Party in accordance with past practices or which is customary in
the oil and gas business.

 

“Organizational Documents”
means, with respect to any Person other than a natural person, the documents by
which such Person was organized (such as a certificate of incorporation,
certificate of limited partnership or articles of organization, and including,
without limitation, any certificates of designation for preferred stock or
other forms of preferred equity) and which relate to the internal governance of
such Person (such as by-laws, a partnership agreement or an operating, limited
liability company or members agreement).

 

“Overadvance”
means the amount by which the Revolving Loan Outstandings exceed the Overadvance
Amount.

 

“Overadvance Amount”
means $15,000,000, as such amount is redetermined from time to time pursuant to
Section 2.16(e) and as such amount may be reduced from time to time pursuant to
Section 2.3(d).

 

“Overadvance Period”
means the period from the Closing Date to the earlier of (i) May       ,
2009 or (ii) the date that the Overadvance Amount has been reduced to zero
pursuant to Section 2.3(d) or 2.16(e).

 

“Participant”
has the meaning set forth in Section 11.6(b).

 

“Payment Account”
means the account specified on the signature pages hereof into which all
payments by or on behalf of Borrower to Administrative Agent under the
Financing Documents shall be made, or such other account as Administrative
Agent shall from time to time specify by notice to Borrower.

 

“Payment Notification”
means a written notification substantially in the form of Exhibit D hereto.

 

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

 

“Permits” has the
meaning set forth in Section 3.1.

 

“Permitted Contest”
means a contest maintained in good faith by appropriate proceedings promptly
instituted and diligently conducted and with respect to which such reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; provided that compliance with the obligation that is
the subject of such contest is effectively stayed during such challenge.

 

“Permitted Encumbrances”
means any or all of the following:

 

15

 

(a)           Liens
imposed by law for taxes, assessments or other governmental charges that are
not yet due or are being contested in compliance with Section 4.2;

 

(c)           Liens
of landlords, vendors, carriers, warehousemen, mechanics, materialmen,
repairmen and other like Liens or charges imposed by law, or otherwise, arising
in the ordinary course of business for amounts not yet delinquent (including
any amounts being withheld) or securing obligations that are not overdue by
more than 90 days or are being contested in compliance with Section 4.2;

 

(d)           pledges
and deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations;

 

(e)           deposits
to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations
of a like nature, in each case in the ordinary course of business;

 

(f)            judgment
liens in respect of judgments that do not constitute an Event of Default under
clause (i) of Section 8.1;

 

(g)           easements,
zoning or other restrictions, rights-of-way, covenants, conditions, servitudes,
permits, authorizations, surface and use leases and agreements, rights,
obligations and similar encumbrances on real or personal property imposed by
law or arising in the ordinary course of business that:  (i) are of record, (ii) are
apparent from a physical inspection of the affected properties,
(iii) Borrower took subject to, (iv) do not secure any monetary obligations,
(v) do not materially detract from the value of the affected property, and
(vi) do not interfere with the ordinary conduct of business of Borrower or
any Subsidiary;

 

(h)           liens
in favor of co-owner working interest owners under joint operating agreements;

 

(i)            inchoate
liens arising under ERISA to secure the contingent liabilities, if any,
permitted by this Agreement;

 

(j)            deposits,
encumbrances or pledges to secure payments of workers compensation insurance
and related payments, public liability, unemployment and other insurance,
old-age pensions of other social security obligations, or the performance of
bids, tenders, leases, contracts (other than contracts for the payment of
money), public or statutory obligations, surety, stay or appeal bonds, or other
similar obligations arising in the ordinary course of business;

 

(k)           any
Designated Title Exceptions which are incurred in the ordinary course of
business;

 

(l)            encumbrances
arising out of judgments or awards in respect of which Borrower shall in good
faith be prosecuting an appeal or proceedings for review; provided that
Borrower shall have set aside on its books adequate reserves, in accordance
with GAAP, with respect to such judgment or award;

 

16

 

(m)          Liens
securing Non-Recourse Debt affecting Borrower’s or any Restricted Subsidiary’s
Capital Stock in any Unrestricted Subsidiary; 
provided that the term “Permitted Encumbrances” shall not include
any Lien securing Debt (other than Bonds).

 

“Permitted Investments”
means:

 

(a)           direct
obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America (or by any agency
thereof to the extent such obligations are backed by the full faith and credit
of the United States of America), in each case maturing within one year from
the date of acquisition thereof;

 

(b)           investments
in commercial paper maturing within 270 days after the date of acquisition
thereof and having, at such date of acquisition, one of the two highest credit
rating obtainable from S&P or from Moody’s;

 

(c)           investments
in certificates of deposit, banker’s acceptances and time deposits maturing
within 365 days after the date of acquisition thereof that are issued or
guaranteed by or placed with, and money market deposit accounts issued or
offered by, any domestic office of any commercial bank organized under the laws
of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $250,000,000;

 

(d)           fully
collateralized repurchase agreements with a term of not more than 30 days for
securities described in clause (a) above and entered into with a financial
institution satisfying the criteria described in clause (c) above; and

 

(e)           money
market funds that (i) comply with the criteria set forth in Securities and
Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii)
are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of
at least $5,000,000,000

 

“Permitted Liens”
means Liens permitted pursuant to Section 5.2.

 

“Permitted Securities”
means publicly issued (or privately placed with rights to exchange for publicly
issued) subordinated unsecured notes or senior unsecured notes issued by
Borrower (including unsecured guaranties thereof by Restricted Subsidiaries),
including securities convertible into common stock, or preferred Capital Stock
issued by Borrower, in an aggregate amount (whether of principal amount, face
amount or liquidation preference amount) not in excess of $150,000,000, which
(i) by its terms (or the terms of any security into which it is convertible or
for which it is exchangeable) does not mature and is not redeemable (whether
mandatorily or otherwise) at the option of the holder thereof nor convertible
or exchangeable (other than for shares of common stock), in each case prior to
12 months after the Commitment Expiry Date and (ii) in the case of such notes
is not subject to covenants or events of default (or other provisions which
have the same effect as covenants or events of default) at the time of issuance
which are materially more restrictive, taken as a whole, on Borrower than those
customarily required for publicly traded unsecured notes of the same type issued
by companies of a similar credit rating and in the same industry of Borrower,
as determined in the good faith judgment of the Board of Directors, and (iii)
does not provide for interest (in the case of notes) in excess of 11% per annum
nor dividends (in the case of preferred Capital Stock) in excess of 11% per
annum.

 

17

 

“Person” means
any natural person, corporation, limited liability company, professional
association, limited partnership, general partnership, joint stock company,
joint venture, association, company, trust, bank, trust company, land trust,
business trust or other organization, whether or not a legal entity, and any
Governmental Authority.

 

“Pricing Table”
means the following table: 

 

	
  Tier

  	
   

  	
  Borrowing Base

  	
   

  	
  Revolving Loans and all other

  Obligations

  	
   

  	
   

  	
   

  
	
  Level

  	
   

  	
  Utilization

  	
   

  	
  LIBOR Margin

  	
   

  	
  Base Rate Margin

  	
   

  	
  Commitment Fee

  	
   

  
	
  1

  	
   

  	
  Greater than
  or equal to 100%

  	
   

  	
  2.50

  	
  %

  	
  1.25

  	
  %

  	
  0.500

  	
  %

  
	
  2

  	
   

  	
  Greater than
  or equal to 90%, but less than 100%

  	
   

  	
  2.00

  	
  %

  	
  0.75

  	
  %

  	
  0.500

  	
  %

  
	
  3

  	
   

  	
  Greater than
  or equal to 75%, but less than 90%

  	
   

  	
  1.75

  	
  %

  	
  0.50

  	
  %

  	
  0.375

  	
  %

  
	
  4

  	
   

  	
  Greater than
  or equal to 50%, but less than 75%

  	
   

  	
  1.50

  	
  %

  	
  0.25

  	
  %

  	
  0.250

  	
  %

  
	
  5

  	
   

  	
  Less than 50%

  	
   

  	
  1.25

  	
  %

  	
  0.00

  	
  %

  	
  0.200

  	
  %

  

 

“Production Proceeds”
has the meaning set forth in Section 4.10(f).

 

“Projected Oil and Gas
Production” means the projected production of oil or gas (measured
by volume unit or BTU equivalent, not sales price) for the term of any Swap
Contract or for a particular month, as applicable, from the interests in Oil and
Gas Properties owned by any Credit Party which are located in or offshore of
the United States to the extent then categorized as Proved Developed Producing
Reserves, as such production is projected in the most recent report delivered
pursuant to Section 4.1(i) or (j), after deducting projected production from
any properties or interests sold or under contract for sale that had been
included in such report and after adding projected production from any
properties or interests that had not been reflected in such report but that are
reflected in a separate or supplemental reports meeting the requirements of
such Section 4.1(i) or (j) and otherwise are satisfactory to Administrative
Agent.

 

“Pro Rata Share”
means (i) with respect to a Lender’s obligation to make Revolving Loans, to
purchase interests and participations in Letters of Credit and related Support
Agreement liabilities and obligations pursuant to Section 2.9(f), such Lender’s
right to receive the unused line fee described in Section 2.7(b), and such
Lender’s obligation to share in Letter of

 

18

 

Credit Liabilities and to
receive the related Letter of Credit fee described in Section 2.9(b), the
Revolving Loan Commitment Percentage of such Lender, (ii) with respect to a
Lender’s right to receive payments of principal and interest with respect to
Revolving Loans, such Lender’s Revolving Loan Exposure with respect thereto and
(iii) for all other purposes (including without limitation the indemnification
obligations arising under Section 10.6) with respect to any Lender, the
percentage obtained by dividing (A) the Revolving Loan Commitment Amount of
such Lender (or, in the event the Revolving Loan Commitment shall have been
terminated, such Lender’s then existing Revolving Loan Outstandings), by (B)
the Revolving Loan Commitment (or, in the event the Revolving Loan Commitment
shall have been terminated, the then existing Revolving Loan Outstandings) of
all Lenders.

 

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

 

“Reimbursement Obligations”
means, at any date, the obligations of Borrower then outstanding to reimburse
(i) Administrative Agent for payments made by Administrative Agent under a
Support Agreement and/or (ii) any LC Issuer, for payments made by such LC
Issuer under a Lender Letter of Credit.

 

“Replacement Lender”
has the meaning set forth in Section 11.6(c).

 

“Required Lenders”
means, subject to the provisions of Section 10.12(d), at any time Lenders
holding (i) one hundred percent (100%) in case of a determination that the
Borrowing Base is to be increased above the Borrowing Base then in effect, (ii)
one hundred percent (100%) in case of a determination that the Overadvance
Amount is to be increased above the Overadvance Amount then in effect and (ii)
sixty-six and two thirds percent (66 2/3%) or more in all instances other than
clause (i) or (ii) above, in each case, of (A) the sum of the Revolving Loan
Commitment or (B) if the Revolving Loan Commitment has been terminated, of the
sum of the then aggregate outstanding principal balance of the Loans plus the
then aggregate amount of Letter of Credit Liabilities.

 

“Reserve Report”
means the report regarding the Proved Reserves of the Credit Parties, in form
and scope reasonably acceptable to Administrative Agent, provided pursuant to
Section 4.1(i) or (j).

 

“Reserve Documents”
has the meaning given in Section 6.1(e).

 

 “Responsible Officer” means any of the Chairman of the Board,
Chief Executive Officer, President, Chief Financial Officer, Treasurer, or any
other officer of Borrower or the Guarantor acceptable to Administrative Agent.

 

“Restricted Payment”
means as to any Person (i) any dividend or other distribution (whether in cash,
Capital Stock or other property) on any equity interest in such Person (except
those payable solely in Capital Stock of the same class), (ii) any payment by
such Person on account of (A) the purchase, redemption, retirement, defeasance,
surrender, cancellation,

 

19

 

termination or
acquisition of any Capital Stock in such Person or any claim respecting the
purchase or sale of any equity interest in such Person or (B) any option,
warrant or other right to acquire any Capital Stock in such Person, or (iii)
any optional or voluntary payment, purchase, redemption, retirement,
defeasance, surrender, cancellation, termination or acquisition of any
Permitted Securities.

 

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

 

“Revolving Loan Borrowing”
means a borrowing of a Revolving Loan.

 

“Revolving Loan Commitment”
means, as of any date of determination, the aggregate Revolving Loan Commitment
Amounts of all Lenders as of such date.

 

“Revolving Loan Commitment
Amount” means, as to any Lender, the dollar amount set forth
opposite such Lender’s name on the Commitment Annex under the column “Revolving Loan Commitment Amount”, as such amount may be
adjusted from time to time by any “Amounts Assigned”
pursuant to the terms of any and all effective Assignment Agreements to which
such Lender is a party.

 

“Revolving Loan Commitment
Percentage” means, as to any Lender, (i) on the Closing Date, the
percentage set forth opposite such Lender’s name on the Commitment Annex under
the column “Revolving Loan Commitment Percentage”
and (ii) on any date following the Closing Date, the percentage equal to the
Revolving Loan Commitment Amount of such Lender on such date divided by the
aggregate Revolving Loan Commitment Amounts of all Lenders on such date.

 

“Revolving Loan Exposure”
means, with respect to any Lender on any date of determination, the percentage
equal to the amount of such Lender’s Revolving Loan Outstandings on such date
divided by the aggregate Revolving Loan Outstandings of all Lenders on such
date.

 

“Revolving Loan Limit”
means, at any time, the least of (i) the Revolving Loan Commitment, (ii) the
sum of the Borrowing Base plus, during the Overadvance Period, the Overadvance
Amount or (iii) the Draw Limit.

 

“Revolving Loan
Outstandings” means at any time of calculation (i) the sum of the
then existing aggregate outstanding principal amount of Revolving Loans plus
the then existing Letter of Credit Liabilities and (ii) when used with
reference to any single Lender, the sum of the then existing outstanding
principal amount of Revolving Loans advanced by such Lender plus the then
existing Letter of Credit Liabilities for the account of such Lender.

 

“Revolving Loans”
has the meaning set forth in Section 2.1.

 

“Secured Parties”
means, collectively, Administrative Agent, the Lenders, the LC Issuer, the
Eligible Swap Counterparties, each co-agent or sub-agent appointed by
Administrative Agent from time to time pursuant to Section 10.1, and the other
Persons the Obligations owing to which are or are purported to be secured by
the Collateral under the terms of the Security Documents.

 

20

 

“Security Documents”
means any agreement, document or instrument executed concurrently herewith or
at any time hereafter pursuant to which one or more Credit Parties or any other
Person either (i) Guarantees payment or performance of all or any portion of
the Obligations and/or (ii) provides, as security for all or any portion of the
Obligations, a Lien on any of its assets in favor of Administrative Agent for
its own benefit and the benefit of Secured Parties, as any or all of the same
may be amended, supplemented, restated or otherwise modified from time to time.

 

“Settlement Date”
has the meaning set forth in Section 10.12(a).

 

“Settlement Service”
has the meaning set forth in Section 11.6(a).

 

“Solvent” means,
with respect to any Person, that such Person (i) owns and will own assets the
fair saleable value of which are (A) greater than the total amount of its
liabilities (including Contingent Obligations) and (B) greater than the amount
that will be required to pay the probable liabilities of its then existing
debts as they become absolute and matured considering all financing alternatives
and potential asset sales reasonably available to it, (ii) has capital that is
not unreasonably small in relation to its business as presently conducted or
after giving effect to any contemplated transaction and (iii) does not intend
to incur and does not believe that it will incur debts beyond its ability to
pay such debts as they become due.

 

“Special Determination”
has the meaning given in Section 2.16(c).

 

“Stated Rate”
has the meaning set forth in Section 2.12(b).

 

“Subsidiary”
means, with respect to any Person, (i) any corporation of which an aggregate of
more than 50% of the outstanding Capital Stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether, at the time, Capital Stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with
respect to which any such Person has the right to vote or designate the vote of
more than 50% of such Capital Stock whether by proxy, agreement, operation of
Law or otherwise, and (ii) any partnership or limited liability company in
which such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.  Unless the context otherwise requires, each
reference to a Subsidiary shall be a reference to a Subsidiary of Borrower.

 

“Support Agreement”
has the meaning set forth in Section 2.9(a).

 

“Supported Letter of Credit”
means a Letter of Credit issued by an LC Issuer in reliance on one or more
Support Agreements.

 

“Swap Contract”
means any “swap agreement”, as defined in Section 101 of the Bankruptcy Code.

 

“Taxes” has the
meaning set forth in Section 2.13.

 

21

 

“Termination Date”
has the meaning set forth in Section 2.3.

 

“UCC” means the
Uniform Commercial Code of the State of New York or of any other state the Laws
of which are required to be applied in connection with the perfection of security
interests in any Collateral.

 

“United States”
means the United States of America.

 

“Unrestricted Subsidiary”
means (i) any Subsidiary that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of Borrower in the manner
provided below, and (ii) any Subsidiary of an Unrestricted Subsidiary.  Warren Energy Services, LLC is currently an
Unrestricted Subsidiary.  The Board of
Directors of Borrower may, at any time and from time to time, designate any
Subsidiary (including any newly acquired or newly formed Subsidiary, but
excluding any Subsidiary that owns or operates Oil and Gas Properties included
in the Borrowing Base except to the extent Borrower complies with clause (iii)
of Section 10.9 in connection therewith) to be an Unrestricted Subsidiary
provided that (1) no Default or Event of Default has occurred or is continuing
at the time of such designation and after giving effect to such designation,
(2) immediately after such designation, neither for Borrower nor any Guarantor
has any obligation to pay any Debt of such Subsidiary (excluding any contingent
liability arising solely by virtue of such Person’s general partnership
interest so long as (A) such Unrestricted Subsidiary’s charter documents
prohibit it from incurring Debt, (B) such Unrestricted Subsidiary has not
incurred any Debt), has in any way guaranteed any Debt of such Subsidiary, or
has any assets or properties (excluding a pledge of the Capital Stock in such
Subsidiary) which are subject to any Lien securing any Debt of such Subsidiary,
and (C) notice of any such designation is promptly given to Administrative
Agent in writing.  The Board of Directors
of Borrower may, at any time and from time to time, designate any Unrestricted
Subsidiary to be a Restricted Subsidiary provided that (x) no Default or Event
of Default has occurred or is continuing at the time of such designation and
after giving effect to such designation, and (y) notice of any such designation
is promptly given to Administrative Agent in writing.

 

“Wholly-Owned Subsidiary”
means, with respect to any Person, any Subsidiary of such Person of which all
of the Capital Stock (other than, in the case of a corporation, directors’
qualifying shares, to the extent legally required) are directly or indirectly
owned and controlled by such Person or one or more Wholly-Owned Subsidiaries of
such Person.

 

Section 1.2            Accounting Terms and
Determinations.

 

Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all accounting determinations hereunder
(including without limitation determinations made pursuant to the exhibits
hereto) shall be made, and all financial statements required to be delivered
hereunder shall be prepared on a consolidated basis in accordance with GAAP
applied on a basis consistent with the most recent audited consolidated
financial statements of Borrower and its Consolidated Subsidiaries delivered to
Administrative Agent and Lenders.  If at
any time any change in GAAP would affect the computation of any financial ratio
or financial requirement set forth in any Financing Document, and either
Borrower or Required Lenders shall so request, Administrative Agent, Lenders
and Borrower shall negotiate in good faith to amend

 

22

 

such ratio or requirement
to preserve the original intent thereof in light of such change in GAAP
(subject to the approval of Required Lenders); provided that, until so amended,
(i) such ratio or requirement shall continue to be computed in accordance with
GAAP prior to such change therein and (ii) Borrower shall provide to
Administrative Agent and Lenders financial statements and other documents
required under this Agreement which include a reconciliation between
calculations of such ratio or requirement made before and after giving effect
to such change in GAAP.

 

Section 1.3            Other Definitional
Provisions and References.

 

References in this Agreement to “Articles”,
“Sections”, “Annexes”,
“Exhibits” or “Schedules”
shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this
Agreement unless otherwise specifically provided.  Any term defined herein may be used in the
singular or plural.  “Include”, “includes”
and “including” shall be deemed to be followed by “without limitation”.  Except as otherwise specified or limited
herein, references to any Person include the successors and assigns of such
Person.  References “from” or “through”
any date mean, unless otherwise specified, “from and including” or “through and
including”, respectively.  The words “assets”
and “property” shall be construed to have the same meaning and to refer to any
and all tangible and intangible asset and properties any type.  Unless otherwise specified herein, the
settlement of all payments and fundings hereunder between or among the parties
hereto shall be made in lawful money of the United States and in immediately
available funds.  Time is of the essence
in Borrower’s and each other Credit Party’s performance under this Agreement
and all other Financing Documents.  All
amounts used for purposes of financial calculations required to be made herein
shall be without duplication.  References
to any statute or act shall include all related current regulations and all
amendments and any successor statutes, acts and regulations.  References to any statute or act, without
additional reference, shall be deemed to refer to federal statutes and acts of
the United States.  References to any
agreement, instrument or document shall include all schedules, exhibits,
annexes and other attachments thereto.

 

ARTICLE 2

LOANS AND LETTERS OF CREDIT

 

Section 2.1            Revolving Loans and
Borrowings.

 

On the terms and subject to the conditions set forth
herein, each Lender severally agrees to make Loans to Borrower from time to time
as set forth herein (each a “Revolving Loan”,
and collectively, “Revolving Loans”)
equal to such Lender’s Revolving Loan Commitment Percentage of Revolving Loans
requested by Borrower hereunder, provided that after giving effect thereto, the
Revolving Loan Outstandings shall not exceed the Revolving Loan Limit.  Within the foregoing limits, Borrower may
borrow under this Section 2.1, may prepay or repay Revolving Loans from time to
time and may reborrow Revolving Loans pursuant to this Section 2.1.

 

23

 

Section 2.2            Advancing Revolving
Loans.

 

(a)           Notice of Borrowing.  Borrower shall deliver to Administrative
Agent a Notice of Borrowing with respect to each proposed Revolving Loan
Borrowing (other than Revolving Loans made pursuant to Section 2.2(b) below),
such Notice of Borrowing to be delivered no later than noon (Chicago time) (i)
on the day of such proposed borrowing, in the case of Base Rate Loans in an
aggregate principal amount equal to or less than $5,000,000, (ii) on the
Business Day prior to such proposed borrowing, in the case of Base Rate Loans
in an aggregate principal amount greater than $5,000,000 and (iii) on the third
(3rd) Business Day prior to such proposed borrowing, in the case of all LIBOR
Loans.  Once given, except as provided in
Section 2.7(e)(ii), a Notice of Borrowing shall be irrevocable and Borrower
shall be bound thereby.

 

(b)           Authority on Notice.
Borrower hereby authorizes Lenders and Administrative Agent to make Revolving
Loans (other than LIBOR Loans) based on telephonic notices made by any Person
which Administrative Agent, in good faith, believes to be acting on behalf of
Borrower.  Borrower agrees to promptly
deliver to Administrative Agent a Notice of Borrowing in respect of each
Revolving Loan requested by telephone following such request.  If the Notice of Borrowing differs in any
respect from the action taken by Administrative Agent and Lenders, the records
of Administrative Agent and Lenders shall govern absent manifest error.  Borrower further hereby authorizes Lenders
and Administrative Agent to make Revolving Loans based on electronic notices
made by any Person which Administrative Agent, in good faith, believes to be
acting on behalf of Borrower, but only after Administrative Agent shall have
established procedures acceptable to Administrative Agent for accepting
electronic Notices of Borrowing, as indicated by Administrative Agent’s written
confirmation thereof.

 

(c)           Authority to Advance
Revolving Loans.  Borrower and each
Lender hereby authorizes Administrative Agent to make Revolving Loans (which
shall be Base Rate Loans) on behalf of Lenders, at any time in its sole
discretion, as provided in Section 2.9(c), with respect to obligations arising
under Support Agreements and/or Lender Letters of Credit, and to pay interest,
fees, expenses and other charges payable by any Credit Party from time to time
under this Agreement or any other Financing Document, so long as, in each case,
after giving effect to any such Revolving Loans pursuant to this Section
2.2(c), the Revolving Loan Outstandings do not exceed the Revolving Loan Limit;
provided, that Administrative Agent shall have no obligation at any time to
make any Revolving Loan pursuant to the provisions of this Section 2.2(c).  Administrative Agent shall have the right to
make Revolving Loans pursuant to the provisions of this Section 2.2(c)
regardless of whether the conditions precedent set forth in Section 7.2 are
then satisfied, including the existence of any Default or Event of Default
either before or after giving effect to the making of such Revolving Loans.

 

Section 2.3            Mandatory Prepayments.

 

(a)           Termination Date.  The Revolving Loan Commitment shall terminate
upon the earliest to occur of (i) the Commitment Expiry Date, (ii) any date on
which Administrative Agent or Required Lenders elect to terminate the Revolving
Loan Commitment pursuant to Section 8.2 and (iii) the date Borrower elects to
terminate the Revolving Loan Commitment pursuant to Section 2.6 (such earliest
date being the “Termination Date”).  On the Termination Date, there

 

24

 

shall become
due, and Borrower shall pay the entire outstanding principal amount of each
Revolving Loan, together with accrued and unpaid Obligations pertaining
thereto.

 

(b)           Asset Disposition.  Upon the reduction of the Borrowing Base or
Overadvance Amount pursuant to Section 2.16(d), in the event a Borrowing Base
Deficiency shall occur as a result of such reduction in the Borrowing Base or
Overadvance Amount, Borrower shall immediately repay the Revolving Loans or
cash collateralize Letter of Credit Liabilities in the manner specified in
Section 2.9(e) or cancel outstanding Letters of Credit, or any combination
of the foregoing, in an aggregate amount at least equal to the Borrowing Base
Deficiency.

 

(c)           Borrowing Base
Deficiency.  If at any time, other
than as set forth in Section 2.3(b) or Section 2.3(e), a Borrowing Base
Deficiency shall occur, then upon notice from Administrative Agent of the
deficiency, Borrower shall either:

 

(i)            reduce
the deficiency by making four (4) mandatory prepayments of principal on the
Revolving Loans (or cash collateralize Letter of Credit Liabilities in the
manner specified in Section 2.9(e) or cancel outstanding Letters of Credit, or
any combination of the foregoing), each being is the amount of 25% of the
Borrowing Base Deficiency, such installments being due and payable of the 90th,
120th, 150th and 180th days after such notice
from Administrative Agent, or

 

(ii)           provide
Administrative Agent with additional security including deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other security documents in form and substance reasonably satisfactory to
Administrative Agent, granting, confirming, and perfecting first and prior
liens or security interests in collateral (subject to Permitted Liens)
reasonably acceptable to Required Lenders to increase the Borrowing Base (as
determined in their reasonable discretion consistent with prudent oil and gas
banking industry lending standards at the time) to an amount that eliminates
such Borrowing Base Deficiency.

 

Borrower shall within 30 days after such
notice from Administrative Agent notify Administrative Agent whether it will
reduce the Borrowing Base Deficiency pursuant to clause (i) or (ii) or a
combination thereof and, if applicable, the proposed collateral under clause
(ii).  If such proposed collateral is
acceptable to Required Lenders, Borrower shall provide such security documents
within thirty (30) days after such notice by Borrower.  If Required Lenders determine in their
reasonable discretion that the giving of such proposed collateral will not
serve to eliminate the Borrowing Base Deficiency, then Borrower shall be
required to make the prepayments specified in the preceding subsection (i) of
this subsection (c).

 

(d)           Overadvance Amount.  Unless the Required Lenders shall otherwise
agree, during the Overadvance Period, if any Debt for borrowed money shall be
incurred by Borrower or its Restricted Subsidiaries (other than under the
Financing Documents), then the principal amount of the Revolving Loans shall be
prepaid or Letter of Credit Liabilities shall be cash collateralized in the
manner specified in Section 2.9(e) by an amount equal to 75% of the amount of
the Net Cash Proceeds of such Debt to the extent necessary to eliminate any
Overadvance outstanding at the time of such incurrence.  The provisions of this Section 2.3(d) do not
constitute a consent to the incurrence of any Debt by Borrower or any of its
Subsidiaries not otherwise permitted by this Agreement.  Unless the Required Lenders shall otherwise
agree, the Overadvance Amount shall

 

25

 

be reduced by
the amount of each prepayment or cash collateralization pursuant to this
Section 2.3(d).

 

(e)           Issue of Permitted
Securities.  Upon the incurrence or
issuance of Permitted Securities, Borrower shall make a mandatory prepayment on
the Loan in an amount, if any, required to eliminate any Borrowing Base
Deficiency resulting from the decrease in the Borrowing Base pursuant to
Section 2.16(f).  Notwithstanding the
foregoing, in the event a Default or Event of Default is in existence on the
date of the incurrence or issuance of Permitted Securities, all proceeds from
any such Permitted Securities shall be applied as a mandatory prepayment on the
Loan.

 

Section 2.4            All Prepayments.

 

Any prepayment of a LIBOR Loan on a day other than the
last day of an Interest Period therefor shall include interest on the principal
amount being repaid and shall be subject to Section 2.7(e)(iv).  All prepayments of a Loan shall be applied
first to that portion of such Loan comprised of Base Rate Loans and then to
that portion of such Loan comprised of LIBOR Loans, in direct order of Interest
Period maturities.

 

Section 2.5            Optional Prepayments
of Revolving Loans.

 

Subject to the provisions Section 2.7(e)(iv), Borrower
may from time to time prepay the Revolving Loans in whole or in part; provided
that any such partial prepayment of the Revolving Loans shall be in an amount
equal to $250,000 or a higher integral multiple of $50,000.

 

Section 2.6            Termination or
Reduction of Revolving Loan Commitment.

 

Borrower may, upon notice to Administrative Agent,
terminate the Revolving Loan Commitment, or from time to time permanently
reduce the Revolving Loan Commitment, the then existing Borrowing Base or the
then existing Overadvance Amount; provided that (i) any such notice shall be
received by Administrative Agent not later than 11:00 a.m. five Business Days
prior to the date of termination or reduction, (ii) any such partial reduction
shall be in an aggregate amount of $5,000,000 or any whole multiple of
$1,000,000 in excess thereof, and (iii) Borrower shall not terminate or reduce
the Revolving Loan Commitment, the then existing Borrowing Base or the then
existing Overadvance Amount if, after giving effect thereto and to any
concurrent prepayments hereunder, the Revolving Loan Outstandings would exceed
the resulting Revolving Loan Commitment, Borrowing Base or Overadvance
Amount.  Administrative Agent will
promptly notify the Lenders of any such notice of termination or reduction of
the Revolving Loan Commitment, the Borrowing Base or Overadvance Amount.  Any reduction of the Revolving Loan
Commitment, the Borrowing Base or the Overadvance Amount shall be applied to
each Lender according to its Revolving Loan Commitment Percentage.  All fees accrued until the effective date of
any termination of the Revolving Loan Commitment, the Borrowing Base or the
Overadvance Amount shall be paid on the effective date of such termination.

 

26

 

Section 2.7            Interest, Interest
Calculations and Certain Fees.

 

(a)           Interest.  From and following the Closing Date,
depending upon Borrower’s election from time to time, subject to the terms
hereof, to have portions of the Loans accrue interest determined by reference
to the Base Rate or the LIBOR, the Loans and the other Obligations shall bear
interest at the applicable rates set forth below:

 

(i)            If
a Base Rate Loan, or any other Obligation other than a LIBOR Loan, then at the
sum of the Base Rate plus the applicable Base Rate Margin.

 

(ii)           If
a LIBOR Loan, then at the sum of the LIBOR plus the applicable LIBOR Margin.

 

(b)           Unused Line Fee.  From and following the Closing Date, Borrower
shall pay Administrative Agent, for the benefit of all Lenders committed to
make Revolving Loans, in accordance with their respective Pro Rata Shares, a
fee in an amount computed on a daily basis equal to (i) the Revolving Loan
Limit less the Revolving Loan Outstandings on each day, multiplied by the
applicable percentage specified as the “Commitment
Fee” in the Pricing Table corresponding to the Borrowing Base Usage
as of the end of such day.  Such fee is
to be paid quarterly in arrears on the last day of each quarter.

 

(c)           Agent’s Fees.  Borrower shall pay to Administrative Agent
fees in such amounts and at such times as set forth in that certain letter
agreement dated October 2, 2007 between Administrative Agent and Borrower, as
amended from time to time.

 

(d)           Computation of
Interest and Related Fees.  Other
than calculations in respect of interest at the Base Rate (which shall be made
on the actual number of days elapsed in a 365/366-day year), all interest and
fees under each Financing Document shall be calculated on the basis of a
360-day year for the actual number of days elapsed.  The date of funding of a Base Rate Loan and
the first day of an Interest Period with respect to a LIBOR Loan shall be
included in the calculation of interest. 
The date of payment of a Base Rate Loan and the last day of an Interest
Period with respect to a LIBOR Loan shall be excluded from the calculation of
interest.  If a Loan is repaid on the
same day that it is made, one (1) day’s interest shall be charged.  Interest on all Base Rate Loans is payable in
arrears on the last day of each calendar quarter and on the maturity of such
Loans, whether by acceleration or otherwise. 
Interest on LIBOR Loans shall be payable on the last day of the
applicable Interest Period, unless the Interest Period is greater than three
(3) months, in which case interest will be payable on the last day of each
three (3) month interval.  In addition,
interest on LIBOR Loans is due on the maturity of such Loans, whether by
acceleration or otherwise.

 

(e)           LIBOR Provisions.

 

(i)            LIBOR
Election.  Subject to the provisions
of Section 8.4, Borrower may request that Revolving Loans permitted to be made
hereunder be LIBOR Loans, that outstanding portions of Revolving Loans be
converted to LIBOR Loans and that all or any portion of a LIBOR Loan be
continued as a LIBOR Loan upon expiration of the applicable Interest
Period.  Any such request will be made by
submitting a Notice of Borrowing to Administrative Agent.  Once given, and except as provided in clause
(ii) below, a Notice of Borrowing shall be

 

27

 

irrevocable and Borrower shall be bound thereby.  Upon the expiration of an Interest Period, in
the absence of a new Notice of Borrowing submitted to Administrative Agent not
less than three (3) Business Days prior to the end of such Interest Period, the
LIBOR Loan then maturing shall be automatically converted to a Base Rate
Loan.  There may be no more than six (6)
LIBOR Loans outstanding at any one time. 
Each request for a LIBOR Loan, whether by original issuance, conversion
or continuation, shall be in a minimum amount of $250,000 and, if in excess of
such amount, in an integral multiple of $50,000 in excess of such amount.  Loans which are not requested as LIBOR Loans
in accordance with this Section 2.7(e)(i) shall be Base Rate Loans.  Administrative Agent shall notify Lenders, by
telephonic or facsimile notice, of each Notice of Borrowing received by
Administrative Agent not less than two (2) Business Days prior to the first day
of the Interest Period of the LIBOR Loan requested thereby.

 

(ii)           Inability
to Determine LIBOR.  In the event,
prior to commencement of any Interest Period relating to a LIBOR Loan,
Administrative Agent shall determine or be notified by Required Lenders that
adequate and reasonable methods do not exist for ascertaining LIBOR,
Administrative Agent shall promptly provide notice of such determination to
Borrower and Lenders (which shall be conclusive and binding on Borrower and
Lenders).  In such event (A) any request
for a LIBOR Loan or for a conversion to or continuation of a LIBOR Loan shall
be automatically withdrawn and shall be deemed a request for a Base Rate Loan,
(B) each LIBOR Loan will automatically, on the last day of the then current
Interest Period relating thereto, become a Base Rate Loan and (C) the
obligations of Lenders to make LIBOR Loans shall be suspended until Administrative
Agent or Required Lenders determine that the circumstances giving rise to such
suspension no longer exist, in which event Administrative Agent shall so notify
Borrower and Lenders.

 

(iii)          Illegality.  Notwithstanding any other provisions hereof,
if any Law shall make it unlawful for any Lender to make, fund or maintain
LIBOR Loans, such Lender shall promptly give notice of such circumstances to
Administrative Agent, Borrower and the other Lenders.  In such an event, (A) the commitment of such
Lender to make LIBOR Loans, continue LIBOR Loans as LIBOR Loans or convert Base
Rate Loans to LIBOR Loans shall be immediately suspended and (B) such Lender’s
outstanding LIBOR Loans shall be converted automatically to Base Rate Loans on
the last day of the Interest Period thereof or at such earlier time as may be
required by Law.

 

(iv)          LIBOR
Breakage Fee.  Upon (A) any default
by Borrower in making any borrowing of, conversion into or continuation of any
LIBOR Loan following Borrower’s delivery to Administrative Agent of any
applicable Notice of Borrowing or (B) any payment of a LIBOR Loan on any day
that is not the last day of the Interest Period applicable thereto (regardless
of the source of such prepayment and whether voluntary, by acceleration or
otherwise), Borrower shall promptly pay Administrative Agent, for the benefit
of all Lenders that funded or were prepared to fund any such LIBOR Loan, an
amount equal to the amount of any losses, expenses and liabilities (including,
without limitation, any loss (including interest paid) in connection with the
re employment of such funds) that any Lender may sustain as a result of such
default or such payment.  For purposes of
calculating amounts payable to a Lender under this paragraph, each Lender shall
be deemed to have actually funded its relevant LIBOR Loan through the purchase
of a deposit bearing interest at LIBOR in an amount equal to the amount of that
LIBOR Loan and having a maturity and repricing characteristics comparable to
the relevant

 

28

 

Interest Period; provided, however, that each Lender
may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
this subsection.  A certificate of any
Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section shall be delivered to Borrower and shall be
conclusive absent manifest error. 
Borrower shall pay such Lender the amount shown as due on any such
certificate within 15 days after receipt thereof.

 

(v)           Increased
Costs.  If, after the Closing Date,
the adoption or taking effect of, or any change in, any Law, or any change in
the interpretation, administration or application of any Law by any
Governmental Authority, central bank or comparable agency charged with the
interpretation, administration or application thereof, or compliance by any
Lender with any request, guideline or directive (whether or not having the
force of Law) of any such authority, central bank or comparable agency:  (A) shall impose, modify or deem applicable
any reserve (including any reserve imposed by the Board of Governors of the
Federal Reserve System, or any successor thereto, but excluding any reserve included
in the determination of the LIBOR pursuant to the provisions of this
Agreement), special deposit, compulsory loan, insurance charge or similar
requirement against assets of, deposits with or for the account of, or credit
extended or participated in by any Lender, or (B) shall impose on any Lender
any other condition affecting its LIBOR Loans, any of its Notes (if any) or its
obligation to make LIBOR Loans; and the result of anything described in clauses
(A) and (B) above is to increase the cost to (or to impose a cost on) such
Lender of making or maintaining any LIBOR Loan, or to reduce the amount of any
sum received or receivable by such Lender under this Agreement or under any of
its Notes (if any) with respect thereto, then within 15 days after demand by
such Lender (which demand shall be accompanied by a statement setting forth the
basis for such demand and a calculation of the amount thereof in reasonable
detail, a copy of which shall be furnished to Administrative Agent), Borrower
shall promptly pay directly to such Lender such additional amount as will
compensate such Lender for such increased cost or such reduction, so long as
such amounts have accrued on or after the day which is 180 days prior to the
date on which such Lender first made demand therefor.

 

Section 2.8            Notes.

 

The portion of the Revolving Loans made by each Lender
shall be evidenced, if so requested by such Lender, by a promissory note
executed by Borrower (a “Note”) in an
original principal amount equal to such Lender’s Pro Rata Share of the
Revolving Loan Commitment.

 

Section 2.9            Letters of Credit and
Letter of Credit Fees.

 

(a)           Letter of Credit.  On the terms and subject to the conditions
set forth herein, the Revolving Loan Commitment may be used by Borrower, in
addition to the making of Revolving Loans hereunder, prior to the Termination
Date, (x) by any Lender specified herein as an LC Issuer to issue or increase
the amount of, or extend the expiry date of, one or more Lender Letters of
Credit or (y) by Administrative Agent for the issuance of letters of credit,
guarantees or other agreements or arrangements (each, a “Support Agreement”) to induce an LC Issuer,
other than such a Lender, to issue or increase the amount of, or extend the
expiry date of, one or more Letters of Credit, so long as, in each case:

 

29

 

(i)            Administrative
Agent shall have received a Notice of LC Credit Event at least two (2) Business
Days before the relevant date of issuance, increase or extension; and

 

(ii)           after
giving effect to such issuance, increase or extension, (A) the aggregate Letter
of Credit Liabilities does not exceed 25% of the sum of  (I)
effective Borrowing Base plus (II) during the Overadvance Period, the
Overadvance Amount, and (B)  the Revolving
Loan Outstandings do not exceed the Revolving Loan Limit.

 

Nothing in this Agreement shall be construed
to obligate any Lender to issue, increase the amount of or extend the expiry
date of any letter of credit, which act or acts, if any, shall be subject to
agreements to be entered into from time to time between Borrower and such
Lender.  Each Lender that is an LC Issuer
hereby agrees to give Administrative Agent prompt written notice of each
issuance of a Lender Letter of Credit by such Lender and each payment made by
such Lender in respect of Lender Letters of Credit issued by such Lender.

 

(b)           Letter of Credit Fee.  Borrower shall pay to Administrative Agent,
for the benefit of Lenders, a letter of credit fee with respect to the Letter
of Credit Liabilities for each Letter of Credit, computed for each day from the
date of issuance of such Letter of Credit to the date that is the last day a
drawing is available under such Letter of Credit, at a rate per annum equal to
the LIBOR Margin then applicable to Revolving Loans.  Such fee shall be payable in arrears on the
last day of each calendar quarter prior to the Termination Date and on such
date.  In addition, Borrower agrees to pay
to LC Issuer, quarterly in arrears, a fronting fee in connection with any Letter
of Credit equal to 0.125% per annum times the daily maximum amount available to
be drawn on such Letter of Credit. 
Borrower also agrees to pay to the LC Issuer such other usual and
customary fees associated with any transfers, amendments, drawings,
negotiations or reissuances of any Letters of Credit.

 

(c)           Reimbursement
Obligations of Borrower.  If either
Administrative Agent shall make a payment to an LC Issuer pursuant to a Support
Agreement, or any Lender shall notify Administrative Agent that it has made
payment in respect of a Lender Letter of Credit, (i) Borrower shall promptly
reimburse Administrative Agent or such Lender, as applicable, for the amount of
such payment and (ii) Borrower shall be deemed to have immediately requested
that Lenders make a Revolving Loan, which shall be a Base Rate Loan, in a
principal amount equal to the amount of such payment (but solely to the extent
Borrower shall have failed to directly reimburse Administrative Agent or, with
respect to Lender Letters of Credit, the applicable LC Issuer, for the amount
of such payment).  Administrative Agent
shall promptly notify Lenders of any such deemed request and each Lender hereby
agrees to make available to Administrative Agent not later than noon (Chicago
time) on the Business Day following such notification from Administrative Agent
such Lender’s Pro Rata Share of such Revolving Loan.  Each Lender hereby absolutely and
unconditionally agrees to fund such Lender’s Pro Rata Share of the Loan
described in the immediately preceding sentence, unaffected by any circumstance
whatsoever, including (without limitation) (A) the occurrence and continuance
of a Default or Event of Default, (B) the fact that, whether before or after
giving effect to the making of any such Revolving Loan, the Revolving Loan
Outstandings exceed or will exceed the Revolving Loan Limit and/or (C) the
non-satisfaction of any conditions set forth in Section 8.2.  Administrative Agent hereby agrees to apply
the gross proceeds of each Revolving Loan deemed made pursuant to this Section
2.9(c) in satisfaction of Borrower’s reimbursement obligations arising pursuant
to

 

30

 

this Section
2.9(c).  Borrower shall pay interest, on
demand, on all amounts so paid by Administrative Agent for each day until
Borrower reimburses Administrative Agent therefor at a rate per annum equal to
the then current interest rate applicable to Revolving Loans (which are Base
Rate Loans) for such day.

 

(d)           Reimbursement and
Other Payments by Borrower.  The
obligations of Borrower to reimburse Administrative Agent and/or the applicable
LC Issuer pursuant to Section 2.9(c) shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under all circumstances whatsoever, including the following:

 

(i)            any
lack of validity or enforceability of, or any amendment or waiver of or any
consent to departure from, any Letter of Credit or any related document;

 

(ii)           the
existence of any claim, set-off, defense or other right which Borrower may have
at any time against the beneficiary of any Letter of Credit, LC Issuer
(including any claim for improper payment), Administrative Agent, any Lender or
any other Person, whether in connection with any Financing Document or any
unrelated transaction, provided that nothing herein shall prevent the assertion
of any such claim by separate suit or compulsory counterclaim;

 

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

 

(iv)          any
affiliation between LC Issuer and Administrative Agent; or

 

(v)           to
the extent permitted under applicable Law, any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing;

 

provided that the
foregoing shall not be construed to excuse the LC Issuer from liability to
Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by Borrower to the extent
permitted by applicable law) suffered by Borrower that are caused by the LC
Issuer’s failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof.  The Parties expressly agree that, in the
absence of gross negligence or willful misconduct on the part of the LC Issuer
(as finally determined by a court of competent jurisdiction), the LC Issuer
shall be deemed to have exercised care in each such determination.  In furtherance of the foregoing and without
limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the Issuing Bank may, in its sole
discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.

 

(e)           Deposit Obligations
of Borrower.  In the event any
Letters of Credit are outstanding at the time that Borrower prepays or is
required to repay the Obligations or the Revolving Loan Commitment is
terminated, Borrower shall (i) deposit with Administrative Agent for the
benefit of all Lenders cash in an amount equal to one hundred five percent
(105%) of the aggregate outstanding Letter of Credit Liabilities to be
available to Administrative Agent,

 

31

 

for its
benefit and the benefit of issuers of Lender Letters of Credit, to reimburse
payments of drafts drawn under such Letters of Credit and pay any fees and
expenses related thereto and (ii) prepay the fee payable under Section 2.9(b)
with respect to such Letters of Credit for the full remaining terms of such
Letters of Credit.  Upon termination of
any such Letter of Credit and provided no Event of Default then exists, the
unearned portion of such prepaid fee attributable to such Letter of Credit
shall be refunded to Borrower, together with the deposit described in the
preceding clause (i) attributable to such Letter of Credit, but only to the
extent not previously applied by Administrative Agent in the manner described
herein.

 

(f)            Participations in
Support Agreements and Lender Letters of Credit.

 

(i)            Concurrently
with the issuance of each Supported Letter of Credit, Administrative Agent
shall be deemed to have sold and transferred to each Lender, and each such
Lender shall be deemed irrevocably and immediately to have purchased and
received from Administrative Agent, without recourse or warranty, an undivided
interest and participation in, to the extent of such Lender’s Pro Rata Share,
Administrative Agent’s Support Agreement liabilities and obligations in respect
of such Letters of Credit and Borrower’s Reimbursement Obligations with respect
thereto.

 

(ii)           Concurrently
with the issuance of each Lender Letter of Credit, the LC Issuer in respect
thereof shall be deemed to have sold and transferred to each Lender, and each
such Lender shall be deemed irrevocably and immediately to have purchased and
received from such LC Issuer, without recourse or warranty, an undivided
interest and participation in, to the extent of such Lender’s Pro Rata Share,
such Lender Letter of Credit and Borrower’s Reimbursement Obligations with
respect thereto.  Any purchase obligation
arising pursuant to the immediately two preceding sentences shall be absolute
and unconditional and shall not be affected by any circumstances whatsoever.

 

(iii)          If either (A) Administrative Agent makes any
payment or disbursement under any Support Agreement and/or (B) an LC Issuer
makes any payment or disbursement under any Lender Letter of Credit, and
Borrower has not reimbursed Administrative Agent or, as applicable, the
applicable LC Issuer with respect to any Lender Letter of Credit in full for
such payment or disbursement in accordance with Section 2.9(c), or (C) any
reimbursement received by Administrative Agent or any LC Issuer from any Credit
Party is or must be returned or rescinded upon or during any bankruptcy or
reorganization of any Credit Party or otherwise, each Lender shall be
irrevocably and unconditionally obligated to pay to Administrative Agent, or
the applicable LC Issuer, as applicable, its Pro Rata Share of such payment or
disbursement (but no such payment shall diminish the Obligations of Borrower
under Section 2.9(c)).  To the extent any
such Lender shall not have made such amount available to Administrative Agent,
or the applicable LC Issuer, as applicable, by noon (Chicago time) on the
Business Day on which such Lender receives notice from Administrative Agent, or
the applicable LC Issuer, as applicable, of such payment or disbursement, such
Lender agrees to pay interest on such amount to Administrative Agent, or the
applicable LC Issuer, as applicable, forthwith on demand accruing daily at the
Federal Funds Rate, for the first three (3) days following such Lender’s
receipt of such notice, and thereafter at the Base Rate plus the Base Rate
Margin in respect of Revolving Loans. 
Any such Lender’s failure to make available to Administrative Agent or
the applicable LC Issuer, as applicable, its Pro Rata Share of any such payment
or disbursement

 

32

 

shall not relieve any other Lender of its obligation
hereunder to make available such other Lender’s Pro Rata Share of such payment,
but no Lender shall be responsible for the failure of any other Lender to make
available such other Lender’s Pro Rata Share of any such payment or
disbursement.

 

Section 2.10         General Provisions
Regarding Payment.

 

All payments to be made by Borrower under any
Financing Document, including payments of principal and interest made hereunder
and pursuant to any other Financing Document, and all fees, expenses,
indemnities and reimbursements, shall be made without set off or
counterclaim.  If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension (it being understood and agreed that, solely for purposes
of calculating financial covenants and computations contained herein and
determining compliance therewith, if payment is made, in full, on any such
extended due date, such payment shall be deemed to have been paid on the
original due date without giving effect to any extension thereto).  Any payments received in the Payment Account
before noon (Chicago time) on any date shall be deemed received by Administrative
Agent on such date, and any payments received in the Payment Account after noon
(Chicago time) on any date shall be deemed received by Administrative Agent on
the next succeeding Business Day.

 

Section 2.11         Loan Account.

 

Administrative Agent shall maintain a loan account
(the “Loan Account”) on its books to record
Loans and other extensions of credit made by Lenders hereunder or under any
other Financing Document, and all payments thereon made by Borrower.  All entries in the Loan Account shall be made
in accordance with Administrative Agent’s customary accounting practices as in
effect from time to time.  The balance in
the Loan Account, as recorded on Administrative Agent’s most recent printout or
other written statement delivered to Borrower, shall be conclusive and binding
evidence of the amounts due and owing to Administrative Agent by Borrower
absent clear and convincing evidence to the contrary; provided that any failure
to so record or any error in so recording shall not limit or otherwise affect Borrower’s
duty to pay all amounts owing hereunder or under any other Financing
Document.  Unless Borrower notifies
Administrative Agent of any objection to any such printout or statement
(specifically describing the basis for such objection) within thirty (30) days
after the date of receipt thereof, it shall be deemed final, binding and
conclusive upon Borrower in all respects as to all matters reflected therein.

 

Section 2.12         Maximum Interest.

 

(a)           Applicable Limit.  In no event shall the interest charged with
respect to the Notes (if any) or any other obligations of Borrower under any
Financing Document exceed the maximum amount permitted under the laws of the
State of New York or of any other applicable jurisdiction.

 

33

 

(b)           Maximum Lawful Rate.  Notwithstanding anything to the contrary
herein or elsewhere, if at any time the rate of interest payable hereunder or
under any Note or other Financing Document (the “Stated Rate”) would exceed the highest rate of interest
permitted under any applicable Law to be charged (the “Maximum Lawful Rate”), then for so long as
the Maximum Lawful Rate would be so exceeded, the rate of interest payable
shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter
the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the
extent permitted by Law, continue to pay interest at the Maximum Lawful Rate
until such time as the total interest received is equal to the total interest
which would have been received had the Stated Rate been (but for the operation
of this provision) the interest rate payable. 
Thereafter, the interest rate payable shall be the Stated Rate unless
and until the Stated Rate again would exceed the Maximum Lawful Rate, in which
event this provision shall again apply.

 

(c)           Application of
Excess Interest.  In no event shall
the total interest received by any Lender exceed the amount which it could
lawfully have received had the interest been calculated for the full term hereof
at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender
has received interest hereunder in excess of the Maximum Lawful Rate, such
excess amount shall be applied to the reduction of the principal balance of the
Loans or to other amounts (other than interest) payable hereunder, and if no
such principal or other amounts are then outstanding, such excess or part
thereof remaining shall be paid to Borrower. 
In computing interest payable with reference to the Maximum Lawful Rate
applicable to any Lender, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made.

 

Section 2.13         Taxes.

 

(a)           Gross Up for Taxes.  All payments of principal and interest on the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future income, excise, stamp,
documentary, property or franchise taxes and other taxes, fees, duties, levies,
assessments, withholdings or other charges of any nature whatsoever (including
interest and penalties thereon) imposed by any taxing authority, excluding
taxes imposed on or measured by Administrative Agent’s or any Lender’s net
income by the jurisdiction under which Administrative Agent or such Lender is
organized or conducts business (other than solely as the result of entering
into any of the Financing Documents or taking any action thereunder) (all
non-excluded items being called “Taxes”).  If any withholding or deduction from any
payment to be made by Borrower hereunder is required in respect of any Taxes
pursuant to any applicable Law, then Borrower will (i) pay directly to the
relevant authority the full amount required to be so withheld or deducted, (ii)
promptly forward to Administrative Agent an official receipt or other
documentation reasonably satisfactory to Administrative Agent evidencing such
payment to such authority, and (iii) pay to Administrative Agent for the
account of Administrative Agent and Lenders such additional amount or amounts
as is necessary to ensure that the net amount actually received by
Administrative Agent and each Lender will equal the full amount Administrative
Agent and such Lender would have received had no such withholding or deduction
been required.  If any Taxes are directly
asserted against Administrative Agent or any Lender with respect to any payment
received by Administrative Agent or such Lender hereunder, Administrative Agent
or such Lender may pay such Taxes and Borrower will promptly pay such
additional amounts (including any penalty, interest or expense)

 

34

 

as is
necessary in order that the net amount received by such Person after the
payment of such Taxes (including any Taxes on such additional amount) shall
equal the amount such Person would have received had such Taxes not been
asserted so long as such amounts have accrued on or after the day which is two
hundred seventy (270) days prior to the date on which Administrative Agent or
such Lender first made demand therefor.

 

(b)           Interest and
Penalties.  If Borrower fails to pay
any Taxes when due to the appropriate taxing authority or fails to remit to
Administrative Agent, for the account of Administrative Agent and the respective
Lenders, the required receipts or other required documentary evidence, Borrower
shall indemnify Administrative Agent and Lenders for any incremental Taxes,
interest or penalties that may become payable by Administrative Agent or any
Lender as a result of any such failure.

 

(c)           Foreign Lenders.  Each Lender that is organized under the laws
of a jurisdiction other than the United States and is a party hereto on the
Closing Date or purports to become an assignee of an interest pursuant to
Section 11.6(a) after the Closing Date (unless such Lender was already a Lender
hereunder immediately prior to such assignment) (each such Lender a “Foreign Lender”) shall execute and deliver
to each of Borrower and Administrative Agent one or more (as Borrower or Administrative
Agent may reasonably request) United States Internal Revenue Service Forms W
8ECI, W 8BEN, W-8IMY (as applicable) and other applicable forms, certificates
or documents prescribed by the United States Internal Revenue Service or
reasonably requested by Administrative Agent certifying as to such Lender’s
entitlement to a complete exemption from or reduction of withholding or
deduction of Taxes.  Borrower shall not
be required to pay additional amounts to any Lender pursuant to this Section
2.13 with respect to United States withholding and income Taxes to the extent
that the obligation to pay such additional amounts would not have arisen but
for the failure of such Lender to comply with this paragraph other than as a
result of a change in Law.

 

(d)           Refunds.  If Administrative Agent or a Lender
determines, in its sole discretion, that it has received a refund of any Taxes
as to which it has been indemnified by Borrower or with respect to which
Borrower has paid additional amounts pursuant to this Section 2.13, it shall
pay over such refund to Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by Borrower under this Section 2.13 with
respect to the Taxes giving rise to such refund), net of all out-of-pocket
expenses of Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided, that Borrower, upon the request of Administrative Agent
or such Lender, agrees to repay the amount paid over to Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental
Authority) to Administrative Agent or such Lender in the event Administrative
Agent or such Lender is required to repay such refund to such Governmental
Authority.  This Section shall not be
construed to require Administrative Agent or any Lender to make available its
tax returns (or any other information relating to its taxes which it deems
confidential) to Borrower or any other Person.

 

Section 2.14         Capital Adequacy.

 

If any Lender shall reasonably determine that the
adoption or taking effect of, or any change in, any applicable Law regarding
capital adequacy, in each instance, after the Closing

 

35

 

Date, or any change after
the Closing Date in the interpretation, administration or application thereof
by any Governmental Authority, central bank or comparable agency charged with
the interpretation, administration or application thereof, or the compliance by
any Lender or any Person controlling such Lender with any request, guideline or
directive regarding capital adequacy (whether or not having the force of Law)
of any such Governmental Authority, central bank or comparable agency adopted
or otherwise taking effect after the Closing Date, has or would have the effect
of reducing the rate of return on such Lender’s or such controlling Person’s
capital as a consequence of such Lender’s obligations hereunder or under any
Support Agreement or Lender Letter of Credit to a level below that which such
Lender or such controlling Person could have achieved but for such adoption,
taking effect, change, interpretation, administration, application or
compliance (taking into consideration such Lender’s or such controlling Person’s
policies with respect to capital adequacy) then from time to time, within 15
days after demand by such Lender (which demand shall be accompanied by a
statement setting forth the basis for such demand and a calculation of the
amount thereof in reasonable detail, a copy of which shall be furnished to
Administrative Agent), Borrower shall promptly pay to such Lender such
additional amount as will compensate such Lender or such controlling Person for
such reduction, so long as such amounts have accrued on or after the day which
is 180 days prior to the date on which such Lender first made demand therefor.

 

Section 2.15         Mitigation Obligations.

 

If any Lender requests compensation under either
Section 2.7(e)(v) or Section 2.14, or requires Borrower to pay any additional
amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to Section 2.13, then, upon the written request of Borrower,
such Lender shall use reasonable efforts to designate a different lending office
for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder (subject to the provisions of Section 11.6) to another of
its offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or materially reduce amounts
payable pursuant to any such Section, as the case may be, in the future, (ii)
would not subject such Lender to any unreimbursed cost or expense and (iii)
would not otherwise be disadvantageous to such Lender (as determined in its
sole discretion).  Without limitation of
the provisions of Section 9.1, Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any such designation
or assignment.

 

Section 2.16         Borrowing Base.

 

(a)           Initial Borrowing
Base.  The Borrowing Base shall be
$110,000,000 during the period from the Closing Date until the first
Determination Date under Section 2.16(b) unless the Borrowing Base is otherwise
subject to a Special Determination under Section 2.16(c).

 

(b)           Scheduled
Determinations of Borrowing Base. 
Prior to March 1 and September 1 of each year, beginning March 1, 2008,
Borrower shall furnish to Administrative Agent all information, reports and
data requested by Administrative Agent concerning Credit Parties’ businesses
and properties (including their Oil and Gas Properties and the reserves and
production relating thereto), together with, as applicable, the most recent
Reserve Report delivered pursuant to Section 4.1(i) or (j).  Within 30 days, or as soon thereafter as is
reasonably practical, the Borrowing Base shall be redetermined as provided
herein.  Promptly after receiving such 

 

36

 

information,
reports and data, Administrative Agent shall determine and deliver to each
Lender the proposed Borrowing Base for the next Borrowing Base Period.  Promptly after Lenders receipt thereof each
Lender shall notify Administrative Agent whether or not it agrees with such
proposed Borrowing Base. If Required Lenders have not approved the proposed
Borrowing Base, Administrative Agent shall poll Lenders to ascertain the
highest Borrowing Base acceptable to Required Lenders which amount shall then
become the Borrowing Base. 
Administrative Agent shall by notice to Borrower designate such amount
as the new Borrowing Base available to Borrower hereunder, which designation
shall take effect on the date such notice is sent (herein called a “Determination Date”) and shall remain in
effect until the next Determination Date. 
The Borrowing Base shall be determined based upon the loan collateral
value which Administrative Agent and Required Lenders in their discretion
assign to the discounted net present value of the various Oil and Gas
Properties included in the Collateral at the time of determination and based
upon such other credit factors (including without limitation the assets,
liabilities, cash flow, hedged and unhedged exposure to price, foreign exchange
rate, and interest rate changes, business, properties, prospects, management
and ownership of Credit Parties and their Affiliates) as they in their
reasonable discretion deem appropriate.  IT IS EXPRESSLY UNDERSTOOD THAT LENDERS AND
ADMINISTRATIVE AGENT HAVE NO OBLIGATION TO AGREE UPON OR DESIGNATE THE
BORROWING BASE AT ANY PARTICULAR AMOUNT, WHETHER IN RELATION TO THE REVOLVING
LOAN COMMITMENT OR OTHERWISE, AND THAT LENDERS’ COMMITMENTS TO ADVANCE FUNDS
HEREUNDER IS DETERMINED BY REFERENCE TO THE BORROWING BASE FROM TIME TO TIME IN
EFFECT, WHICH BORROWING BASE SHALL BE USED FOR CALCULATING FEES UNDER SECTION
2.7 AND, TO THE EXTENT PERMITTED BY LAW AND REGULATORY AUTHORITIES, FOR THE
PURPOSES OF CAPITAL ADEQUACY DETERMINATION AND REIMBURSEMENTS UNDER SECTION
2.14.  If Borrower does not
furnish all such information, reports and data by the date specified in the
first sentence of this Section 2.16(b), Administrative Agent and Required
Lenders may nonetheless determine the Borrowing Base as provided above in this
Section 2.16(b) without such information, but based upon such information or
assumptions as they may elect (and may determine the Borrowing Base from time
to time thereafter based upon such information and assumptions) until Borrower
so furnishes all such information, reports and data, whereupon Administrative
Agent and Required Lenders shall determine the Borrowing Base using the
procedure outlined above utilizing such information, reports and data furnished
by Borrower.

 

(c)           Special
Determinations of Borrowing Base.  In
addition to the determinations of the Borrowing Base pursuant to Sections 2.16
(b), Borrower and Administrative Agent or Administrative Agent at the request
of Required Lenders) may each request additional determinations (“Special Determination”) of the Borrowing
Base from time to time; provided, that Borrower may request no more than one
(1) Special Determination in any calendar year and Administrative Agent (or
Administrative Agent at the request of Required Lenders) may request no more
than one (1) Special Determination in any calendar year.  In the event Administrative Agent (or
Administrative Agent at the request of Required Lenders) requests a Special
Determination, Administrative Agent shall promptly deliver notice of such
request to Borrower and Borrower shall, within twenty (20) calendar days
following the date of such request, deliver to Lenders a Reserve Report
prepared by petroleum engineers who are employees of Borrower as of the last
day of the calendar month preceding the date of such request and such other

 

37

 

information
which Administrative Agent shall have reasonably requested.  In the event Borrower requests a Special
Determination, Borrower shall deliver written notice of such request to
Administrative Agent which shall include (i) a Reserve Report prepared as of a
date not more than thirty (30) days prior to the date of such request (or, in
the case of a request made on the 31st day of any calendar month, thirty-one
(31) days), (ii) the amount of the Borrowing Base requested by Borrower and to
become effective on the Determination Date applicable to such Special
Determination and (iii) such other information which Administrative Agent shall
have reasonably requested.  Upon receipt
of such Reserve Report and other information, Administrative Agent and Required
Lenders shall determine the Borrowing Base in accordance with the procedure set
forth in Section 2.16(b), which Borrowing Base shall become effective on the
Determination Date.

 

(d)           Disposition of Oil
and Gas Property.  If any Credit
Party intends to sell or otherwise dispose of any Oil and Gas Property or any
interest therein that was included in the determination of the Borrowing Base
then in effect (other than a disposition of the type identified as item (vii) or
(viii) of the definition of Asset Disposition), Borrower shall give
Administrative Agent prompt notice thereof. 
In the event that the Borrowing Base value of all Oil and Gas Properties
or interest therein (as determined by Administrative Agent), subject to an
Asset Disposition since the beginning of the then current Borrowing Base Period
exceeds five percent (5%) of the Borrowing Base in effect at the beginning of
the then current Borrowing Base Period, then within one (1) Business Day of the
consummation of such sale or disposition, (i)
 the Borrowing Base shall be
reduced by the Borrowing Base value (as determined by Administrative Agent) of
such Oil and Gas Properties, and (ii) during the Overadvance Period, the
Overadvance Amount shall be reduced by the amount by which the Net Cash
Proceeds of such sale or dispositions of Oil and Gas Properties exceeds the
reduction in the Borrowing Base pursuant to the preceding clause (i).

 

(e)           Overadvance Period.  During the Overadvance Period, at the time of
each determination of the Borrowing Base under Section 2.16 (b) or (c),
Administrative Agent and Required Lenders shall determine the Overadvance
Amount in their discretion.  The
redetermined Overadvance Amount shall be effective on same date as the
redetermined Borrowing Base shall become effective.

 

(f)            Permitted
Securities.  In addition to each of
the determinations of the Borrowing Base set forth in this Agreement, to the
extent from time to time any Permitted Securities are outstanding, the
Borrowing Base otherwise determined pursuant to the terms of this Section 2.16
shall be reduced by twenty five percent (25%) of the amount (whether of
principal amount, face amount or liquidation preference amount) of such
Permitted Securities.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

To induce Administrative Agent and Lenders to enter
into this Agreement and to make the Loans and other credit accommodations
contemplated hereby, Borrower hereby represents and warrants to Administrative
Agent and each Lender that:

 

38

 

Section 3.1            Existence and Power.

 

Each Credit Party is an entity as specified on
Schedule 3.1 (or, as to those Persons becoming a Credit Party after the Closing
Date, as notified to Administrative Agent), is duly organized, validly existing
and in good standing under the laws of the jurisdiction specified on Schedule
3.1 (or, as to those Persons becoming a Credit Party after the Closing Date, as
notified to Administrative Agent), has the same legal name as it appears in
such Credit Party’s Organizational Documents and an organizational
identification number (if any), in each case as specified on Schedule 3.1 (or,
as to those Persons becoming a Credit Party after the Closing Date, as notified
to Administrative Agent), and has all powers and all governmental licenses,
authorizations, registrations, permits, consents and approvals required under
all applicable Laws and required in order to carry on its business as now
conducted (collectively, “Permits”),
except where the failure to have such Permits could not reasonably be expected
to have a Material Adverse Effect. Each Credit Party is qualified to do
business as a foreign entity in each jurisdiction in which it is required to be
so qualified, which jurisdictions as of the Closing Date are specified on
Schedule 3.1, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect. Except as set forth on Schedule
3.1 (or, as to those Persons becoming a Credit Party after the Closing Date, as
notified to Administrative Agent), no Credit Party has had, over the five (5)
year period preceding the Closing Date, any name other than its current name or
was incorporated or organized under the laws of any jurisdiction other than its
current jurisdiction of incorporation or organization.

 

Section 3.2            Organization and
Governmental Authorization; No Contravention.

 

The execution, delivery and performance by each Credit
Party of the Financing Documents to which it is a party are within its powers,
have been duly authorized by all necessary action pursuant to its
Organizational Documents, require no further action by or in respect of, or
filing with, any Governmental Authority (except the filing of the Mortgages and
financing statements) and do not violate, conflict with or cause a breach or a
default under (i) any Law or any of the Organizational Documents of any Credit
Party or (ii) any agreement or instrument binding upon it, except for such
violations, conflicts, breaches or defaults as could not, with respect to this
clause (ii) reasonably be expected to have a Material Adverse Effect.

 

Section 3.3            Binding Effect.

 

Each of the Financing Documents to which any Credit
Party is a party constitutes a valid and binding agreement or instrument of
such Credit Party, enforceable against such Credit Party in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws relating to the enforcement of
creditors’ rights generally and by general equitable principles.

 

Section 3.4            Capitalization.

 

The authorized Capital Stock of each of the Credit
Parties as of the Closing Date is as set forth on Schedule 3.4. All issued and
outstanding Capital Stock of each of the Credit Parties are duly authorized and
validly issued, fully paid, non-assessable, free and clear of all Liens other
than those in favor of Administrative Agent for the benefit of Administrative
Agent and Lenders, 

 

39

 

and such Capital Stock
were issued in compliance with all applicable Laws. The identity of the holders
of the Capital Stock of each of the Credit Parties (other than Borrower) and
the percentage of their fully diluted ownership of the Capital Stock of each of
the Credit Parties (other than Borrower) as of the Closing Date is set forth on
Schedule 3.4. No shares of the Capital Stock of any Credit Party (other than
Borrower), other than those described above, are issued and outstanding as of
the Closing Date. Except as set forth on Schedule 3.4, as of the Closing Date
there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition from any Credit Party of any Capital Stock of any such entity.

 

Section 3.5            Financial Information.

 

(a)           Audited Statements.
The consolidated balance sheet of Borrower and its Consolidated Subsidiaries as
of December 31, 2006, and the related consolidated statements of operations,
stockholders’ equity (or comparable calculation, if such Person is not a
corporation) and cash flows for the fiscal year then ended, reported on by
Grant Thornton LLP, copies of which have been delivered to Administrative
Agent, fairly present in all material respects, in conformity with GAAP, the
consolidated financial position of Borrower and its Consolidated Subsidiaries
as of such date and their consolidated results of operations, changes in
stockholders’ equity (or comparable calculation) and cash flows for such
period.

 

(b)           Unaudited Statements.
The unaudited consolidated balance sheet of Borrower and its Consolidated
Subsidiaries as of September 30, 2007 and the related unaudited
consolidated statements of operations and cash flows for the nine (9) months
then ended, copies of which have been delivered to Administrative Agent, fairly
present in all material respects, in conformity with GAAP applied on a basis
consistent with the financial statements referred to in Section 3.5(a), the
consolidated financial position of Borrower and its Consolidated Subsidiaries
as of such date and their consolidated results of operations and cash flows for
the nine (9) months then ended (subject to normal year end adjustments and the
absence of footnote disclosures).

 

(c)           No Material Adverse
Change. As of the date hereof, since September 30, 2007, there has
been no material adverse change in the business, assets, operations or
condition, financial or otherwise, of Borrower and its Restricted Subsidiaries,
taken as a whole. As of the date of delivery of each financial statement
required by Section 4.1(b) (the “Current
Financial Statement”), since the delivery of the financial
statements immediately preceding the Current Financial Statement, there has
been no material adverse change in the business, assets, operations or condition,
financial or otherwise, of Borrower and its Restricted Subsidiaries, taken as a
whole.

 

Section 3.6            Litigation.

 

Except as set forth on Schedule 3.6, there is no
Litigation pending or to the knowledge of Borrower threatened against or
affecting Borrower or any of it Subsidiaries (i) as to which there is a
reasonable possibility of an adverse decision and that, if adversely decided,
could reasonably be expected to have a Material Adverse Effect or (ii) which in
any manner draws into question the validity of any of the Financing Documents.

 

40

 

Section 3.7            Ownership of Property.

 

Each Credit Party is the lawful owner of, has
Defensible Title to and is in lawful possession of, or has valid leasehold interests
in, all material properties and other assets (real or personal, tangible,
intangible or mixed) purported or reported to be owned or leased (as the case
may be) by such Person, except as may have been disposed of in the Ordinary
Course of Business or otherwise in compliance with the terms hereof.

 

Section 3.8            No Default.

 

No Default or Event of Default has occurred and is
continuing. No Credit Party is in breach or default under or with respect to
any contract, agreement, lease or other instrument to which it is a party or by
which its property is bound or affected, which breach or default could
reasonably be expected to have a Material Adverse Effect.

 

Section 3.9            Labor Matters.

 

As of the Closing Date, there are no strikes or other
labor disputes pending or, to Borrower’s knowledge, threatened against any
Credit Party. Hours worked and payments made to the employees of the Credit
Parties have not been in violation of the Fair Labor Standards Act or any other
applicable Law dealing with such matters. All payments due from the Credit
Parties, or for which any claim may be made against any of them, on account of
wages and employee and retiree health and welfare insurance and other benefits
have been paid or accrued as a liability on their books, as the case may be. The
consummation of the transactions contemplated by the Financing Documents and
the other Financing Documents will not give rise to a right of termination or
right of renegotiation on the part of any union under any collective bargaining
agreement to which it is a party or by which it is bound.

 

Section 3.10         Regulated Entities.

 

No Credit Party is an “investment company” or a
company “controlled” by an “investment company” or a “subsidiary” of an “investment
company,” all within the meaning of the
Investment Company Act of 1940.

 

Section 3.11         Margin Regulations.

 

None of the proceeds from the Loans have been or will
be used, directly or indirectly, for the purpose of purchasing or carrying any
Margin Stock, for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry any Margin Stock or for any other
purpose which might cause any of the Loans to be considered a “purpose credit”
within the meaning of Regulation T, U or X of the Federal Reserve Board.

 

Section 3.12         Compliance With Laws;
Anti-Terrorism Laws.

 

(a)           Laws Generally. Each
Credit Party is in compliance with the requirements of all applicable Laws,
except for such Laws the noncompliance with which could not reasonably be
expected to have a Material Adverse Effect.

 

41

 

(b)           Anti-Terrorism Laws.
None of the Credit Parties and, to the knowledge of the Credit Parties, none of
their Affiliates (i) is in violation of any Anti-Terrorism Law, (ii) engages in
or conspires to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in any Anti-Terrorism Law, (iii) is a Blocked Person, or is
controlled by a Blocked Person, (iv) is acting or will act for or on behalf of
a Blocked Person, (v) is associated with, or will become associated with, a
Blocked Person or (vi) is providing, or will provide, material, financial or
technical support or other services to or in support of acts of terrorism of a
Blocked Person. No Credit Party nor, to the knowledge of any Credit Party, any
of its Affiliates or agents acting or benefiting in any capacity in connection
with the transactions contemplated by this Agreement, (A) conducts any business
or engages in making or receiving any contribution of funds, goods or services
to or for the benefit of any Blocked Person, or (B) deals in, or otherwise
engages in any transaction relating to, any property or interest in property
blocked pursuant to Executive Order No. 13224, any similar executive order or
other Anti-Terrorism Law.

 

Section 3.13         Taxes.

 

Except subject to a Permitted Contest or where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect:  (i) all Federal, state and local
tax returns, reports and statements required to be filed by or on behalf of
each Credit Party have been filed with the appropriate Governmental Authorities
in all jurisdictions in which such returns, reports and statements are required
to be filed and, all Taxes (including real property Taxes) and other charges
shown to be due and payable in respect thereof have been timely paid prior to
the date on which any fine, penalty, interest, late charge or loss may be added
thereto for nonpayment thereof; (ii) all state and local sales and use Taxes
required to be paid by each Credit Party have been paid; and (iii) all Federal
and state returns have been filed by each Credit Party for all periods for
which returns were due with respect to employee income tax withholding, social
security and unemployment taxes, and the amounts shown thereon to be due and
payable have been paid in full or adequate provisions therefor have been made.

 

Section 3.14         Compliance with ERISA.

 

No ERISA Event has occurred or is reasonably expected
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the
date of the most recent financial statements reflecting such amounts, exceed by
more than $100,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $100,000 the
fair market value of the assets of all such underfunded Plans.

 

42

 

Section 3.15         Brokers.

 

Except as set forth on Schedule 3.15, and except for
fees payable to Administrative Agent and/or Lenders, no broker, finder or other
intermediary has brought about the obtaining, making or closing of the
transactions contemplated by the Financing Documents, and no Credit Party has
or will have any obligation to any Person in respect of any finder’s or
brokerage fees in connection herewith or therewith.

 

Section 3.16         [Reserved].

 

Section 3.17         [Reserved].

 

Section 3.18         Environmental Compliance.

 

Except as set forth in Schedule 3.18, and except
with respect to any other matters that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect, neither
Borrower nor any of its Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become
subject to any Environmental Liability, (iii) has received notice of any
claim with respect to any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.

 

Section 3.19         Intellectual Property.

 

Each Credit Party owns, is licensed to use or
otherwise has the right to use, all Intellectual Property that is material to
the condition (financial or other), business or operations of such Credit Party.
To Borrower’s knowledge, each Credit Party conducts its business without
infringement or claim of infringement of any Intellectual Property rights of
others and there is no infringement or claim of infringement by others of any
Intellectual Property rights of any Credit Party, which infringement or claim
of infringement could reasonably be expected to have a Material Adverse Effect.

 

Section 3.20         [Reserved].

 

Section 3.21         Solvency.

 

Borrower and each additional Credit Party is Solvent.

 

Section 3.22         Full Disclosure.

 

None of the written information (financial or
otherwise) furnished by or on behalf of any Credit Party to Administrative
Agent or any Lender in connection with the consummation of the transactions contemplated
by the Financing Documents (excluding projections, estimates, and engineering
reports), contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading on the date such information is dated or certified in light of the
circumstances under which such statements were made. To the best knowledge of
Borrower, the engineering reports delivered to Administrative Agent and/or the
Lenders in connection with this Agreement do not contain any material 

 

43

 

inaccuracies and/or
omissions. The said engineering reports, however, are based upon professional
opinions, estimates and projections and Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been accurate.
All other financial projections delivered to Administrative Agent and Lenders
have been prepared on the basis of the assumptions stated therein. Such
projections represent as of such time Borrower’s best estimate of Borrower’s
future financial performance and such assumptions were as of such time believed
by Borrower to be fair and reasonable in light of then current business
conditions; provided that Borrower can give no assurance that such projections
will be attained.

 

Section 3.23         Reserve Reports,
Imbalances, Marketing and Borrowing Base Matters.

 

(a)           Except as set forth on
Schedule 3.23, Borrower and each Guarantor has Defensible Title to each
Mortgaged Property having a book cost in excess of $200,000 (except to the
extent that (1) such assets have thereafter been disposed of in compliance with
this Agreement or (2) leases for such property have expired pursuant to their
terms), in each case free and clear of all Liens, except (i) Permitted Liens,
(ii) obligations or duties to any municipality or public authority with respect
to any franchise, grant, license or permit and all applicable laws, rules,
regulations and orders of any Governmental Authority, (iii) all lessors’
royalties, overriding royalties, net profits interests, production payments,
carried interests, reversionary interests and other burdens on or deductions
from the proceeds of production, (iv) the terms and conditions of joint
operating agreements and other oil and gas contracts, (v) all rights to consent
by required notices to, and filing with or other actions by governmental or
tribal entities, if any, in connection with the change of ownership or control
of an interest in federal, state, tribal or other domestic governmental oil and
gas leases, if the same are customarily obtained in connection with such change
of ownership or control, but only insofar as such consents, notices, filings
and other actions relate to the transactions permitted by this Agreement, (vi)
any preferential purchase rights, (vii) required third party consents to
assignment, (viii) conventional rights of reassignment prior to abandonment and
(ix) the terms and provisions of oil and gas leases, unit agreements, pooling
agreements, and other documents creating interests comprising the Oil and Gas
Properties, Hydrocarbons and Hydrocarbon Interests; provided, however, the
exceptions described in clauses (i) through (viii) inclusive above are
qualified to include only those exceptions in each case which do not operate to
(A) reduce the net revenue interest of Borrower or any Guarantor below that set
forth in the Reserve Report, (B) increase the proportionate share of costs and
expenses of leasehold operations attributable to or to be borne by the working
interest of Borrower or any Guarantor above that set forth in the Reserve
Report without a proportionate increase in the net revenue interest of Borrower
or such Guarantor or (C) increase the working interest of Borrower or any Guarantor
above that set forth in the Reserve Report without a proportionate increase in
the net revenue interest of Borrower or such Guarantor, and. provided further
that the foregoing defects, limitations, liens and encumbrances, whether
individually material or not, do not in the aggregate create a Material Adverse
Effect (the categories of exceptions in clauses (i) through (viii), as so
qualified and as any such exceptions may exist from time to time, being
referred to as the “Designated Title
Exceptions”).

 

(b)           After giving full
effect to the Permitted Liens, except as set forth on Schedule 5.2, the Credit
Parties own the net interests in production attributable to the wells and units
evaluated in the Initial Reserve Report or the most recent Reserve Report
furnished to the Lenders pursuant to Section 4.1 (i) and (j) or except to the
extent that (i) such assets have thereafter been disposed 

 

44

 

of
incompliance with this Agreement or (ii) leases for such property have expired
pursuant to their terms. Except as provided in paragraph (a) above, the
ownership of such Oil and Gas Properties shall not in any material respect
obligate the Credit Parties to bear the costs and expenses relating to the
maintenance, development and operations of each such Oil and Gas Property in
any amount in excess of the working interest of each Oil and Gas Property set
forth in the Initial Reserve Report or the most recent Reserve Report furnished
to the Lenders pursuant to Section 4.1 (i) and (j). The Credit Parties have
paid all royalties payable under the oil and gas leases to which they are
operator, except those not yet due or contested in accordance with the terms of
the applicable joint operating agreement or otherwise contested in good faith
by appropriate proceedings or where failure to so pay could not reasonably be
expected to have a Material Adverse Effect. Upon the delivery of each Reserve
Report furnished to the Lenders pursuant to Section 4.1 (i) and (j), the
statements made in the preceding sentences of this section shall, as of the
date of such Reserve Report, be true in all material respects with respect to
such Reserve Reports.

 

Section 3.24         Maintenance and
Development of Properties.

 

Except as set forth on Schedule 3.24, as of the
effective date of each Reserve Report with respect to the Oil and Gas
Properties reflected in such Reserve Report:, the Oil and Gas Properties (and
all properties unitized therewith) are being maintained, operated and developed
in a good and workmanlike manner, in accordance with prudent industry standards
and in conformity with (i) all applicable Laws, (ii) all oil, gas or other
mineral leases and other contracts and agreements forming a part of such Oil
and Gas Properties and (iii) with any Permitted Liens burdening such Oil and
Gas Properties, except to the extent the failure to so comply would not
reasonably be expected to have a Material Adverse Effect. Except as set forth
on Schedule 3.18, each Credit Party has all governmental licenses and permits
necessary or appropriate to own and operate the Oil and Gas Property, except
where a failure to have such licenses or permits could not reasonably be
expected to have a Material Adverse Effect, and no Credit Party has received
notice of any violations in respect of any such licenses or permits which
violation could reasonably be expected to have a Material Adverse Effect.

 

ARTICLE 4

AFFIRMATIVE COVENANTS

 

Borrower agrees that, so long as any Credit Exposure
exists:

 

Section 4.1            Financial Statements
and Other Reports.

 

Borrower will maintain and will cause each Credit
Party to maintain a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial
statements in accordance with GAAP and to provide the information required to
be delivered to Administrative Agent and Lenders hereunder, and will deliver to
Administrative Agent and each Lender all of the following deliveries:

 

(a)           Quarterly Financial
Statements. As soon as practicable and in any event within forty-five (45)
days after the end of the first three fiscal quarters, a consolidated balance
sheet of Borrower and its Consolidated Subsidiaries as of and at the end of
such quarter and the related 

 

45

 

consolidated
statements of operations and cash flows for such quarter, and for the portion
of the Fiscal Year ended at the end of such quarter setting forth in each case
in comparative form the figures for the corresponding periods of the previous
Fiscal Year and the figures for such quarter and for such portion of the Fiscal
Year ended at the end of such quarter, all in reasonable detail and certified
by a Responsible Officer as fairly presenting in all material respects the
financial condition and results of operations of Borrower and its Consolidated
Subsidiaries and as having been prepared in accordance with GAAP applied on a
basis consistent with the audited financial statements of Borrower, subject to
changes resulting from audit and normal year end adjustments and the absence of
footnote disclosures.

 

(b)           Annual Financial
Statements. As soon as available and in any event within ninety (90) days
after the end of each Fiscal Year, a consolidated balance sheet of Borrower and
its Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of operations, stockholders’ equity (or the comparable
item, if Borrower is not a corporation) and cash flows for such Fiscal Year,
setting forth in each case in comparative form the figures for the previous
Fiscal Year, without qualification (including with respect to the scope of
audit) or exception by independent public accountants of nationally recognized
standing and acceptable to Administrative Agent.

 

(c)           Compliance
Certificates. Together with each delivery of financial statements pursuant
to Sections 4.1(a) and 4.1(b), (i) a Compliance Certificate and (ii) if
Borrower is no longer subject to the public reporting requirements under the
rules of the Securities and Exchange Commission, a management report (A)
describing the operations and financial condition of Borrower and its
Consolidated Subsidiaries for the fiscal period covered by such financial
statements and the portion of the current Fiscal Year then elapsed (or for the
Fiscal Year then ended in the case of year-end financials) and (B) discussing
the reasons for any significant variations as between the fiscal period covered
and the portion of the Fiscal Year then elapsed, as between such periods and the
same periods during the immediately preceding Fiscal Year, and as between such
periods and the same periods included in the projections and forecasts
delivered pursuant to Section 4.1(h), all such information to be presented in
reasonable detail and to be certified by a Responsible Officer to the effect
that such information fairly presents, in all material respects, the results of
operations and financial condition of Borrower and its Consolidated
Subsidiaries as at the dates and for the periods indicated.

 

(d)           Regulatory Filing
Information. Promptly upon their becoming publicly available, copies of (i)
all financial statements, reports, notices and proxy statements sent or made
available generally by any Credit Party to its security holders, (ii) all regular
and periodic reports and all registration statements and prospectuses filed by
any Credit Party with any securities exchange or with the Securities and
Exchange Commission or any successor, (iii) all press releases and other
statements made available generally by any Credit Party concerning material
developments in the business of any Credit Party and (iv) all Swap Contracts
entered into by any Credit Party.

 

(e)           Notices of Material
Events. Promptly upon any Responsible Officer of any Credit Party obtaining
knowledge (i) of the existence of any Event of Default or Default, or becoming
aware that the holder of any Debt of any Credit Party in excess of $2,000,000
has given any notice or taken any other action with respect to a claimed
default thereunder, (ii) of the institution of any Litigation seeking equitable
relief or involving an alleged liability of any Credit 

 

46

 

Party equal to
or greater than $2,000,000 above insurance coverage or any adverse determination
in any Litigation involving equitable relief or a potential liability of any
Credit Party equal to or greater than $2,000,000 above insurance coverage,
(iii) of the institution of any dispute, litigation, investigation, proceeding
or suspension by any Governmental Authority in respect of any Credit Party or
any property of any Credit Party that, if adversely determined, could
reasonably be expected to have a Material Adverse Effect, (iv) any loss, damage
or destruction of any Collateral having a fair market value in excess of
$2,000,000, whether or not covered by insurance, or (v) any other development
that results in or could reasonably be expected to have a Material Adverse
Effect, a certificate of a Responsible Officer specifying the nature and period
of existence of any such condition or event, or specifying the notice given or
action taken by such holder or Person and the nature of such claimed default
(including any Event of Default or Default), event or condition, and what
action the applicable Credit Party has taken, is taking or proposes to take
with respect thereto.

 

(f)            ERISA Notices. Promptly
upon any Responsible Officer of any Credit Party obtaining knowledge of the
occurrence of any ERISA Event that, alone or together with any other ERISA Events
that have occurred, could reasonably be expected to result in liability of
Borrower and its Subsidiaries in an aggregate amount exceeding $2,000,000.

 

(g)           Environmental
Notices. Promptly upon any Responsible Officer of any Credit Party
obtaining knowledge of any written complaint, order, citation, notice or other
written communication from any Person delivered to any Credit Party with
respect to, or if any Responsible Officer of any Credit Party becomes aware of
(i) the existence or alleged existence of a violation by any Credit Party of
any applicable Environmental Law, which could reasonably be expected to have a
Material Adverse Effect, (ii) any release by any Credit Party of any Hazardous
Materials into the environment which could reasonably be expected to have a
Material Adverse Effect, (iii) the commencement by any Credit Party of any
cleanup of any Hazardous Materials, which could reasonably be expected to
result in costs to a Credit Party in excess of $2,000,000 above insurance
coverage, (iv) any pending legislative or threatened governmental proceeding
for the termination, suspension or non-renewal of any Permit of any Credit
Party required under any applicable Environmental Law, which termination,
suspension or non-renewal could reasonably be expected to have a Material
Adverse Effect, or (v) any property of any Credit Party that is or will be
subject to a Lien imposed pursuant to any Environmental Law, a certificate of a
Responsible Officer specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person, and what action the applicable Credit Party has taken, is
taking or proposes to take with respect thereto

 

(h)           Budget. Within
sixty (60) days after the conclusion of each fiscal year, Borrower’s annual
operating and Capital Expenditure budgets, and financial forecasts, including
cash flow projections covering proposed fundings, repayments, additional
advances, investments and other cash receipts and disbursements, each for the
following fiscal year in a format reasonably consistent with projections,
budgets and forecasts theretofore provided to Lenders, and promptly following
the preparation thereof, material updates to any of the foregoing from time to
time prepared by management of Borrower;

 

47

 

(i)            Annual Reserve
Report. Prior to April 1 of each year, commencing the first such day after
the Closing Date, a Reserve Report effective as of December 31 of the preceding
year, prepared by independent petroleum engineers chosen by Borrower and
reasonably acceptable to Administrative Agent, concerning all Oil and Gas
Properties owned by any Credit Party which are located in the United States and
which have attributable to them Proved Reserves. The report shall (i) be in
form reasonably satisfactory to Administrative Agent, (ii) take into account
any “over-produced” status under gas balancing arrangements, (iii) contain
information and analysis sufficient to enable Borrower to meet the reporting
requirements concerning oil and gas reserves contained in Regulations S-K and
SX promulgated by the Securities and Exchange Commission and (iv) distinguish
(or be delivered together with a certificate from an appropriate officer of Borrower
which distinguishes) those Oil and Gas Properties treated in the report that
are Collateral from those Oil and Gas Properties in the report that are not,
which report shall be accompanied by a report detailing the Swap Contracts of
the Credit Parties relating to commodity prices that are then currently in
effect;

 

(j)            Interim Reserve
Report. (i) Prior to October 1 of each year, commencing the first such day
after the Closing Date, a Reserve Report effective as of the preceding June 30,
and (ii) at the time specified in Section 2.16(c) in connection with any
Special Determination, a Reserve Report effective at the time specified in
Section 2.16(c), in each case by petroleum engineers who are employees of
Borrower (or, at Borrower’s option, by an independent engineers as specified
above), in the same form and scope as the report in Section 4.1(i), which
report shall be accompanied by updates, if any, to the most recent reports
specified in Section 4.1(i) to the extent necessary for such reports to be accurate
in all material respects on the date of the applicable Reserve Report provided
pursuant to this Section 4.1(j);

 

(k)           Reserve Documents.
At the time of delivery of any report pursuant to Section 4.1(i) or (j):
(i) a report detailing by lease or unit the gross volume of production and
sales attributable to production of Hydrocarbons from the Oil and Gas
Properties described in the most recent Reserve Report for the month most
recently available and for each prior month since the last report delivered pursuant
to this subsection and describing the related severance taxes, other taxes, and
leasehold operating expenses attributable to each lease or unit and incurred
during each such month, (ii) a list of Persons purchasing any material
production of Hydrocarbons from the Oil and Gas Properties, and (iii) such
other reports, data and supplemental information necessary to cause the
representations and warranties contained in Section 3.23 and Section 3.24 to be
true and correct and such other information as may be reasonably requested by
Administrative Agent or Required Lenders in connection with a determination of
the Borrowing Base (the Reserve Report, such certificate and such reports, data
and supplemental information, the “Reserve
Documents”);

 

(l)            Credit Party
Information. With reasonable promptness, such other information and data
with respect to any Credit Party as from time to time may be reasonably
requested by Administrative Agent or any Lender.

 

Documents required to be delivered pursuant
to Section 4.1(a), Section 4.1(b) or Section 4.1(e) (to the extent any such
documents are included in materials otherwise filed with the Securities and
Exchange Commission) may be delivered electronically and if so delivered, shall
be deemed to have been delivered on the date on which Borrower posts such
documents, or provides a link 

 

48

 

thereto on Borrower’s website on the Internet
at http://www.warrenresources.com; or (ii) on which such documents are
posted on Borrower’s behalf on an Internet or intranet website reasonably
acceptable to Administrative Agent to which each Lender and Administrative
Agent have access; provided that Borrower shall notify Administrative
Agent and each Lender (by telecopier or electronic mail) of the posting of any
such documents, and Borrower shall provide to Administrative Agent by
electronic mail electronic versions (i.e., soft
copies) of such documents; notwithstanding anything contained herein, in every
instance Borrower shall be required to provide paper copies of the compliance
certificate required by Section 4.1(c) to Administrative Agent, which shall
then promptly furnish such compliance certificate to the Lenders. Except for
such compliance certificates, Administrative Agent shall have no obligation to
request the deliver or to maintain copies of the documents referred to above,
and in any event shall have no responsibility to monitor compliance by Borrower
with any such request for delivery, and each Lender shall be solely responsible
for requesting delivery to it or maintaining its copies of such documents.

 

Section 4.2            Payment and
Performance of Obligations.

 

Borrower (i) will pay and discharge, and cause each
other Credit Party to pay and discharge, at or before maturity, all of their
respective obligations and liabilities, including tax liabilities, except for
such obligations and/or liabilities (A) that may be the subject of a Permitted
Contest and (B) the nonpayment or nondischarge of which could not reasonably be
expected to have a Material Adverse Effect, (ii) will maintain, and cause each
other Credit Party to maintain, in accordance with GAAP, appropriate reserves
for the accrual of all of their respective obligations and liabilities and
(iii) will not breach or permit any other Credit Party to breach, or permit to
exist any default under, the terms of any lease, commitment, contract,
instrument or obligation to which it is a party, or by which its properties or
assets are bound, except for such breaches or defaults which could not
reasonably be expected to have a Material Adverse Effect.

 

Section 4.3            Maintenance of
Existence.

 

Borrower will, and will cause each of its Restricted
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect (a) its legal existence and (b) except where
the failure to do so could not reasonably be excepted to result in a Material
Adverse Effect, the rights, licenses, permits, privileges and franchises
material to the conduct of its business; provided that the foregoing
shall not prohibit any merger, consolidation, liquidation or dissolution
permitted under Section 5.17.

 

Section 4.4            Maintenance of
Property; Insurance.

 

(a)           Maintenance of
Property and Insurance. Borrower will, and will cause each of its
Restricted subsidiaries to, (a) keep and maintain all operating equipment
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted, and (b) maintain, with financially sound and
reputable insurance companies, insurance in such amounts and against such risks
as are customarily maintained by companies engaged in the same or similar
businesses operating in the same or similar locations. All such insurance shall
be provided by insurers having an A.M. Best policyholders rating reasonably
acceptable to Administrative Agent. Borrower will not, and will not permit any
other Credit Party to, bring or 

 

49

 

keep any
article on any business location of any Credit Party, or cause or allow any
condition to exist, if the presence of such article or the occurrence of such
condition could reasonably cause the invalidation of any insurance required by
this Section 4.4(b), or would otherwise be prohibited by the terms thereof.

 

(b)           Evidence of
Insurance Coverage. On or prior to the Closing Date, and at all times
thereafter, Borrower will cause Administrative Agent to be named as an
additional insured, assignee and loss payee (which shall include, as
applicable, identification as mortgagee), as applicable, on each insurance
policy required to be maintained pursuant to this Section 4.4 pursuant to
endorsements in form and substance reasonably acceptable to Administrative
Agent. Borrower will deliver to Administrative Agent and Lenders (i) on the
Closing Date, a certificate from Borrower’s insurance broker dated such date
showing the amount of coverage as of such date, and that such policies will
include effective waivers of applicable rights of subrogation against loss
payees and additional insureds, and that if all or any part of such policy is
canceled, terminated or expires, the insurer will endeavor to give notice
thereof to each additional insured, assignee and loss payee at least thirty
(30) days prior thereto, (ii) on an annual basis, and upon the request of any
Lender through Administrative Agent from time to time full information as to
the insurance carried, (iii) within five (5) Business Days of receipt of notice
from any insurer, a copy of any notice of cancellation, nonrenewal or material
change in coverage from that existing on the date of this Agreement and (iv)
forthwith, notice of any cancellation or nonrenewal of coverage by Borrower.

 

(c)           Right to Purchase
Insurance. During the existence of an Event of Default, in the event
Borrower fails to provide Administrative Agent with evidence of the insurance
coverage required by this Agreement within three (3) Business Days after
request therefor, Administrative Agent may purchase insurance at Borrower’s
expense to protect Administrative Agent’s interests in the Collateral. This
insurance may, but need not, protect Borrower’s interests. The coverage
purchased by Administrative Agent may not pay any claim made by Borrower or any
claim that is made against Borrower in connection with the Collateral. Borrower
may later cancel any insurance purchased by Administrative Agent, but only
after providing Administrative Agent with evidence that Borrower has obtained
insurance as required by this Agreement. If Administrative Agent purchases
insurance for the Collateral, Borrower will be responsible for the costs of
that insurance to the fullest extent provided by Law including interest and
other charges imposed by Administrative Agent in connection with the placement
of the insurance, until the effective date of the cancellation or expiration of
the insurance. The costs of the insurance may be added to the Obligations. The
costs of the insurance may be more than the cost of insurance Borrower is able
to obtain on its own.

 

50

 

Section 4.5            Compliance with Laws.

 

Borrower will comply, and cause each other Credit
Party to comply, with the requirements of all applicable Laws, except to the
extent that failure to so comply could not reasonably be expected to have a
Material Adverse Effect or result in any Lien upon a material portion of the
assets of any such Person in favor of any Governmental Authority.

 

Section 4.6            Inspection of
Property, Books and Records.

 

Borrower will keep, and will cause each other Credit
Party to keep, proper books of record and account in accordance with GAAP; and
will permit, and will cause each other Credit Party to permit, at the sole cost
of Borrower or any applicable other Credit Party, representatives of Administrative
Agent and of any Lender (but at such Lender’s expense unless such visit or
inspection is made concurrently with Administrative Agent) or is made during
the existence and continuance of an Event of Default to visit and inspect any
of their respective properties, to examine and make abstracts or copies from
any of their respective books and records, to conduct a collateral audit and
analysis of their respective inventory and accounts and to discuss their
respective affairs, finances and accounts with their respective officers, as
often as may reasonably be desired, subject in all cases to any confidentiality
restrictions that may be applicable to Borrower and its Subsidiaries and to any
confidentiality restrictions that Borrower reasonably imposes on the Persons
receiving such information; provided, however, that neither Borrower nor any of
its Subsidiaries shall be required to disclose to Administrative Agent or any
agents or representatives thereof any information which is the subject of
attorney-client privilege or attorney’s work product privilege properly
asserted by the applicable Person to prevent the loss of such privilege in
connection with such information; and provided, further, that Borrower will use
commercially reasonable efforts to furnish such information (excluding
information covered by confidentiality restrictions in agreements relating to
seismic, geologic or geophysical data or similar technical and business matters
relating to the exploration for oil and gas), which requirement shall be
satisfied if Administrative Agent is offered the opportunity to review such
confidential information by executing or otherwise becoming a party to the
confidentiality restrictions on substantially the same terms (including any
standstill provisions) as are applicable to Borrower. In the absence of an
Event of Default, Administrative Agent or any Lender exercising any rights
pursuant to this Section 4.6 shall give Borrower or any applicable other Credit
Party commercially reasonable prior written notice of such exercise. No notice
shall be required during the existence and continuance of any Event of Default.

 

Section 4.7            Use of Proceeds.

 

Borrower will use the proceeds of the Revolving Loans
on the Closing Date solely for payment of amounts due under the Existing Credit
Agreement and for payment of transaction fees and expenses incurred in
connection with the Financing Documents. The proceeds of Revolving Loans after
the Closing Date shall be used by Borrower solely for lawful corporate
purposes, including to finance corporate and capital expenditures and permitted
acquisitions of Oil and Gas Properties and other assets related to the
exploration, production, development, processing, gathering, storage and
transportation of Hydrocarbons and for working capital needs of Credit Parties.

 

51

 

Section 4.8            Lenders’ Meetings.

 

Promptly after the delivery to Administrative Agent
and Lenders of Reserve Reports pursuant to Section 4.1(i) or (j), Borrower
will, in each case to the extent reasonably requested by either Administrative
Agent or Required Lenders, conduct a meeting of Administrative Agent and
Lenders to discuss the most recently reported financial results and the
financial condition and engineering projections of Borrower and its
Subsidiaries, at which shall be present a Responsible Officer and such other
officers of the Credit Parties as may be reasonably requested to attend by
Administrative Agent or Required Lenders, such request or requests to be made
within a reasonable time prior to the scheduled date of such meeting. Such
meetings shall be held at a time and place convenient to Lenders and to
Borrower.

 

Section 4.9            Hazardous Materials;
Remediation.

 

If any release or disposal of Hazardous
Materials shall occur or shall have occurred on any real property or any other
assets of Borrower or any other Credit Party, which could reasonably be
expected to have a Material Adverse Effect, Borrower will cause, or direct the
applicable Credit Party to cause, the prompt containment and removal of such
Hazardous Materials and the remediation of such real property or other assets
as is necessary to comply with all Environmental Laws and to preserve the value
of such real property or other assets. Without limiting the generality of the
foregoing, Borrower shall, and shall cause each other Credit Party to, comply
with each Environmental Law requiring the performance at any real property by
Borrower or any other Credit Party of activities in response to the release or
threatened release of a Hazardous Material, except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect.

 

Section 4.10         Further Assurances.

 

(a)           General. Borrower
will, and will cause each other Credit Party, at its own cost and expense, to
promptly and duly take, execute, acknowledge and deliver all such further acts,
documents and assurances as Administrative Agent or Required Lenders may from
time to time reasonably request in order to carry out the intent and purposes
of the Financing Documents and the transactions contemplated thereby, including
all such actions to establish, create, preserve, protect and perfect a first
priority Lien (subject only to Permitted Liens) in favor of Administrative
Agent for itself and for the benefit Lenders on the Collateral (including
Collateral acquired after the date hereof), including on any and all assets of
each Credit Party, whether now owned or hereafter acquired.

 

(b)           New Subsidiaries.
Without limiting the generality of the foregoing, in the event Borrower or any
of its Restricted Subsidiaries shall form any new Restricted Subsidiary after
the date hereof, Borrower or the respective Restricted Subsidiary will cause
such new Restricted Subsidiary, promptly following such formation (excluding
any Foreign Subsidiary whose guarantee or grant of a Lien would result in
material adverse tax consequences to Borrower under Section 956 of the Internal
Revenue Code), (i) to execute a Guarantee (in form and substance reasonably
acceptable to Administrative Agent) guaranteeing payment and performance of all
of the Obligations and to take such other action (including, without
limitation, authorizing the filing of such UCC financing statements and
delivering certificates in respect of the Capital Stock of such Restricted
Subsidiary) as shall be necessary or appropriate to establish, create,
preserve, protect and perfect a first priority Lien (subject only to Permitted
Liens) in favor 

 

52

 

of Administrative
Agent for the benefit of Administrative Agent and Lenders to the extent
required by Section 4.10(e), (ii) to execute such other Security
Documents, in form and substance reasonably acceptable to Administrative Agent,
as may be required or requested by Administrative Agent in connection with the
actions contemplated hereby and (iii) to deliver such proof of corporate (or
comparable) action, incumbency of officers, opinions of counsel and other
documents as Administrative Agent shall have reasonably required or requested. Until
such time that any Restricted Subsidiary shall have fully complied with the
provisions of this paragraph, and without limitation of any rights and remedies
available to Administrative Agent and Lenders as a result thereof, the operating
results of such Restricted Subsidiary shall be disregarded in the calculation
of EBITDAX for any measurement period.

 

(c)           Capital Stock. Borrower
will, and will cause each of its Restricted Subsidiaries, to take such action
from time to time as shall be necessary to ensure that each of its Restricted
Subsidiaries is a Wholly-Owned Subsidiary and that Administrative Agent shall
have, for the benefit of Administrative Agent and Lenders, a first priority
Lien on all Capital Stock of each Restricted Subsidiary, provided that neither
Borrower nor any Foreign Subsidiary shall be required to pledge more than 65%
of the Capital Stock of any such foreign subsidiary to the extent such grant
and/or pledge would result in material adverse tax consequences to Borrower
under Section 956 of the Internal Revenue Code as determined by Administrative
Agent). In the event that any additional Capital Stock shall be issued by any
Restricted Subsidiary, Borrower shall or shall cause each of its Restricted
Subsidiaries to, promptly following such issuance, deliver to Administrative
Agent to the extent required by the applicable Financing Documents the
certificates evidencing such Capital Stock, accompanied by undated powers
executed in blank and to take such other action as Administrative Agent shall
request to perfect the security interest created therein pursuant to such
Financing Documents.

 

(d)           Mortgage of Oil and
Gas Property. Prior to each Determination Date, Borrower shall review the
Reserve Report and the list of current Mortgaged Properties to ascertain
whether the Mortgaged Properties represent at least 80% of the total PV-10
value of Proved Reserves attributable to the Oil and Gas Properties evaluated
in the most recently completed Reserve Report after giving effect to any
exploration and production activities, acquisitions, dispositions and
production. In the event that the Mortgaged Properties do not represent at
least 80% of such total PV-10 value, then on or prior to such Determination
Date, Borrower shall, and shall cause its Restricted Subsidiaries to, grant to
Administrative Agent as security for the Debt a first-priority Lien (subject
only to Permitted Liens) under the Mortgages on additional Oil and Gas
Properties not already subject to such a Lien under the Mortgages such that
after giving effect thereto, the Mortgaged Properties will represent at least
80% of the total PV-10 value of Proved Reserves attributable to the Oil and Gas
Properties evaluated by the relevant Reserve Report.

 

(e)           Other Collateral.
Upon Administrative Agent’s request, Borrower will and will cause its
Restricted Subsidiaries to grant Liens as security for the Debt on (i) assets
and interests related to the Mortgaged Properties, including related operating
equipment, accounts, inventory, contract rights and all products, proceeds and
other interests related to the ownership, operation and or production of the
Mortgaged Properties and (ii) all other material facilities (including
gathering, transportation, compression, processing, treating and storage
facilities) and other material real and personal property owned by it from time
to time (excluding any interest in any Unrestricted Subsidiaries and any
Excluded Property (as defined in the Mortgages).

 

53

 

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

 

(g)           Title Information.
Promptly upon request of Administrative Agent, Borrower will deliver title
information in form and substance reasonably acceptable to Administrative Agent
covering enough of the Oil and Gas Properties evaluated in the most recently
delivered Reserve Report, so that Administrative Agent shall have received,
together with title information previously delivered to Administrative Agent in
connection with previous Reserve Reports or otherwise, title information
evidencing the Credit Parties have Defeasible Title on at least 70% of the
total PV-10 value of Proved Reserves attributable to the Oil and Gas Properties
evaluated by such Reserve Report. If Borrower has provided title information
for Oil and Gas Properties under the preceding sentence, Borrower shall, within
60 days of notice from Administrative Agent or Required Lenders that material
title defects or exceptions exist with respect to such Oil and Gas Properties
such that the Credit Parties do not have Defeasible Title to 70% of the PV-10
value of such properties, either (1) cure any such material title defects or
exceptions (including defects or exceptions as to priority) raised by such
information, or (2) deliver title information in form and substance acceptable
to Administrative Agent or Required Lenders so that Administrative Agent shall
have received, together with title information previously delivered to
Administrative Agent, title information evidencing the Credit Parties have
Defeasible Title on at least 70% of the PV-10 value of Proved Reserves
attributable to the Oil and Gas Properties evaluated by such Reserve Report. If
Borrower is unable to cure any material title defect requested by
Administrative Agent or the Required Lenders to be cured within the 60-day
period or Borrower does not comply with the requirements to provide title
information evidencing the Credit Parties have Defeasible Title covering 70% of
the PV-10 value of Proved Reserves attributable to the Oil and Gas Properties
evaluated in the most recent Reserve Report, such inability to cure shall not
be a Default, but Administrative Agent may, or shall upon request by Required
Lenders, propose a reduced Borrowing Base (and Overadvance Amount during the
Overadvance Period), and Required Lenders shall approve such Borrowing Base,
each in the manner provided in Section 2.16(b) and Administrative Agent shall
send a notice to Borrower of such new Borrowing Base (and new Overadvance
Amount during the Overadvance Period), that will cause Borrower to be in
compliance with the requirement to provide title information evidencing the
Credit Parties have Defeasible Title on 70% of the PV-10 value of Proved
Reserves attributable to the Oil and Gas Properties. This new Borrowing Base shall
become effective immediately after receipt of such notice. Any failure to give
such notice shall not be a 

 

54

 

waiver as to
future exercise of the right to so reduce the Borrowing Base by Administrative Agent
or the Required Lenders.

 

(h)           Borrower will, and will
cause each other Credit Party to deal with the Oil and Gas Properties and the
production, in such a way that the representations and warranties in Sections
3.23 and 3.24 remain true and correct at all times during the term of this
Agreement.

 

ARTICLE 5

NEGATIVE COVENANTS

 

Borrower agrees that, so long as any Credit Exposure
exists:

 

Section 5.1            Debt.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, create, incur, assume, guarantee or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, except for:

 

(a)           Debt under the
Financing Documents and Letter of Credit Liabilities;

 

(b)           Debt outstanding on the
date of this Agreement and set forth on Schedule 5.1 and any extensions, renewals or
replacements of any such Debt, provided that such extension, renewal or
replacement does not increase the outstanding principal amount thereof;

 

(c)           Intercompany Debt
arising from loans made by (i) Borrower to its Restricted Subsidiaries that are
Wholly-Owned Subsidiaries to fund working capital requirements of such
Restricted Subsidiaries in the Ordinary Course of Business, or (ii) any
Restricted Subsidiary that is a Wholly-Owned Subsidiary of Borrower to
Borrower; provided, however, that upon the request of Administrative Agent at
any time, any such Debt shall be evidenced by promissory notes having terms
reasonably satisfactory to Administrative Agent, and the sole originally
executed counterparts of which shall be pledged and delivered to Administrative
Agent, for the benefit of Administrative Agent and Lenders, as security for the
Obligations;

 

(d)           Guarantees by Borrower
of Debt of any Restricted Subsidiary permitted hereunder and by any Restricted Subsidiary
of Debt of Borrower or any other Restricted Subsidiary permitted hereunder;

 

(e)           Debt of Borrower or any
Subsidiary incurred to finance the acquisition, construction or improvement of
any fixed or capital assets, including Capital Lease Obligations and any Debt
assumed in connection with the acquisition of any such assets or secured by a
Lien on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Debt that do not increase the outstanding
principal amount thereof; provided that the aggregate principal amount
of Debt permitted by this clause (e) shall not exceed $5,000,000 at any time
outstanding;

 

(f)            Debt, if any, arising
under Swap Contracts, to the extent permitted under Section 5.6;

 

55

 

(g)           Non-Recourse Debt in an
aggregate principal amount not to exceed $25,000,000 at any time outstanding;
provided that Borrower shall not incur any Non-Recourse Debt after the Closing
Date without Administrative Agent’s prior written consent to the relevant
documentation establishing or evidencing the non-recourse nature and amount of
such Non-Recourse Debt, which consent shall not be unreasonably withheld;

 

(h)           Debt of any Person that
becomes a Subsidiary after the Closing Date; provided that such Debt exists at
the time such Person becomes a Subsidiary and is not created in contemplation
of or in connection with such Person becoming a Subsidiary;

 

(i)            Permitted Securities;

 

(j)            Debt incurred to
finance the acquisition of equipment, provided that the amount of such Debt
does not exceed the purchase price of such equipment; and

 

(k)           other unsecured Debt in
an aggregate principal amount not exceeding $3,000,000 at any time outstanding;

 

(l)            any Contingent
Obligation permitted by Section 5.3; and

 

(m)          Debt incurred under
Bonds.

 

Section 5.2            Liens.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, create, assume or suffer to exist any
Lien on any asset now owned or hereafter acquired by it, except:

 

(a)           Liens created by the
Security Documents;

 

(b)           Permitted Encumbrances;

 

(c)           any Lien on any
property of Borrower or any Restricted Subsidiary existing on the date hereof
and set forth in Schedule 5.2; provided that (i) such Lien shall not apply to
any other property of Borrower or any Subsidiary and (ii) such Lien shall
secure only those obligations which it secures on the date hereof and
extensions, renewals or replacements thereof that do not increase the
outstanding principal amount thereof;

 

(d)           any Lien existing on
any property (together with receivables, intangibles and proceeds thereof)
prior to the acquisition thereof by Borrower or any Subsidiary or existing on
any property of any Person that becomes a Subsidiary after the date hereof
prior to the time such Person becomes a Subsidiary; provided that (i) such Lien
is not created in contemplation of or in connection with such acquisition or
such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not
apply to any other property of Borrower or any Subsidiary and (iii) such Lien
shall secure only those obligations which it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the case may be
and extensions, renewals or replacements thereof that do not increase the
outstanding principal amount thereof;

 

56

 

(e)           Liens on fixed or
capital assets (together with receivables, intangibles and proceeds thereof)
acquired, constructed or improved by Borrower or any Subsidiary; provided that
(i) such security interests secure Debt permitted by Section 5.1(e), (ii) such
security interests and the Debt secured thereby are incurred prior to or within
180 days after such acquisition or the completion of such construction or
improvement, (iii) the Debt secured thereby does not exceed the cost of
acquiring, constructing or improving such fixed or capital assets and (iv) such
security interests shall not apply to any other property of Borrower or any Subsidiary;

 

(f)            Liens securing
obligations and liabilities of Borrower and any Restricted Subsidiary under
Swap Agreements to the extent permitted hereunder; and

 

(g)           Liens granted to secure
Non-Recourse Debt permitted under Section 5.1(g).

 

Section 5.3            Contingent
Obligations.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, create, assume, incur or suffer to
exist any Contingent Obligations, except for:

 

(a)           Contingent Obligations
arising in respect of the Debt under the Financing Documents and Letter of
Credit Liabilities;

 

(b)           Contingent Obligations
resulting from endorsements for collection or deposit in the Ordinary Course of
Business;

 

(c)           Contingent Obligations
existing or arising under any Swap Contract, provided that (i) so long as there
exists no Event of Default both immediately before and immediately after giving
effect to any such transaction and (ii) such obligations are (or were) entered
into by Borrower or another Credit Party in the Ordinary Course of Business for
the purpose of directly mitigating risks associated with liabilities,
commitments, investments, assets, or property held or reasonably anticipated by
such Person and not for purposes of speculation;

 

(d)           Contingent Obligations
outstanding on the date of this Agreement and set forth on Schedule 5.3 and
Contingent Obligations with respect to Debt permitted under Section 5.1;

 

(e)           Contingent Obligations
incurred in the Ordinary Course of Business with respect to Bonds;

 

(f)            Contingent Obligations
arising under indemnity agreements in connection with mortgagee title insurance
policies;

 

(g)           Contingent Obligations
arising with respect to customary indemnification obligations in favor of
purchasers in connection with dispositions permitted under Section 5.7;

 

(h)           Contingent Obligations
in favor of Credit Parties; and

 

(i)            Contingent Obligations
to the extent constituting a Permitted Lien.

 

57

 

Section 5.4            Restricted Payments.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Payment; provided that the foregoing shall not
restrict or prohibit (a) dividends or distributions made by any Restricted Subsidiary,
directly or indirectly, to Borrower or to any Restricted Subsidiary that is a
Wholly-Owned Subsidiary of Borrower, (b) (i) dividends by Borrower in cash on
its 8% Convertible Preferred Stock outstanding on the Closing Date and (ii)
dividends by Borrower in cash on outstanding Permitted Securities, provided
that in either case no Default or Event of Default exists at the time of such
payment and such payment will not cause a Default or Event of Default, (c)
Subsidiaries may declare and pay dividends ratably with respect to their
Capital Stock (or on a basis more favorable to Borrower and its Subsidiaries),
(d) Borrower may make Restricted Payments pursuant to and in accordance with
stock option plans or other benefit plans for management or employees of
Borrower and its Subsidiaries, (e) Borrower may make cash payments in lieu of
issuing fractional shares in an aggregate amount not exceeding $200,000 during
the term of this Agreement, provided that no Default or Event of Default exists
at the time of such payment, such payment will not cause a Default or Event of
Default and such payment is made only in respect of Borrower’s 8% Convertible
Preferred Stock outstanding on the Closing Date, (f) Borrower may declare and
pay distributions effecting “poison pill” rights plans provided that any
securities or rights so distributed have a nominal fair market value at the
time of declaration, (g) Borrower or any Restricted Subsidiary may make any
Restricted Payments in exchange for or out of the net cash proceeds from the
sale of Capital Stock of Borrower (other than Permitted Securities), and (h)
any Restricted Payment of Permitted Securities in exchange for or out of net
cash proceeds from the sale of Permitted Securities; provided that in no event
shall a Credit Party make any payment in respect of any Debt which by its terms
is subordinated to the Obligations which payment is prohibited by the
subordinated provisions governing such Debt. Borrower will not, and will not
permit any other Credit Party to issue preferred Capital Stock providing for
Restricted Payments not permitted by this Section 5.4.

 

Section 5.5            Restrictive
Agreements.

 

Borrower will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into, incur or permit
to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of Borrower or any Restricted
Subsidiary to create, incur or permit to exist any Lien upon any of its
property or assets (other than (1) Capital Stock in any Unrestricted
Subsidiary, (2) other investments in Capital Stock of joint ventures permitted
under Section 5.8, (3) investments permitted under Section 5.8(j) if such
restriction or conditions apply only to the property or assets that are the
subject of such investment), or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to Borrower or any other Restricted
Subsidiary or to Guarantee Debt of Borrower or any other Restricted Subsidiary;
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by this Agreement, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof identified on Schedule
5.5 (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii)
the foregoing shall not apply to customary restrictions and conditions contained
in agreements relating to the sale of a Subsidiary or other assets pending such
sale, provided such 

 

58

 

restrictions and
conditions apply only to the Subsidiary or other assets that is to be sold and
such sale is permitted hereunder, (iv) paragraph (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to
secured Debt permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Debt, (v) paragraph (a) of
the foregoing shall not apply to customary provisions in leases and other
contracts restricting the assignment thereof (vi) existing restrictions with
respect to a Person acquired by Borrower or any of its Restricted Subsidiaries
(except to the extent such restrictions were put in place in connection with or
in contemplation of such acquisition), which restrictions are not applicable to
any Person, or the properties or assets of any Person other than the Person, or
the property or assets of the Person, so acquired and (vii) customary
supermajority voting provisions and other customary provisions with respect to
the disposition or distribution of assets, each contained in corporate
charters, bylaws, stockholders’ agreements, limited liability company
agreements, partnership agreements, joint venture agreements and other similar
agreements entered into in the ordinary course of business of Borrower and its
Restricted Subsidiaries.

 

Section 5.6            Swap Contracts.

 

Borrower will not, and will not permit any other
Credit Party to enter into any Swap Contracts other than Swap Contracts in
respect of commodities (i) with Eligible Swap Counterparties. (ii) with
durations not to exceed 60 months at any time, and (iii) the notional volumes
for which (when aggregated with other commodity Swap Contracts then in effect
other than basis differential swaps on volumes already hedged pursuant to other
Swap Contracts) do not exceed, as of the date such Swap Contract is executed,
85% of the Projected Oil and Gas Production from Proved Developed Producing
Reserves attributable to the Oil and Gas Properties for each month during the
period during which such Swap Contract is in effect for each of crude oil and
natural gas, calculated separately; provided that such limitation in clause
(iii) of this Section 5.6 shall not apply to Swap Contracts in respect of
commodities that are floor prices or puts for which no further payment
obligation is owed by such Credit Party and not in excess of 100% of Proved
Developed Producing Reserves attributable to the Oil and Gas Properties for
each month during the period during which such Swap Contract is in effect for
each of crude oil and natural gas, calculated separately. Not later than 30
days after consummation of an Asset Disposition in respect of Oil and Gas
Properties which, together with any other Asset Dispositions of Oil and Gas
Properties not theretofore taken into account in connection with this sentence,
reduces by more than 5% the Credit Parties’ aggregate Projected Oil and Gas
Production from Proved Developed Producing Reserves, Borrower will cause the
notional volumes of Swap Contracts maintained by Borrower and other Credit
Parties in respect of commodities not to exceed in the aggregate the amounts
that would be permitted under clause (iii) of the preceding sentence if such
Swap Contracts were entered into immediately after giving effect to such Asset
Disposition.

 

Section 5.7            Consolidations,
Mergers and Sales of Assets.

 

(a)           Borrower will not, and
will not permit any other Credit Party to, directly or indirectly consolidate
or merge with or into any other Person other than (i) mergers of any Restricted
Subsidiary with and into Borrower or another Restricted Subsidiary, (ii)
mergers of any Restricted Subsidiaries with and into Borrower (with Borrower as
the surviving entity of 

 

59

 

such merger)
and (iii) mergers or consolidations with or into any Person so long as Borrower
or a wholly-owned Restricted Subsidiary is the surviving entity; provided
that any such merger involving a Person that is not a wholly-owned Subsidiary
immediately prior to such merger shall not be permitted unless also permitted
by Section 5.8. Any Restricted Subsidiary may liquidate or dissolve if
Borrower determines in good faith that such liquidation or dissolution is in
the best interests of Borrower and is not materially disadvantageous to the
Lenders.

 

(b)           Borrower will not, and
will not permit any other Credit Party to, directly or indirectly, consummate
any Asset Dispositions other than, so long as no Default or Event of Default
then exists or would result from any such disposition (i) dispositions of
equipment for cash and fair value that Borrower determines in good faith is no
longer used or useful in the business of Borrower and its Restricted
Subsidiaries if during the Overadvance Period, 100% of the Net Cash Proceeds of
any such disposition are applied to permanently reduce the Overadvance Amount
and (ii) dispositions of any Oil and Gas Property or any interest therein if
(A) the consideration received in respect of such sale or other disposition
shall be equal to or greater than the fair market value of such Oil and Gas
Property or interest therein (as reasonably determined by Borrower), and (B) if
such Oil and Gas Properties were included in the determination of the Borrowing
Base then in effect the prepayment, if any, required under Section 2.3(b) shall
have been made. For purposes of this Section 5.7(b) and Section 2.3(b),
proceeds of any Casualty Event in respect of Oil and Gas Properties included in
the most recent determination of the Borrowing Base and with respect to which a
determination is made that such proceeds will not be applied to repair or replacement
thereof will be considered an Asset Disposition under clause (ii)(B) with the
amount of such proceeds being aggregated with other Asset Dispositions for
purposes of clause (ii)(B) of this Section 5.7(b) and Section 2.3(b).

 

Section 5.8            Investments.

 

Borrower will not, and will not permit any of its
Restricted Subsidiaries to, purchase, hold or acquire (including pursuant to
any merger with any Person that was not a wholly owned Subsidiary prior to such
merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:

 

(a)           Permitted Investments;

 

(b)           investments by Borrower
and its Subsidiaries in the Capital Stock of its Restricted Subsidiaries;

 

(c)           loans or advances made
by Borrower to any Restricted Subsidiary and made by any Subsidiary to Borrower
or any other Restricted Subsidiary; and

 

(d)           Guarantees constituting
Debt permitted by Section 5.1;

 

(e)           investments consisting
of Swap Contracts to the extent permitted under Section 5.6;

 

60

 

(f)            loans or advances to
employees in the ordinary course of business in an aggregate amount for all
employees of Borrower and its Subsidiaries not in excess of $750,000 at anyone
time outstanding;

 

(g)           trade credits and
accounts arising in the ordinary course of business;

 

(h)           investments made as a
result of the receipt of non cash considerations from a disposition that was
made pursuant to and in compliance with this Agreement;

 

(i)            investments made in
any debtor of Borrower or any Restricted Subsidiary as a result of the receipt
of stock, obligations or securities in settlement of debts created in the
ordinary course of business and owing to Borrower or any Restricted Subsidiary;

 

(j)            investments made
pursuant to the requirements of farm-out, farm in, unit, joint operating, unit
operating, joint venture, area of mutual interest and other oil and gas
agreements, gathering systems, pipelines or other similar or customary
arrangements entered into the ordinary course of business (including advances
to operators under operating agreements entered into by Borrower or any
Subsidiary in the ordinary course of business); provided that any such single
investment in excess of $5,000,000 shall be approved by the Board of Directors
of Borrower;

 

(k)           investments made in
connection with the purchase, lease, or other acquisition of tangible assets of
any Person and investments made in connection with the purchase, lease or other
acquisition of all or substantially all of the business, of any Person, or all
of the capital stock or other equity interests of any Person, or any division,
line of business or business unit of any Person (including (i) by the merger or
consolidation of such Person into Borrower or any Restricted Subsidiary or by
the merger of a Restricted Subsidiary into such Person and (ii) the purchase of
proved reserves);

 

(l)            repurchase of Capital
Stock deemed to occur upon exercise of stock options or warrants if such
Capital Stock represents a portion of the exercise price or such options or
warrants or the payment of withholding taxes through the issuance of Capital
Stock;

 

(m)          the purchase of
fractional shares arising out of stock dividends, splits or combinations or
business combinations;

 

(n)           any other investments
in any Person having an aggregate fair market value (measured on the date each
such investment was made and without giving effect to subsequent changes in
value), when taken together will all other investments made pursuant to this
clause (n) do not exceed $3,000,000 outstanding at any time;

 

(o)           investments outstanding
as of the Closing Date in Unrestricted Subsidiaries;

 

(p)           investments, loans,
advances and acquisitions in exchange for, or out of the net cash proceeds from
the sale of, Capital Stock of Borrower (other than Permitted Securities) issued
after the Closing Date; and

 

(q)           investments in Warren
Energy Services, LLC after the Closing Date (measured on the date each such
investment was made and without giving effect to subsequent changes in 

 

61

 

value), when
taken together will all other investments made pursuant to this clause (q) do
not exceed $10,000,000 outstanding at any time.

 

Section 5.9            Transactions with
Affiliates.

 

Except (i) as expressly permitted by this Agreement,
(ii) as otherwise disclosed on Schedule 5.9, and (iii) for transactions which
contain terms that are no less favorable to Borrower or any other Credit Party,
as the case may be, than those which might be obtained from a third party not
an Affiliate of any Credit Party, Borrower will not, and will not permit any
other Credit Party to, directly or indirectly, enter into or permit to exist
any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of Borrower, and
(iii) any Restricted Payment permitted by Section 5.4, and (d) with respect to
any Person serving as an officer, director, employee or consultant of Borrower
or any Restricted Subsidiary, (1) the payment of reasonable compensation, benefits
or indemnification liabilities in connection with his or her services in such
capacity provided that the payment of any such compensation, benefits or
indemnification liabilities are approved by a majority of the disinterested
members of the Board of Directors of Borrower or by the compensation committee
of Borrower, (2) the making of advances for travel or other business expenses
in the ordinary course of business or (3) such Person’s participation in any
benefit or compensation.

 

Section 5.10         Modification of
Organizational Documents.

 

Borrower will not, directly or indirectly, amend or
otherwise modify any Organizational Documents of Borrower, except for such
amendments or other modifications required by Law or which are not adverse to
the interests of Administrative Agent or any Lender and which, in each
instance, are fully disclosed to Administrative Agent.

 

Section 5.11         [Reserved]

 

Section 5.12         Fiscal Year.

 

Borrower will not, and will not permit any other
Credit Party to, change its Fiscal Year.

 

Section 5.13         Conduct of Business.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, engage in any line of business other
than those businesses engaged in on the Closing Date and described on Schedule
5.13 and businesses reasonably related thereto.

 

Section 5.14         [Reserved]

 

Section 5.15         Capital Stock.

 

Borrower will not, nor cause or permit any Restricted
Subsidiary to, permit a Lien (other than a Lien created under a Financing
Document) to be placed on any of the Capital Stock owned by Borrower or such
Restricted Subsidiary in any other Person; provided that Liens against Capital
Stock in an Unrestricted Subsidiary shall be permitted to the extent such Lien
is granted to secure Non-Recourse Debt.

 

62

 

Section 5.16         Limitation on Sale and
Leaseback Transactions.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, enter into any arrangement with any
Person whereby in a substantially contemporaneous transaction Borrower or any
of its Subsidiaries sells or transfers all or substantially all of its right,
title and interest in an asset and, in connection therewith, acquires or leases
back the right to use such asset; provided this Section 5.16 shall not
prohibit any sale-leaseback resulting from the incurrence of any lease of any
capital asset entered into within 180 days of the acquisition of such capital
asset for the purpose of providing permanent financing of such asset, provided
that the Debt related thereto is permitted by Section 5.1.

 

Section 5.17         Bank Accounts.

 

Borrower will not, and will not permit any other
Credit Party to, directly or indirectly, establish any new bank account
(excluding any account established after notice to Administrative Agent
exclusively for payroll or petty cash) without the prior written consent of
Administrative Agent, and provided that in each case, Administrative Agent,
Borrower or such other Credit Party and the bank at which the account is to be
opened enter into a control agreement regarding such bank account pursuant to
which such bank acknowledges the security interest of Administrative Agent in
such bank account, agrees to comply with instructions originated by
Administrative Agent directing disposition of the funds in such bank account
without further consent from Borrower, and agrees to subordinate and limit any
security interest such bank may have in such bank account on terms satisfactory
to Administrative Agent.

 

Section 5.18         Compliance with Anti-Terrorism
Laws.

 

(a)           Borrower will not, and
will not permit any other Credit Party to, directly or indirectly, knowingly
enter into any Financing Documents or material agreement with any Person listed
on the OFAC Lists. Borrower shall immediately notify Administrative Agent if
Borrower has knowledge that Borrower, any additional Credit Party or any of
their respective Affiliates or agents acting or benefiting in any capacity in
connection with the transactions contemplated by this Agreement is or becomes a
Blocked Person or (i) is convicted on, (ii) pleads nolo contendere to, (iii) is
indicted on or (iv) is arraigned and held over on charges involving money
laundering or predicate crimes to money laundering. Borrower will not, and will
not permit any other Credit Party to, directly or indirectly, (i) conduct any
business or engage in any transaction or dealing with any Blocked Person,
including, without limitation, the making or receiving of any contribution of
funds, goods or services to or for the benefit of any Blocked Person, (ii) deal
in, or otherwise engage in any transaction relating to, any property or
interests in property blocked pursuant to Executive Order No. 13224, any
similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire
to engage in any transaction that evades or avoids, or has the purpose of
evading or avoiding, or attempts to violate, any of the prohibitions set forth
in Executive Order No. 13224 or other Anti-Terrorism Law.

 

63

 

ARTICLE 6

FINANCIAL COVENANTS

 

Section 6.1            Interest Coverage
Ratio.

 

Borrower will not permit the Interest Coverage Ratio
for any period of four consecutive fiscal quarters to be less than 2.5 to 1.0,
determined as of the last day of each fiscal quarter.

 

Section 6.2            Current Ratio.

 

Borrower will not permit the ratio on the last day of
any fiscal quarter of (i) Consolidated Current Assets to (ii) Consolidated
Current Liabilities, other than that portion of Long Term Indebtedness that is
included in such Consolidated Current Liabilities, to be less than 1.0 to 1.0.

 

ARTICLE 7

CONDITIONS

 

Section 7.1            Conditions to Closing.

 

The obligation of each Lender to make the initial
Loans, of Administrative Agent to issue any Support Agreements on the Closing
Date and of any LC Issuer to issue any Lender Letter of Credit on the Closing
Date shall be subject to the receipt by Administrative Agent of each agreement,
document and instrument set forth on the Closing Checklist, each in form and
substance reasonably satisfactory to Administrative Agent, and to the
satisfaction of the following conditions precedent, each to the satisfaction of
Administrative Agent and Lenders in their sole discretion:

 

(a)           the payment of all
fees, expenses and other amounts due and payable under each Financing Document;

 

(b)           the absence, since
September 30, 2007, of any material adverse change in any aspect of the
business, operations, properties, liabilities (actual or contingent), or
financial condition of Borrower and Restricted Subsidiaries, taken as a whole;

 

(c)           receipt by
Administrative Agent of such other documents, instruments and/or agreements as
Administrative Agent may reasonably request.

 

Each Lender, by delivering its signature page
to this Agreement, shall be deemed to have acknowledged receipt of, and
consented to and approved, each Financing Document, each additional Financing
Document and each other document, agreement and/or instrument required to be
approved by Administrative Agent, Required Lenders or Lenders, as applicable,
on the Closing Date.

 

Section 7.2            Conditions to Each
Loan, Support Agreement and Lender Letter of Credit.

 

The obligation of Lenders to make a Loan (other than
Revolving Loans made pursuant to Section 2.9(c)), of Administrative Agent to
issue any Support Agreement or of any LC Issuer to 

 

64

 

issue any Lender Letter
of Credit (including, in each case, on the Closing Date) is subject to the
satisfaction of the following additional conditions:

 

(a)           in the case of a
Revolving Loan Borrowing, receipt by Administrative Agent of a Notice of
Borrowing (or telephonic or electronic notice, as permitted by Section 2.2(b))
in accordance with Section 2.2(b) and, in the case of any Support Agreement or
Lender Letter of Credit, receipt by Administrative Agent of a Notice of LC
Credit Event in accordance with Section 2.9;

 

(b)           the fact that,
immediately after such borrowing and after application of the proceeds thereof
or after such issuance, the Revolving Loan Outstandings will not exceed the
Revolving Loan Limit;

 

(c)           the fact that,
immediately before and after such borrowing or issuance, no Default or Event of
Default shall have occurred and be continuing; and

 

(d)           the fact that the
representations and warranties of each Credit Party contained in the Financing
Documents shall be true, correct and complete in all material respects on and
as of the date of such borrowing or issuance, except to the extent that any
such representation or warranty relates to a specific date in which case such
representation or warranty shall be true and correct as of such earlier date.

 

Each giving of a Notice of LC Credit Event hereunder,
each giving of a Notice of Borrowing which requests the making of a Loan
hereunder and each acceptance by Borrower of the proceeds of any Loan made
hereunder shall, except as set forth in the Notice of LC Credit Event or Notice
of Borrowing, be deemed to be a representation and warranty by Borrower on the
date of such notice or acceptance as to the facts specified in Sections 7.2(b),
7.2(c) and 7.2(d).

 

ARTICLE 8

EVENTS OF DEFAULT

 

Section 8.1            Events of Default.

 

For purposes of the Financing Documents, the
occurrence of any of the following conditions and/or events, whether voluntary
or involuntary, by operation of Law or otherwise, shall constitute an “Event of Default”:

 

(a)           Borrower shall fail to
pay when due any principal, interest, premium or fee under any Financing
Document or any other amount payable under any Financing Document and, in the
case of any such payment (other than any principal payment or reimbursement
obligation with respect of any Letter of Credit), such failure shall continue
unremedied for a period of three Business Days;

 

(b)           Borrower shall fail to
observe or perform any covenant contained in Section 4.1, Section 4.3, Section
4.6, Section 4.7, Section 4.9, Section 4.10, Article 5, or Article 6;

 

65

 

(c)           any Credit Party
defaults in the performance of or compliance with any term contained in this
Agreement or in any other Financing Document (other than occurrences described
in other provisions of this Section 8.1 for which a different grace or cure
period is specified or for which no grace or cure period is specified and
thereby constitute immediate Events of Default) and such default is not
remedied or waived within thirty (30) days after the earlier of (i) receipt by
Borrower of notice from Administrative Agent or Required Lenders of such
default or (ii) actual knowledge of Borrower or any other Credit Party of such
default;

 

(d)           any representation,
warranty, certification or statement made by any Credit Party in any Financing
Document or in any certificate, financial statement or other document delivered
pursuant to any Financing Document is incorrect in any material respect when
made (or deemed made);

 

(e)           (i) failure of any
Credit Party to pay when due or within any applicable grace period any
principal, interest or other amount on Debt (other than the Loans) or Permitted
Securities or in respect of any Swap Contract, or the occurrence of any breach,
default, condition or event with respect to any Debt (other than the Loans) or
in respect of any Permitted Securities or in respect of any Swap Contract if
the effect of such occurrence is (A) to cause or to permit the holder or
holders of any such Debt or Permitted Securities, or the counterparty under any
such Swap Contract, to cause Debt, Permitted Securities or other liabilities to
become or be declared immediately due and payable or (B) to require any
mandatory payment, purchase, redemption, retirement, defeasance, surrender,
cancellation or acquisition of Debt or Permitted Securities or to require any
Credit Party to offer to pay, purchase, redeem, retire, defease, surrender,
cancel or acquire Debt or Permitted Securities, in the case of any or all of
the foregoing under this clause (i) in respect of Debt, Permitted Securities or
Swap Contracts having an individual principal amount in excess of $2,000,000
(or any amount, solely with respect to Swap Contracts) or having an aggregate
principal amount in excess of $2,000,000 (or any amount, solely with respect to
Swap Contracts); provided that this paragraph (e) shall not apply to (x)
secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness or (y) any
payment, purchase, redemption, retirement, defeasance, surrender, cancellation
or acquisition of Debt or Permitted Securities satisfied by the conversion,
exchange or issuance of Capital Stock permitted to be issued hereunder; or (ii)
the occurrence of any event requiring the prepayment of any subordinated Debt
prior to the repayment of the Obligations;

 

(f)            Borrower or any Credit
Party shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar Law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;

 

(g)           an involuntary case or
other proceeding shall be commenced against Borrower or any Credit Party
seeking liquidation, reorganization or other relief with respect to it or its
debts 

 

66

 

under any
bankruptcy, insolvency or other similar Law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period of
forty-five (45) days; or an order for relief shall be entered against Borrower
or any Credit Party under the federal bankruptcy laws as now or hereafter in
effect;

 

(h)           an ERISA Event shall
have occurred that, in the opinion of the Required Lenders, when taken together
with all other ERISA Events that have occurred, could reasonably be expected to
result in a Material Adverse Effect;

 

(i)            one or more judgments
or orders for the payment of money (not paid or fully covered by insurance
maintained in accordance with the requirements of this Agreement and as to
which the relevant insurance company has not denied coverage) aggregating in
excess of $5,000,000 shall be rendered against Borrower or any or all Credit
Parties and either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgments or orders or (ii) there shall be any period of
30 consecutive days during which a stay of enforcement of any such judgments or
orders, by reason of a pending appeal, bond or otherwise, shall not be in effect;

 

(j)            a Change of Control
shall occur;

 

(k)           any Lien created by any
of the Security Documents shall at any time fail to constitute a valid and (to
the extent perfection is obtained by filing) perfected Lien on a material
portion of the Collateral purported to be secured thereby, subject to no prior
or equal Lien except Permitted Liens, or any Credit Party shall so assert; or

 

(l)            any of the Financing
Documents shall for any reason fail to constitute the valid and binding
agreement of any party thereto, or any Credit Party shall so assert.

 

Section 8.2            Acceleration and
Suspension or Termination of Revolving Loan Commitment.

 

Upon the occurrence and during the continuance of an
Event of Default, Administrative Agent may, and shall, if so requested by
Required Lenders, (i) by notice to Borrower suspend or terminate the Revolving
Loan Commitment and the obligations of Administrative Agent and Lenders with
respect thereto, in whole or in part (and, if in part, such reduction shall be
pro rata among Lenders having a Revolving Loan Commitment Percentage) and/or
(ii) by notice to Borrower declare all or any portion of the Obligations to be,
and such Obligations shall thereupon become, immediately due and payable, with
accrued interest thereon, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by Borrower and Borrower will pay
the same; provided that in the case of any of the Events of Default specified
in Section 8.1(f) or 8.1(g) above, without any notice to Borrower or any other
act by Administrative Agent or Lenders, the Revolving Loan Commitment and the
obligations of Administrative Agent and Lenders with respect thereto shall
thereupon terminate and all of the Obligations shall become immediately due and
payable without presentment, demand, protest or 

 

67

 

other notice of any kind,
all of which are hereby waived by Borrower and Borrower will pay the same.

 

Section 8.3            Cash Collateral.

 

If an Acceleration Event shall have occurred, and so
long as it continues, then without any request or the taking of any other
action by Administrative Agent or Lenders, Borrower shall immediately comply
with the provisions of Section 2.9(e) with respect to the deposit of cash
collateral to secure the existing Letter of Credit Liabilities and future
payment of related fees.

 

Section 8.4            Default Rate of
Interest and Suspension of LIBOR Rate Options.

 

At the election of Administrative Agent or Required
Lenders, after the occurrence of an Event of Default and for so long as it
continues, (i) the Loans and other Obligations shall bear interest at rates
that are two percent (2.0%) in excess of the rates otherwise payable under this
Agreement, (ii) the fee described in Section 2.9(b) shall increase by a rate
that is two percent (2.0%) in excess of the rate otherwise payable under such
Section,  (iii) as the Interest Periods
for LIBOR Loans then in effect expire, such Loans shall be converted into Base
Rate Loans and (iv) the LIBOR election will not be available to Borrower and
(v) no Interest Period commencing during such period shall have a term of nine
(9) or twelve (12) months.

 

Section 8.5            Setoff Rights.

 

During the continuance of any Event of Default, each
Lender is hereby authorized by Borrower at any time or from time to time, with
reasonably prompt subsequent notice to Borrower (any prior or contemporaneous
notice being hereby expressly waived) to set off and to appropriate and to
apply any and all (i) balances held by such Lender or any of such Lender’s
Affiliates at any of its offices for the account of Borrower or any of its
Restricted Subsidiaries (regardless of whether such balances are then due to
Borrower or its Restricted Subsidiaries), and (ii) other property at any time
held or owing by such Lender to or for the credit or for the account of
Borrower or any of its Restricted Subsidiaries, against and on account of any
of the Obligations; except that no Lender shall exercise any such right without
the prior written consent of Administrative Agent. Any Lender exercising a
right to set off shall purchase for cash (and the other Lenders shall sell)
interests in each of such other Lender’s Pro Rata Share of the Obligations as
would be necessary to cause all Lenders to share the amount so set off with
each other Lender in accordance with their respective Pro Rata Share of the
Obligations. Borrower agrees, to the fullest extent permitted by Law, that any
Lender or any of such Lender’s Affiliates may exercise its right to set off
with respect to the Obligations as provided in this Section 8.5.

 

Section 8.6            Application of
Proceeds.

 

(a)           As to Borrower. Notwithstanding
anything to the contrary contained in this Agreement, upon the occurrence and
during the continuance of an Event of Default, Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by Administrative Agent from or on behalf of Borrower or
any guarantor of all or any part of the Obligations, and, as between Borrower
on the one hand and Administrative Agent and Lenders on the other,
Administrative Agent shall have the continuing and exclusive right to apply and
to reapply any and all payments received against the Obligations in such 

 

68

 

manner as
Administrative Agent may deem advisable notwithstanding any previous
application by Administrative Agent.

 

(b)           After Event of
Default. Following the occurrence and continuance of an Event of Default,
but absent the occurrence and continuance of an Acceleration Event,
Administrative Agent shall apply any and all payments received by
Administrative Agent in respect of the Obligations, and any and all proceeds of
Collateral received by Administrative Agent, in such order as Administrative
Agent may from time to time elect. In the absence of any specific election made
by Administrative Agent pursuant to this clause (b), payments and proceeds
received by Administrative Agent pursuant to this clause (b) shall be applied
to the Obligations in the following order: first,
to all fees, costs, indemnities, liabilities, obligations and expenses incurred
by or owing to Administrative Agent with respect to this Agreement, the other
Financing Documents or the Collateral, second,
to all fees, costs, indemnities and expenses incurred by or owing to any Lender
with respect to this Agreement, the other Financing Documents or the
Collateral, third, to
accrued and unpaid interest on the Obligations, fourth, to the principal amount of the Obligations then
due and owing, fifth, to
provide cash collateral to secure any then outstanding Letter of Credit
Liabilities and payment of related fees; sixth,
to provide cash collateral to secure any other then outstanding Obligations,
including Obligations in respect of Swap Contracts, and seventh, to any other
indebtedness or obligations of Borrower owing to Administrative Agent or any
Lender under the Financing Documents.

 

(c)           After Acceleration
Event. Notwithstanding anything to the contrary contained in this Agreement,
if an Acceleration Event shall have occurred, and so long as it continues,
Administrative Agent shall apply any and all payments received by
Administrative Agent in respect of the Obligations, and any and all proceeds of
Collateral received by Administrative Agent to the Obligations, in the
following order: first, to
all fees, costs, indemnities, and expenses incurred by or owing to
Administrative Agent with respect to this Agreement, the other Financing
Documents or the Collateral; second,
to all fees, costs, indemnities and expenses incurred by or owing to any Lender
with respect to this Agreement, the other Financing Documents or the
Collateral; third, to
accrued and unpaid interest on the Obligations (including any interest which,
but for the provisions of the Bankruptcy Code, would have accrued on such
amounts); fourth, to the
principal amount of the Obligations outstanding, and to the Obligations owing
to any Eligible Swap Counterparty in respect of any Swap Contract; fifth, to provide cash collateral to
secure any and all Letter of Credit Liabilities and future payment of related
fees, as provided for in Section 2.9(e); and sixth, to any other indebtedness or obligations of
Borrower owing to Administrative Agent or any Lender under the Financing Documents.

 

(d)           Residuary. Any
balance remaining after giving effect to the applications set forth in this
Section 8.6 shall be delivered to Borrower or to whoever may be lawfully
entitled to receive such balance or as a court of competent jurisdiction may
direct. In carrying out any of the applications set forth in this Section 8.6,
(i) amounts received shall be applied in the numerical order provided until
exhausted prior to the application to the next succeeding category and (ii)
each of the Persons entitled to receive a payment or cash collateral in any
particular category shall receive an amount equal to its pro rata share of
amounts available to be applied pursuant thereto for such category.

 

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ARTICLE 9

EXPENSES AND INDEMNITY

 

Section 9.1            Expenses.

 

Borrower hereby agrees to promptly pay (i) (x) all
reasonable out-of-pocket costs and expenses of Administrative Agent (including
without limitation the fees, costs and expenses of counsel to, and independent
appraisers and consultants retained by Administrative Agent) in connection with
the examination, review, due diligence investigation, documentation,
negotiation, closing and syndication of the transactions contemplated by the
Financing Documents, (y) costs and expenses of Administrative Agent
(including without limitation the fees, costs and expenses of counsel to, and
independent appraisers and consultants retained by Administrative Agent) in
connection with the performance by Administrative Agent of its rights and
remedies under the Financing Documents and in connection with the continued
administration of the Financing Documents including (A) any amendments,
modifications, consents and waivers to and/or under any and all Financing
Documents and (B) any periodic public record searches conducted by or at the
request of Administrative Agent (including, without limitation, title
investigations, UCC searches, fixture filing searches, judgment, pending
litigation and tax lien searches and searches of applicable corporate, limited
liability,  partnership and related
records concerning the continued existence, organization and good standing of
certain Persons), (ii) without limitation of the preceding clause (i), all
costs and expenses of Administrative Agent in connection with the creation,
perfection and maintenance of Liens pursuant to the Financing Documents, (iii)
without limitation of the preceding clause (i), all costs and expenses of
Administrative Agent in connection with (A) protecting, storing, insuring,
handling, maintaining or selling any Collateral, (B) any litigation, dispute,
suit or proceeding relating to any Financing Document, and (C) any workout,
collection, bankruptcy, insolvency and other enforcement proceedings under any
and all of the Financing Documents, (iv) without limitation of the preceding
clause (i), all costs and expenses of Administrative Agent in connection with
Administrative Agent’s reservation of funds in anticipation of the funding of
the initial Loans to be made hereunder, provided that Borrower or any Affiliate
has requested or consented to such reservation of funds, and (v) all costs and
expenses incurred by Lenders in connection with any litigation, dispute, suit
or proceeding relating to any Financing Document and in connection with any
workout, collection, bankruptcy, insolvency and other enforcement proceedings
under any and all Financing Documents, provided, that to the extent that the
costs and expenses referred to in this clause (v) consist of fees, costs and
expenses of counsel, Borrower shall be obligated to pay such fees, costs and
expenses for counsel to Administrative Agent and for only one counsel acting
for all Lenders (other than Administrative Agent).

 

Section 9.2            Indemnity.

 

Borrower hereby agrees to indemnify, pay and hold
harmless Administrative Agent and Lenders and the officers, directors,
employees, trustees, agents, investment advisors, collateral managers,
servicers, and counsel of Administrative Agent and Lenders (collectively called
the “Indemnitees”) from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including the fees and disbursements of counsel for such
Indemnitee) in connection with any investigative, response, remedial,
administrative or judicial matter or proceeding, 

 

70

 

whether or not such
Indemnitee shall be designated a party thereto and including any such proceeding
initiated by or on behalf of a Credit Party, and the reasonable expenses of
investigation by engineers, environmental consultants and similar technical
personnel and any commission, fee or compensation claimed by any broker (other
than any broker retained by Administrative Agent or Lenders) asserting any
right to payment for the transactions contemplated hereby, which may be imposed
on, incurred by or asserted against such Indemnitee as a result of or in
connection with the transactions contemplated hereby or by the other Financing
Documents (including (i)(A) as a direct or indirect result of the presence on
or under, or escape, seepage, leakage, spillage, discharge, emission or release
from, any property now or previously owned, leased or operated by Borrower, any
other Credit Party or any other Person of any Hazardous Materials or any
Hazardous Materials Contamination, (B) arising out of or relating to the
offsite disposal of any materials generated or present on any such property or
(C) arising out of or resulting from the environmental condition of any such
property or the applicability of any governmental requirements relating to
Hazardous Materials, whether or not occasioned wholly or in part by any
condition, accident or event caused by any act or omission of Borrower or any
other Credit Party, and (ii) proposed and actual extensions of credit under
this Agreement) and the use or intended use of the proceeds of the Loans and
Letters of Credit, except that Borrower shall have no obligation hereunder to
an Indemnitee with respect to any liability resulting from the gross negligence
or willful misconduct of such Indemnitee, as determined by a final
non-appealable judgment of a court of competent jurisdiction. To the extent
that the undertaking set forth in the immediately preceding sentence may be
unenforceable, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable Law to the payment and
satisfaction of all such indemnified liabilities incurred by the Indemnitees or
any of them. The
obligations to indemnify and hold harmless the Indemnitees shall terminate on
the date (the “Indemnity Expiration”) that is two calendar years following the
later of (i) the Termination Date, or (ii) the date all obligations have been
irrevocably paid in full; provided that any such obligation to indemnify and
hold harmless shall not terminate with respect to any matter arising before the
Indemnity Expiration so long as an Indemnitee delivers notice of such matter
prior to the Indemnity Expiration.

 

ARTICLE 10

ADMINISTRATIVE AGENT

 

Section 10.1         Appointment and
Authorization.

 

Each Lender hereby irrevocably appoints and authorizes
Administrative Agent to enter into each of the Financing Documents to which it
is a party (other than this Agreement) on its behalf and to take such actions
as Administrative Agent on its behalf and to exercise such powers under the
Financing Documents as are delegated to Administrative Agent by the terms
thereof, together with all such powers as are reasonably incidental thereto. Subject
to the terms of Section 11.5 and to the terms of the other Financing Documents,
Administrative Agent is authorized and empowered to amend, modify, or waive any
provisions of this Agreement or the other Financing Documents on behalf of
Lenders. The provisions of this Article 10 are solely for the benefit of
Administrative Agent and Lenders and neither Borrower nor any other Credit
Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
Administrative Agent shall act solely as agent of Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or 

 

71

 

relationship of agency or
trust with or for Borrower or any other Credit Party. Administrative Agent may
perform any of its duties hereunder, or under the Financing Documents, by or
through its own agents or employees. Administrative Agent is authorized to appoint
co-agents or sub-agents to act for it in connection with any right or power
under the Financing Documents as are delegated to Administrative Agent by the
terms thereof in respect of any jurisdiction or any Collateral, and all
provision hereof benefiting Administrative Agent shall benefit such co-agents
and sub-agents, including provisions regarding indemnification.

 

Section 10.2         Administrative Agent and
Affiliates.

 

Administrative Agent shall have the same rights and
powers under the Financing Documents as any other Lender and may exercise or
refrain from exercising the same as though it were not Administrative Agent,
and Administrative Agent and its Affiliates may lend money to, invest in and
generally engage in any kind of business with each Credit Party or Affiliate of
any Credit Party as if it were not Administrative Agent hereunder.

 

Section 10.3         Action by Administrative
Agent.

 

The duties of Administrative Agent shall be mechanical
and administrative in nature. Administrative Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Lender. Nothing in
this Agreement or any of the Financing Documents is intended to or shall be
construed to impose upon Administrative Agent any obligations in respect of
this Agreement or any of the Financing Documents except as expressly set forth
herein or therein.

 

Section 10.4         Consultation with
Experts.

 

Administrative Agent may consult with legal counsel,
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.

 

Section 10.5         Liability of
Administrative Agent.

 

Neither Administrative Agent nor any of its directors,
officers, agents or employees shall be liable to any Lender for any action
taken or not taken by it in connection with the Financing Documents, except
that Administrative Agent shall be liable with respect to its specific duties
set forth hereunder, but only to the extent of its own gross negligence or
willful misconduct in the discharge thereof as determined by a final
non-appealable judgment of a court of competent jurisdiction. Neither
Administrative Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into or verify
(i) any statement, warranty or representation made in connection with any
Financing Document or any borrowing hereunder, (ii) the performance or
observance of any of the covenants or agreements specified in any Financing
Document, (iii) the satisfaction of any condition specified in any Financing
Document, (iv) the validity, effectiveness, sufficiency or genuineness of any
Financing Document, any Lien purported to be created or perfected thereby or
any other instrument or writing furnished in connection therewith, (v) the
existence or non-existence of any Default or Event of Default; or (vi) the
financial condition of any Credit Party. Administrative Agent shall not incur
any liability by acting in reliance upon any notice, consent, certificate,
statement, or 

 

72

 

other writing (which may
be a bank wire, telex, facsimile or electronic transmission or similar writing)
believed by it to be genuine or to be signed by the proper party or parties. Administrative
Agent shall not be liable for any apportionment or distribution of payments
made by it in good faith and if any such apportionment or distribution is
subsequently determined to have been made in error the sole recourse of any
Lender to whom payment was due but not made, shall be to recover from other
Lenders any payment in excess of the amount to which they are determined to be
entitled (and such other Lenders hereby agree to return to such Lender any such
erroneous payments received by them).

 

Section 10.6         Indemnification.

 

Each Lender shall, in accordance with its Pro Rata
Share, indemnify Administrative Agent (to the extent not reimbursed by
Borrower) upon demand against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from Administrative Agent’s gross negligence or willful misconduct as
determined by a final non-appealable judgment of a court of competent
jurisdiction) that Administrative Agent may suffer or incur in connection with
the Financing Documents or any action taken or omitted by Administrative Agent
hereunder or thereunder. If any indemnity furnished to Administrative Agent for
any purpose shall, in the opinion of Administrative Agent, be insufficient or
become impaired, Administrative Agent may call for additional indemnity and
cease, or not commence, to do the acts indemnified against even if so directed
by Required Lenders until such additional indemnity is furnished.

 

Section 10.7         Right to Request and Act
on Instructions.

 

Administrative Agent may at any time request
instructions from Lenders with respect to any actions or approvals which by the
terms of this Agreement or of any of the Financing Documents Administrative
Agent is permitted or desires to take or to grant, and if such instructions are
promptly requested, Administrative Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Financing Documents until it shall
have received such instructions from Required Lenders or all or such other
portion of Lenders as shall be prescribed by this Agreement. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against
Administrative Agent as a result of Administrative Agent acting or refraining
from acting under this Agreement or any of the other Financing Documents in
accordance with the instructions of Required Lenders (or all or such other
portion of Lenders as shall be prescribed by this Agreement) and,
notwithstanding the instructions of Required Lenders (or such other applicable
portion of Lenders), Administrative Agent shall have no obligation to take any
action if it believes, in good faith, that such action would violate applicable
Law or exposes Administrative Agent to any liability for which it has not
received satisfactory indemnification in accordance with the provisions of
Section 10.6.

 

Section 10.8         Credit Decision.

 

Each Lender acknowledges that it has, independently
and without reliance upon Administrative Agent or any other Lender, and based
on such documents and information as it 

 

73

 

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

 

Section 10.9         Collateral Matters.

 

Lenders irrevocably authorize Administrative Agent, at
its option and in its discretion, to (i) release any Lien granted to or held by
Administrative Agent under any Security Document (A) upon termination of the
Revolving Loan Commitment and payment in full of all Obligations, the
expiration, termination or cash collateralization (to the satisfaction of
Administrative Agent) of all Letters of Credit and, to the extent required by
Administrative Agent in its sole discretion, the expiration, termination or cash
collateralization (to the satisfaction of Administrative Agent) of all Swap
Contracts secured, in whole or in part, by any Collateral, or (B) constituting
property sold or disposed of as part of or in connection with any disposition
permitted under any Financing Document (it being understood and agreed that
Administrative Agent may conclusively rely without further inquiry on a
certificate of a Responsible Officer as to the sale or other disposition of
property being made in full compliance with the provisions of the Financing
Documents), (ii) release or subordinate any Lien granted to or held by
Administrative Agent under any Security Document constituting property
described in Section 5.2(d) (it being understood and agreed that Administrative
Agent may conclusively rely without further inquiry on a certificate of a
Responsible Officer as to the identification of any property described in
Section 5.2(d)), and (iii) the Guaranty shall be terminated
(and any Lenders Lien on the assets of such Guarantor and the Equity Interests
in such Guarantor shall be terminated) as to any Guarantor at such time as such
Guarantor shall have been designated an Unrestricted Subsidiary pursuant to the
Financing Documents or such Guarantor shall be sold, merged, consolidated, dissolved
or liquidated in accordance with this Agreement. Upon request by
Administrative Agent at any time, Lenders will confirm Administrative Agent’s
authority to release and/or subordinate particular types or items of Collateral
pursuant to this Section 10.9.

 

Section 10.10       Agency for Perfection.

 

Administrative Agent and each Lender hereby appoint
each other Lender as agent for the purpose of perfecting Administrative Agent’s
security interest in assets which, in accordance with the Uniform Commercial Code
in any applicable jurisdiction, can be perfected by possession or control. Should
any Lender (other than Administrative Agent) obtain possession or control of
any such assets, such Lender shall notify Administrative Agent thereof, and,
promptly upon Administrative Agent’s request therefor, shall deliver such
assets to Administrative Agent or in accordance with Administrative Agent’s
instructions or transfer control to Administrative Agent in accordance with
Administrative Agent’s instructions. Each Lender agrees that it will not have
any right individually to enforce or seek to enforce any Security Document or
to realize upon any Collateral for the Loans unless instructed to do so by
Administrative Agent (or consented to by Administrative Agent, as provided in
Section 8.5), it being understood and agreed that such rights and remedies may
be exercised only by Administrative Agent.

 

74

 

Section 10.11       Notice of Default.

 

Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default except
with respect to defaults in the payment of principal, interest and fees
required to be paid to Administrative Agent for the account of Lenders, unless
Administrative Agent shall have received written notice from a Lender or
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a “notice of default”. Administrative
Agent will notify each Lender of its receipt of any such notice. Administrative
Agent shall take such action with respect to such Default or Event of Default
as may be requested by Required Lenders, or Required Lenders (or all or such
other portion of Lenders as shall be prescribed by this Agreement) in
accordance with the terms hereof. Unless and until Administrative Agent has
received any such request, Administrative Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interests
of Lenders.

 

Section 10.12       Successor Administrative
Agent.

 

Administrative Agent may at any time give notice of
its resignation to Lenders and Borrower. Upon receipt of any such notice of
resignation, Required Lenders shall have the right, in consultation with
Borrower, to appoint a successor Administrative Agent. Upon the acceptance of a
successor’s appointment as Administrative Agent hereunder and notice of such
acceptance to the retiring Administrative Agent, such successor shall succeed
to and become vested with all of the rights, powers, privileges and duties of
the retiring (or retired) Administrative Agent, the retiring Administrative
Agent’s resignation shall become immediately effective and the retiring
Administrative Agent shall be discharged from all of its duties and obligations
hereunder and under the other Financing Documents (if such resignation was not
already effective and such duties and obligations not already discharged, as
provided below in this paragraph). The fees payable by Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between Borrower and such successor. If no such
successor shall have been so appointed by Required Lenders and shall have
accepted such appointment within thirty (30) days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may on behalf of Lenders (but without any obligation) appoint
a successor Administrative Agent. From and following the expiration of such
thirty (30) day period, Administrative Agent shall have the exclusive right,
upon one (1) Business Days’ notice to Borrower and Lenders, to make its
resignation effective immediately. From and following the effectiveness of such
notice, (i) the retiring Administrative Agent shall be discharged from its
duties and obligations hereunder and under the other Financing Documents and
(ii) all payments, communications and determinations provided to be made by, to
or through Administrative Agent shall instead be made by or to each Lender
directly, until such time as Required Lenders appoint a successor
Administrative Agent as provided for above in this paragraph. The provisions of
this Agreement shall continue in effect for the benefit of any retiring
Administrative Agent and its sub-agents after the effectiveness of its
resignation hereunder and under the other Financing Documents in respect of any
actions taken or omitted to be taken by any of them while the retiring
Administrative Agent was acting or was continuing to act as Administrative
Agent.

 

75

 

Section 10.13       Disbursements of Revolving
Loans; Payment and Sharing of Payment.

 

(a)           Revolving Loan
Advances, Payments and Settlements; Interest and Fee Payments.

 

(i)            Administrative
Agent shall have the right, on behalf of Lenders to disburse funds to Borrower
for all Revolving Loans requested or deemed requested by Borrower pursuant to
the terms of this Agreement regardless of whether the conditions precedent set
forth in Section 7.2 are then satisfied, including the existence of any Default
or Event of Default either before or after giving effect to the making of such
Revolving Loans; provided, that Administrative Agent shall not advance any
Revolving Loan pursuant to this clause (i) if, to the knowledge of
Administrative Agent, the Revolving Loan Outstandings exceed the Revolving Loan
Limit, either before or after giving effect to the making of any proposed
Revolving Loan. Administrative Agent shall be conclusively entitled to assume,
for purposes of the preceding sentence, that each Lender will fund its Pro Rata
Share of all Revolving Loans requested by Borrower. Each Lender shall reimburse
Administrative Agent on demand, in accordance with the provisions of the
immediately following paragraph, for all funds disbursed on its behalf by
Administrative Agent pursuant to the first sentence of this clause (i), or if
Administrative Agent so requests, each Lender will remit to Administrative
Agent its Pro Rata Share of any Revolving Loan before Administrative Agent
disburses the same to Borrower. If Administrative Agent elects to require that
each Lender make funds available to Administrative Agent, prior to a
disbursement by Administrative Agent to Borrower, Administrative Agent shall
advise each Lender by telephone, facsimile or e-mail of the amount of such
Lender’s Pro Rata Share of the Revolving Loan requested by Borrower no later
than noon (Chicago time) on the date of funding of such Revolving Loan, and
each such Lender shall pay Administrative Agent on such date such Lender’s Pro
Rata Share of such requested Revolving Loan, in same day funds, by wire
transfer to the Payment Account, or such other account as may be identified by
Administrative Agent to Lenders from time to time. If any Lender fails to pay
the amount of its Pro Rata Share within one (1) Business Day after
Administrative Agent’s demand, Administrative Agent shall promptly notify Borrower,
and Borrower shall immediately repay such amount to Administrative Agent. Any
repayment required by Borrower pursuant to this Section 10.13 shall be
accompanied by accrued interest thereon from and including the date such amount
is made available to Borrower to but excluding the date of payment at the rate
of interest then applicable to Revolving Loans which are Base Rate Loans. Nothing
in this Section 10.13 or elsewhere in this Agreement or the other Financing
Documents shall be deemed to require Administrative Agent to advance funds on
behalf of any Lender or to relieve any Lender from its obligation to fulfill
its commitments hereunder or to prejudice any rights that Administrative Agent
or Borrower may have against any Lender as a result of any default by such
Lender hereunder.

 

(ii)           On
a Business Day of each week as selected from time to time by Administrative
Agent, or more frequently (including daily), if Administrative Agent so elects
(each such day being a “Settlement Date”),
Administrative Agent will advise each Lender by telephone, facsimile or e-mail
of the amount of each such Lender’s percentage interest of the Revolving Loan
balance as of the close of business of the Business Day immediately preceding
the Settlement Date. In the event that payments are necessary to adjust the
amount of such Lender’s actual percentage interest of the Revolving Loan
balance to such Lender’s required percentage interest of the Revolving Loan
balance as of any Settlement Date, the party from which such payment is due
shall pay Administrative Agent, without setoff or discount, to the 

 

76

 

Payment Account not later than noon (Chicago time) on
the Business Day following the Settlement Date the full amount necessary to
make such adjustment. Any obligation arising pursuant to the immediately
preceding sentence shall be absolute and unconditional and shall not be
affected by any circumstance whatsoever. In the event settlement shall not have
occurred by the date and time specified in the second preceding sentence,
interest shall accrue on the unsettled amount at the Federal Funds Rate, for
the first three (3) days following the scheduled date of settlement, and
thereafter at the Base Rate plus the Base Rate Margin applicable to Revolving
Loans.

 

(iii)          On each Settlement Date, Administrative Agent
shall advise each Lender by telephone, facsimile or e-mail of the amount of
such Lender’s percentage interest of principal, interest and fees paid for the
benefit of Lenders with respect to each applicable Revolving Loan, to the
extent of such Lender’s Revolving Loan Exposure with respect thereto, and shall
make payment to such Lender not later than noon (Chicago time) on the Business
Day following the Settlement Date of such amounts in accordance with wire
instructions delivered by such Lender to Administrative Agent, as the same may
be modified from time to time by written notice to Administrative Agent;
provided, that, in the case such Lender is a Defaulted Lender, Administrative
Agent shall be entitled to set off the funding short fall against that
Defaulted Lender’s respective share of all payments received from Borrower.

 

(iv)          On
the Closing Date, Administrative Agent, on behalf of Lenders, may elect to
advance to Borrower the full amount of the initial Loans to be made on the
Closing Date prior to receiving funds from Lenders, in reliance upon each
Lender’s commitment to make its Pro Rata Share of such Loans to Borrower in a
timely manner on such date. If Administrative Agent elects to advance the
initial Loans to Borrower in such manner, Administrative Agent shall be
entitled to receive all interest that accrues on the Closing Date on each
Lender’s Pro Rata Share of such Loans unless Administrative Agent receives such
Lender’s Pro Rata Share of such Loans by 3:00 p.m. (Chicago time) on the
Closing Date.

 

(v)           The
provisions of this Section 10.13(a) shall be deemed to be binding upon
Administrative Agent and Lenders notwithstanding the occurrence of any Default
or Event of Default, or any insolvency or bankruptcy proceeding pertaining to
Borrower or any other Credit Party.

 

(b)           [Reserved]

 

(c)           Return of Payments.

 

(i)            If
Administrative Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Administrative Agent from Borrower and such related payment is not received by
Administrative Agent, then Administrative Agent will be entitled to recover
such amount from such Lender on demand without setoff, counterclaim or
deduction of any kind, together with interest accruing on a daily basis at the
Federal Funds Rate.

 

(ii)           If
Administrative Agent determines at any time that any amount received by
Administrative Agent under this Agreement must be returned to Borrower or paid
to any 

 

77

 

other Person pursuant to any insolvency Law or
otherwise, then, notwithstanding any other term or condition of this Agreement
or any other Financing Document, Administrative Agent will not be required to
distribute any portion thereof to any Lender. In addition, each Lender will
repay to Administrative Agent on demand any portion of such amount that
Administrative Agent has distributed to such Lender, together with interest at
such rate, if any, as Administrative Agent is required to pay to Borrower or
such other Person, without setoff, counterclaim or deduction of any kind.

 

(d)           Defaulted Lenders.
The failure of any Defaulted Lender to make any Revolving Loan or any payment
required by it hereunder shall not relieve any other Lender of its obligations
to make such Revolving Loan or payment, but neither any other Lender nor
Administrative Agent shall be responsible for the failure of any Defaulted
Lender to make a Revolving Loan or make any other payment required hereunder. Notwithstanding
anything set forth herein to the contrary, a Defaulted Lender shall not have
any voting or consent rights under or with respect to any Financing Document or
constitute a “Lender” (or be
included in the calculation of “Required
Lenders” or “Required Lenders”
hereunder) for any voting or consent rights under or with respect to any
Financing Document.

 

(e)           Sharing of Payments.
If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary,
by application of setoff or otherwise) on account of any Loan (other than
pursuant to the terms of Sections 2.7(e)(v) or Section 2.14) in excess of its
pro rata share of payments entitled pursuant to the other provisions of this
Section 10.13, such Lender shall purchase from the other Lenders such
participations in extensions of credit made by such other Lenders (without
recourse, representation or warranty) as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter required to be returned or otherwise
recovered from such purchasing Lender, such portion of such purchase shall be rescinded
and each Lender which has sold a participation to the purchasing Lender shall
repay to the purchasing Lender the purchase price to the ratable extent of such
return or recovery, without interest. Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this clause (e) may,
to the fullest extent permitted by Law, exercise all its rights of payment
(including pursuant to Section 8.5) with respect to such participation as fully
as if such Lender were the direct creditor of Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
Law, any Lender receives a secured claim in lieu of a setoff to which this
clause (e) applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of Lenders entitled under this clause (e) to share in the benefits of any
recovery on such secured claim.

 

78

 

Section 10.14       Right to Perform, Preserve
and Protect.

 

If any Credit Party fails to perform any obligation
hereunder or under any other Financing Document, Administrative Agent itself
may, but shall not be obligated to, cause such obligation to be performed at
Borrower’s expense. Administrative Agent is further authorized by Borrower and
Lenders to make expenditures from time to time which Administrative Agent, in
its reasonable business judgment, deems necessary or desirable to (i) preserve
or protect the business conducted by Borrower, the Collateral, or any portion
thereof and/or (ii) enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations. Borrower hereby agrees to
reimburse Administrative Agent on demand for any and all costs, liabilities and
obligations incurred by Administrative Agent pursuant to this Section 10.13. Each
Lender hereby agrees to indemnify Administrative Agent upon demand for any and
all costs, liabilities and obligations incurred by Administrative Agent
pursuant to this Section 10.14, in accordance with the provisions of Section
10.6.

 

Section 10.15       Additional Titled Agents.

 

Except for rights and powers, if any, expressly
reserved under this Agreement to any bookrunner, arranger or to any titled
agent named on the cover page of this Agreement, other than Administrative
Agent (collectively, the “Additional Titled Agents”),
and except for obligations, liabilities, duties and responsibilities, if any,
expressly assumed under this Agreement by any Additional Titled Agent, no
Additional Titled Agent, in such capacity, has any rights, powers, liabilities,
duties or responsibilities hereunder or under any of the other Financing
Documents. Without limiting the foregoing, no Additional Titled Agent shall have
nor be deemed to have a fiduciary relationship with any Lender. At any time
that any Lender serving (or whose Affiliate is serving) as an Additional Titled
Agent shall have transferred to any other Person (other than any Affiliates)
all of its interests in the Loans and in the Revolving Loan Commitment, such
Person shall be deemed to have concurrently resigned as such Additional Titled
Agent.

 

Section 10.16       Funding and Settlement
Provisions Applicable When Non-Funding Lenders Exist.

 

So long as Required Lenders have not waived the
conditions to the funding of Revolving Loans set forth in Section 7.2 (nor
waived an Event of Default for purposes of satisfying such conditions), any
Lender may deliver a notice to each of Administrative Agent stating that such
Lender shall cease making Revolving Loans due to the non-satisfaction of one or
more conditions to funding Revolving Loans set forth in Section 7.2, and
specifying any such non-satisfied conditions. Any Lender delivering any such
notice shall become a non-funding Lender (a “Non-Funding
Lender”) for purposes of this Agreement commencing on the Business
Day following receipt by Administrative Agent of such notice, and shall cease
to be a Non-Funding Lender on the date on which (i) such Lender has either revoked
the effectiveness of such notice or acknowledged in writing to each of
Administrative Agent the satisfaction of the condition(s) specified in such
notice, or (ii) Required Lenders waive the conditions to the funding of such
Revolving Loans set forth in Section 7.2 giving rise to such notice by
Non-Funding Lender. Each Non-Funding Lender shall remain a Lender for purposes
of this Agreement to the extent that such Non-Funding Lender has Revolving
Loans Outstanding in excess of zero; provided, 

 

79

 

that during any period of
time that any Non-Funding Lender exists, and notwithstanding any provision to
the contrary set forth herein, the following provisions shall apply:

 

(a)           For purposes of
determining the Pro Rata Share of each Lender under clause (v) of the
definition of such term, each Non-Funding Lender shall be deemed to have a
Revolving Loan Commitment Amount as in effect immediately before such Lender
became a Non-Funding Lender.

 

(b)           Except as provided in
clause (a) above, the Revolving Loan Commitment Amount of each Non-Funding
Lender shall be deemed to be zero.

 

(c)           The Revolving Loan
Commitment at any date of determination during such period shall be deemed to
be equal to the sum of (i) the aggregate Revolving Loan Commitment Amounts of
all Lenders, other than the Non-Funding Lenders as of such date, plus (ii) the
aggregate Revolving Loan Outstandings of all Non-Funding Lenders as of such
date.

 

(d)           Administrative Agent
shall have no right to make or disburse Revolving Loans for the account of any
Non-Funding Lender pursuant to Section 10.12, or to assume that any Non-Funding
Lender will fund its Pro Rata Share of any Revolving Loans requested by
Borrower during such period.

 

(e)           Administrative Agent shall
have no right to make or disburse Revolving Loans for the account of any
Non-Funding Lender pursuant to Section 2.2(c) to pay interest, fees, expenses
and other charges of any Credit Party, other than reimbursement obligations
that have arisen pursuant to Section 2.9(c) in respect of Letters of Credit
issued at the time such Non-Funding Lender was not then a Non-Funding Lender.

 

(f)            [Reserved].

 

(g)           Administrative Agent
shall have no right to (i) make or disburse Revolving Loans as provided in
Section 2.2(c) for the account of any Lender that was a Non-Funding Lender at
the time of issuance of any Letter of Credit for which funding or reimbursement
obligations have arisen pursuant to Section 2.9(c), or (ii) assume that any
Lender that was a Non-Funding Lender at the time of issuance of such Letter of
Credit will fund any portion of the Revolving Loans to be funded pursuant to
Section 2.9(c) in respect of such Letter of Credit. In addition, no Lender that
was a Non-Funding Lender at the time of issuance of any Letter of Credit for
which funding or reimbursement obligations have arisen pursuant to Section
2.9(c), shall have an obligation to fund any portion of the Revolving Loans to
be funded pursuant to Section 2.9(c) in respect to such Letter of Credit, or to
make any payment to Administrative Agent or the L/C Issuer, as applicable,
under Section 2.9(f)(iii) in respect of such Letter of Credit, or be deemed to
have purchased any interest or participation in such Letter of Credit from
Administrative Agent or the L/C Issuer, as applicable, under Section 2.9(f)(i)
or (ii).

 

(h)           To the extent that
Administrative Agent applies proceeds of Collateral or other payments received
by Administrative Agent to repayment of Revolving Loans pursuant to Section
8.6, such payments and proceeds shall be applied first in respect of Revolving
Loans made at the time any Non-Funding Lenders exist, and second in respect of
all other outstanding Revolving Loans.

 

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ARTICLE 11

MISCELLANEOUS

 

Section 11.1         Survival.

 

All agreements, representations and warranties made
herein and in every other Financing Document shall survive the execution and
delivery of this Agreement and the other Financing Documents and the other Financing
Documents. The provisions of Sections 2.13 and 2.14 and Articles 9, 10 and 11
shall survive the payment of the Obligations (both with respect to any Lender
and all Lenders collectively) and any termination of this Agreement.

 

Section 11.2         No Waivers.

 

No failure or delay by Administrative Agent or any
Lender in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein and therein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law. Any reference in any Financing Document to the “continuing”
nature of any Event of Default shall not be construed as establishing or
otherwise indicating that Borrower or any other Credit Party has the
independent right to cure any such Event of Default, but is rather presented
merely for convenience should such Event of Default be waived in accordance
with the terms of the applicable Financing Documents.

 

Section 11.3         Notices.

 

(a)           All notices, requests
and other communications to any party hereunder shall be in writing (including
prepaid overnight courier, facsimile transmission, e mail, electronic
submissions or similar writing) and shall be given to such party at its
address, facsimile number or e mail address set forth on the signature pages
hereof (or, in the case of any such Lender who becomes a Lender after the date
hereof, in an Assignment Agreement or in a notice delivered to Borrower and
Administrative Agent by the assignee Lender forthwith upon such assignment) or
at such other address, facsimile number or e-mail address as such party may
hereafter specify for the purpose by notice to Administrative Agent and
Borrower; provided, that notices, requests or other communications shall be
permitted by e mail or other electronic submissions only in accordance with the
provisions of Section 11.3(b). Each such notice, request or other communication
shall be effective (i) if given by facsimile, when such notice is transmitted
to the facsimile number specified by this Section and the sender receives a
confirmation of transmission from the sending facsimile machine, (ii) if given
by e-mail or other electronic submissions, as set forth in Section 11.3(c) or
(iii) if given by mail, prepaid overnight courier or any other means, when
received at the applicable address specified by this Section.

 

(b)           Notices and other communications
to the parties hereto may be delivered or furnished by electronic communication
(including e-mail and Internet or intranet websites) provided, that (i) the
foregoing shall not apply to notices sent directly to any party hereto if such
party has notified Administrative Agent that it has elected not to receive
notices by electronic communication (which election may be limited to
particular notices) and (ii) no Notices of 

 

81

 

Borrowing,
Notices of LC Credit Event or any notices regarding request for advances
hereunder shall be permitted to be delivered or furnished by Borrower by
electronic communication unless made in accordance with specific procedures
approved from time to time by Administrative Agent.

 

(c)           Unless Administrative
Agent otherwise prescribes, (i) notices and other communications sent to an
e-mail address shall be deemed received upon the sender’s receipt of an
acknowledgment from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written
acknowledgment), and (ii) notices or communications posted to an Internet or
intranet website shall be deemed received upon the deemed receipt by the
intended recipient at its e-mail address as described in the foregoing clause
(i) of notification that such notice or communication is available and
identifying the website address therefor, provided, that if any such notice or
other communication is not sent or posted during normal business hours, such
notice or communication shall be deemed to have been sent at the opening of
business on the next Business Day.

 

Section 11.4         Severability.

 

In case any provision of or obligation under this
Agreement or any other Financing Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

 

Section 11.5         Amendments and Waivers.

 

(a)           General Provisions.
No provision of this Agreement or any other Financing Document may be amended,
waived or otherwise modified unless such amendment, waiver or other
modification is in writing and is signed or otherwise approved by Borrower and
Required Lenders (and, if (i) any amendment, waiver or other modification would
either increase a Lender’s Revolving Loan Commitment Amount, and (ii) the
rights or duties of Administrative Agent and/or LC Issuer are affected thereby,
by Administrative Agent and/or LC Issuer, as the case may be); provided that no
such amendment, waiver or other modification shall, unless signed or otherwise
approved in writing by all Lenders directly affected thereby, (A) reduce the
principal of, rate of interest on or any fees with respect to any Loan or
Reimbursement Obligation or forgive any principal, interest or fees with
respect to any Loan or Reimbursement Obligation, (B) postpone the date fixed
for, or waive, any payment (other than a payment pursuant to Section 2.3(b),
(c) or (d)) of principal of any Loan, or of any Reimbursement Obligation or of
interest on any Loan or any Reimbursement Obligation or any fees hereunder or
postpone the date of termination of the commitment of any Lender hereunder, (C)
change the definition of the term Required Lenders or the percentage of Lenders
which shall be required for Lenders to take any action hereunder, (D) release
all or substantially all of the Collateral, authorize Borrower to sell or
otherwise dispose of all or substantially all of the Collateral or release any
guarantor of all or any portion of the Obligations of its Guarantee obligations
with respect thereto, except, in each case with respect to this clause (D), as
otherwise may be provided in this Agreement or the other Financing Documents
(including in connection with any disposition permitted hereunder), (E) amend,
waive or otherwise modify this Section 11.5(a) or the definitions of the terms
used in this Section 11.5(a) insofar as the definitions affect the 

 

82

 

substance of
this Section 11.5(a); or (F) consent to the assignment, delegation or other
transfer by any Credit Party of any of its rights and obligations under any
Financing Document or release Borrower of its payment obligations under any
Financing Document, except, in each case with respect to this clause (F),
pursuant to a merger or consolidation permitted pursuant to this Agreement. It
is hereby understood and agreed that all Lenders shall be deemed directly
affected by an amendment, waiver or other modification of the type described in
the preceding clauses (C), (D), (E) and (F) of the preceding sentence.

 

(b)           Eligible Swap
Counterparty Consent Rights. Without limitation of the provisions of the
preceding clause (a), no waiver, amendment or other modification to this
Agreement shall, unless signed by each Eligible Swap Counterparty then in
existence, modify the provisions of Section 8.6 in any manner adverse to the
interests of each such Eligible Swap Counterparty.

 

Section 11.6         Assignments;
Participations; Replacement of Lenders.

 

(a)           Assignments.

 

(i)            Any
Lender may at any time assign to one or more Eligible Assignees all or any
portion of such Lender’s Loans and interest in the Revolving Loan Commitment,
together with all related obligations of such Lender hereunder. Except as
Administrative Agent may otherwise agree, the amount of any such assignment
(determined as of the date of the applicable Assignment Agreement or, if a “Trade Date” is specified in such Assignment Agreement, as of
such Trade Date) shall be in a minimum aggregate amount equal to $5,000,000 or,
if less, the assignor’s entire interests in the Revolving Loan Commitment and
outstanding Loans; provided, that, in connection with simultaneous assignments
to two or more related Approved Funds, such Approved Funds shall be treated as
one assignee for purposes of determining compliance with the minimum assignment
size referred to above. Borrower and Administrative Agent shall be entitled to
continue to deal solely and directly with such Lender in connection with the
interests so assigned to an Eligible Assignee until Administrative Agent shall
have received and accepted an effective Assignment Agreement executed, delivered
and fully completed by the applicable parties thereto, such other information
regarding such Eligible Assignee as Administrative Agent reasonably shall
require and a processing fee of $3,500; provided, only one processing fee shall
be payable in connection with simultaneous assignments to two or more related
Approved Funds.

 

(ii)           From
and after the date on which the conditions described above have been met, (A)
such Eligible Assignee shall be deemed automatically to have become a party
hereto and, to the extent of the interests assigned to such Eligible Assignee
pursuant to such Assignment Agreement, shall have the rights and obligations of
a Lender hereunder and (B) the assigning Lender, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, shall be released from its rights and obligations hereunder (other
than those that survive termination pursuant to Section 11.1). Upon the request
of the Eligible Assignee (and, as applicable, the assigning Lender) pursuant to
an effective Assignment Agreement, Borrower shall execute and deliver to
Administrative Agent for delivery to the Eligible Assignee (and, as applicable,
the assigning Lender) Notes in the aggregate principal amount of the Eligible
Assignee’s percentage interest in the Revolving Loan Commitment (and, as
applicable, Notes in the principal amount of that portion of the Revolving 

 

83

 

Loan Commitment retained by the assigning Lender). Upon
receipt by the assigning Lender of such Note, the assigning Lender shall return
to Borrower any prior Note held by it.

 

(iii)          Administrative Agent, acting solely for this
purpose as an agent of Borrower, shall maintain at its offices located in
Chicago, Illinois a copy of each Assignment Agreement delivered to it and a
register for the recordation of the names and addresses of each Lender, and the
commitments of, and principal amount of the Loans owing to, such Lender
pursuant to the terms hereof. The entries in such register shall be conclusive,
and Borrower, Administrative Agent and Lenders may treat each Person whose name
is recorded therein pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. Such
register shall be available for inspection by Borrower and any Lender, at any
reasonable time upon reasonable prior notice to Administrative Agent.

 

(iv)          Notwithstanding
the foregoing provisions of this Section 11.6(a) or any other provision of this
Agreement, any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank; provided that no such pledge or assignment shall release
such Lender from any of its obligations hereunder or substitute any such
pledgee or assignee for such Lender as a party hereto.

 

(v)           Notwithstanding
the foregoing provisions of this Section 11.6(a) or any other provision of this
Agreement, Administrative Agent has the right, but not the obligation, to
effectuate assignments of Loans and Revolving Loan Commitments via an
electronic settlement system acceptable to Administrative Agent as designated
in writing from time to time to Lenders by Administrative Agent (the “Settlement Service”). At any time when Administrative Agent
elects, in its sole discretion, to implement such Settlement Service, each such
assignment shall be effected by the assigning Lender and proposed assignee
pursuant to the procedures then in effect under the Settlement Service, which
procedures shall be consistent with the other provisions of this Section
11.6(a). Each assigning Lender and proposed Eligible Assignee shall comply with
the requirements of the Settlement Service in connection with effecting any
assignment of Loans and Revolving Loan Commitments pursuant to the Settlement
Service. With the prior approval of each of Administrative Agent and Borrower,
as applicable, Administrative Agent’s and Borrower’s approval of such Eligible
Assignee shall be deemed to have been automatically granted with respect to any
transfer effected through the Settlement Service. Assignments and assumptions
of the Loans and Revolving Loan Commitments shall be effected by the provisions
otherwise set forth herein until Administrative Agent notifies Lenders of the
Settlement Service as set forth herein.

 

(b)           Participations.

 

Any Lender may at any time, without the consent of, or
notice to, Borrower or Administrative Agent, sell to one or more Persons
participating interests in its Loans, commitments or other interests hereunder
(any such Person, a “Participant”). In
the event of a sale by a Lender of a participating interest to a Participant,
(i) such Lender’s obligations hereunder shall remain unchanged for all
purposes, (ii) Borrower and Administrative Agent shall continue to deal solely
and directly with such Lender in connection with such Lender’s rights 

 

84

 

and obligations hereunder
and (iii) all amounts payable by Borrower shall be determined as if such Lender
had not sold such participation and shall be paid directly to such Lender. No
Participant shall have any direct or indirect voting rights hereunder except
with respect to any event described in Section 11.5 expressly requiring the
unanimous vote of all Lenders or, as applicable, all affected Lenders. Borrower
agrees that if amounts outstanding under this Agreement are due and payable (as
a result of acceleration or otherwise), each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement and with respect to any Letter of Credit to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under this Agreement; provided that such right of set-off shall be
subject to the obligation of each Participant to share with Lenders, and
Lenders agree to share with each Participant, as provided in Section 8.5.

 

(c)           Replacement of
Lenders.

 

Within thirty (30) days after(i) receipt by
Administrative Agent of notice and demand from any Lender for payment of
additional costs as provided in Sections 2.7(e)(v) or Section 2.14, which
demand shall not have been revoked, (ii) Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to Section 2.13, (iii) any Lender is a Defaulted Lender,
and the circumstances causing such status shall not have been cured or waived;
or (iv) any failure by any Lender to consent to a requested amendment, waiver
or modification to any Financing Document in which Required Lenders have
already consented to such amendment, waiver or modification but the consent of
each Lender, or each Lender affected thereby, is required with respect thereto,
(each relevant Lender in the foregoing clauses (i) through (iv) being an “Affected Lender”) each of Borrower and Administrative Agent
may, at its option, notify such Affected Lender and, in the case of Borrower
election, Administrative Agent, of such Person’s intention to obtain, at
Borrower’s expense, a replacement Lender (“Replacement Lender”)
for such Lender, which Replacement Lender shall be an Eligible Assignee and, in
the event the Replacement Lender is to replace an Affected Lender described in
the preceding clause (iv), such Replacement Lender consents to the requested
amendment, waiver or modification making the replaced Lender an Affected Lender.
In the event Borrower or Administrative Agent, as applicable, obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender shall sell, at par, and assign all of its Loans and
funding commitments hereunder to such Replacement Lender in accordance with the
procedures set forth in Section 11.6(a); provided, that (A) Borrower shall
have, as applicable, reimbursed such Lender for its increased costs and
additional payments for which it is entitled to reimbursement under any of
Sections 2.7(e)(v), 2.13 or Section 2.14, as applicable, of this Agreement
through the date of such sale and assignment and (B) Borrower shall pay to
Administrative Agent the $3,500 processing fee in respect of such assignment. In
the event that a replaced Lender does not execute an Assignment Agreement
pursuant to Section 11.6(a) within five (5) Business Days after receipt by such
replaced Lender of notice of replacement pursuant to this Section 11.6(c) and
presentation to such replaced Lender of an Assignment Agreement evidencing an
assignment pursuant to this Section 11.6(c), such replaced Lender shall be
deemed to have consented to the terms of such Assignment Agreement, and any
such Assignment Agreement executed by Administrative Agent, the Replacement
Lender and, to the extent required pursuant to Section 11.6(a), Borrower, shall
be effective for purposes of this Section 11.6(c) and Section 11.6(a). Upon any
such assignment and payment, such replaced Lender shall no longer constitute a “Lender” for purposes hereof, other 

 

85

 

than with respect to such
rights and obligations that survive termination as set forth in Section 11.1.

 

(d)           Credit Party
Assignments.

 

Except as provided in Section 11.5(a)(F), no
Credit Party may assign, delegate or otherwise transfer any of its rights or
other obligations hereunder or under any other Financing Document without the
prior written consent of Administrative Agent and each Lender.

 

Section 11.7         Headings.

 

Headings and captions used in the Financing Documents
(including the Exhibits, Schedules and Annexes hereto and thereto) are included
for convenience of reference only and shall not be given any substantive
effect.

 

Section 11.8         Confidentiality.

 

Administrative Agent and each Lender shall hold all
non-public information regarding the Credit Parties and their respective
businesses in accordance with such Person’s customary procedures for handling
information of such nature, except that disclosure of such information may be
made (i) to their respective agents, employees, Subsidiaries, Affiliates,
attorneys, auditors, professional consultants, rating agencies, insurance
industry associations and portfolio management services, (ii) to prospective
transferees or purchasers of any interest in the Loans, and to prospective
contractual counterparties (or the professional advisors thereto) in Swap
Contracts permitted hereby, provided that any such Persons shall have agreed to
be bound by the provisions of this Section 11.8, (iii) as required by Law,
subpoena, judicial order or similar order and in connection with any
litigation, (iv) as may be required in connection with the examination, audit
or similar investigation of such Person and (v) to a Person that is a trustee,
investment advisor, collateral manager, servicer, noteholder or secured party
in a Securitization (as hereinafter defined) in connection with the
administration, servicing and reporting on the assets serving as collateral for
such Securitization. For the purposes of this Section, “Securitization”
shall mean a public or private offering by a Lender or any of its Affiliates or
their respective successors and assigns, of Capital Stock which represent an
interest in, or which are collateralized, in whole or in party, by the Loans. Confidential
information shall not include information that either (A) is in the public
domain, or becomes part of the public domain after disclosure to such Person
through no fault of such Person, or (B) is disclosed to such Person by a Person
other than a Credit Party, provided Administrative Agent does not have actual
knowledge that such Person is prohibited from disclosing such information. The
obligations of Administrative Agent and Lenders under this Section 11.8 shall
supersede and replace the obligations of Administrative Agent and Lenders under
any confidentiality agreement in respect of this financing executed and
delivered by Administrative Agent or any Lender prior to the date hereof.

 

Section 11.9         Waiver of Consequential
and Other Damages.

 

To the fullest extent permitted by applicable Law,
Borrower shall not assert, and hereby waives, any claim against any Indemnitee,
on any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in 

 

86

 

connection with, or as a
result of this Agreement, any other Financing Document or any agreement or
instrument contemplated hereby or thereby, the transactions contemplated hereby
or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No
Indemnitee shall be liable for any damages arising from the use by unintended
recipients of any information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or the other Financing Documents or the transactions contemplated
hereby or thereby.

 

Section 11.10       Marshaling; Payments Set
Aside.

 

Neither Administrative Agent nor any Lender shall be
under any obligation to marshal any assets in payment of any or all of the
Obligations. To the extent that Borrower makes any payment or Administrative
Agent enforces its Liens or Administrative Agent or any Lender exercises its
right of set-off, and such payment or the proceeds of such enforcement or
set-off is subsequently invalidated, declared to be fraudulent or preferential,
set aside, or required to be repaid by anyone, then to the extent of such
recovery, the Obligations or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefore, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or set-off had not occurred.

 

Section 11.11       GOVERNING LAW; SUBMISSION
TO JURISDICTION.

 

EXCEPT AS OTHERWISE SET FORTH IN
THE MORTGAGES, THE FIRST AMENDMENTS TO MORTGAGES AND THE ASSIGNMENT OF NOTES
AND LIENS, THIS AGREEMENT, EACH NOTE AND EACH OTHER FINANCING DOCUMENT, AND ALL
MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN
CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE BOROUGH OF
MANHATTAN, CITY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT,
SUBJECT TO ADMINISTRATIVE AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS SHALL BE
LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN
(10) DAYS AFTER THE SAME HAS BEEN POSTED.

 

87

 

Section 11.12       WAIVER OF JURY TRIAL.

 

EACH OF BORROWER, ADMINISTRATIVE
AGENT AND LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH
OF BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING
DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED
FUTURE DEALINGS. EACH OF BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER
WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS
JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS.

 

Section 11.13       Publication; Advertisement.

 

(a)           Publication. No
Credit Party will directly or indirectly publish, disclose or otherwise use in
any public disclosure, advertising material, promotional material, press
release or interview, any reference to the name, logo or any trademark of
Merrill Lynch or any of its Affiliates or any reference to this Agreement or
the financing evidenced hereby, in any case except (i) as required by Law,
subpoena or judicial or similar order, in which case the applicable Credit
Party shall give Administrative Agent prior written notice of such publication
or other disclosure or (ii) with Merrill Lynch’s prior written consent.

 

(b)           Advertisement. Each
Lender and each Credit Party hereby authorizes Merrill Lynch to publish the
name of such Lender and Credit Party, the existence of the financing
arrangements referenced under this Agreement, the primary purpose and/or
structure of those arrangements, the amount of credit extended under each
facility, the title and role of each party to this Agreement, and the total
amount of the financing evidenced hereby in any “tombstone”, comparable
advertisement or press release which Merrill Lynch elects to submit for
publication. In addition, each Lender and each Credit Party agrees that Merrill
Lynch may provide lending industry trade organizations with information
necessary and customary for inclusion in league table measurements after the
Closing Date. With respect to any of the foregoing, Merrill Lynch shall provide
Borrower with an opportunity to review and confer with Merrill Lynch regarding
the contents of any such tombstone, advertisement or information, as
applicable, prior to its submission for publication and, following such review
period, Merrill Lynch may, from time to time, publish such information in any
media form desired by Merrill Lynch, until such time that Borrower shall have
requested Merrill Lynch cease any such further publication.

 

88

 

Section 11.14       Counterparts; Integration.

 

This Agreement and the other Financing Documents may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Signatures by facsimile shall bind the parties hereto. This
Agreement and the other Financing Documents constitute the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.

 

Section 11.15       No Strict Construction.

 

The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.

 

Section 11.16       USA PATRIOT Act
Notification.

 

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

 

Section 11.17       Amendment and Restatement.

 

This Agreement, the Notes the Guaranty and the
Mortgages entered into on the date hereof are in amendment and restatement, but
not novation of the Existing Credit Facility and the notes, guarantees and mortgages
executed in connection therewith.

 

89

 

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

 

	
   

  	
  WARREN RESOURCES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Norman F. Swanton

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Norman F. Swanton

  
	
   

  	
   

  	
  Title:

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  1114 Avenue of the Americas

  
	
   

  	
   

  	
  34th Floor

  
	
   

  	
   

  	
  New York, NY 10036

  
	
   

  	
   

  	
  Attention: David Fleming, Esq.

  
	
   

  	
   

  	
  Secretary and General Counsel

  
							

 

	
   

  	
  Facsimile number: (212) 697-9466

  
	
   

  	
  E-mail Address:dfleming@warrenresources.com

  
	
   

  	
  Taxpayer Identification Number:

  
	
   

  	
   

  
	
   

  	
  Borrower’s Account Designation:

  
	
   

  	
   

  
	
   

  	
  JP Morgan Chase Bank

  
	
   

  	
  One Chase Plaza

  
	
   

  	
  New York, NY  10081

  
	
   

  	
  ABA # 021000021

  
	
   

  	
  Acct. # 459-1-517471

  
	
   

  	
  Warren Resources, Inc.

  
	
   

  	
  489 Fifth Avenue, 32nd Floor

  
	
   

  	
  New York, NY  10017

  

 

 

	
   

  	
  MERRILL LYNCH CAPITAL, a division of

  Merrill Lynch Business Financial Services Inc.,

  as Administrative Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles Kingswell-Smith

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Charles Kingswell-Smith

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
     600 Travis St. Suite 7400

  
	
   

  	
   

  	
     Houston Texas, 77002

  
	
   

  	
   

  	
     Attn:  Account Manager for

  
	
   

  	
   

  	
     WARREN RESOURCES, INC.

  
							

 

	
   

  	
  transaction

  
	
   

  	
   

  
	
   

  	
  Facsimile number:

  
	
   

  	
  E-Mail Address:

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Merrill Lynch Capital

  222 N. LaSalle Street, 16th Floor

  Chicago, Illinois  60601

  Attn:  Group Senior Transaction
  Attorney,

  Corporate Finance, for WARREN RESOURCES,

  INC. transaction

  Facsimile number:  (312) 499-3126

  
	
   

  	
   

  
	
   

  	
  And with an additional copy to:

  
	
   

  	
   

  
	
   

  	
  Thompson & Knight LLP

  
	
   

  	
   

  
	
   

  	
       Address: 

  	
  1700 Pacific Ave., Suite 3300

  
	
   

  	
   

  	
  Dallas, Texas 

  
	
   

  	
   

  	
  Attn: James McKellar

  
	
   

  	
   

  
	
   

  	
  Facsimile number: 214.969.1605

  E-Mail Address: 
  James.McKellar@tklaw.com

  
	
   

  	
   

  
	
   

  	
  Payment Account Designation:

  
	
   

  	
       LaSalle Bank, NA

       Chicago, IL

       ABA No.: 
  071 000 505

       Account No.: 5800393182

       Account Name: Warren
  Resources, Inc.

  

 

 

	
   

  	
  BMO CAPITAL MARKETS

  FINANCING, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Gumaro
  Tijerina

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Gumaro Tijerina

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  First Canadian Place, 19th Floor

  
	
   

  	
   

  	
  Toronto, Ontario Canada M5X 1A1

  
	
   

  	
   

  
	
   

  	
   

  	
  Facsimile number: 
  416-867-4050

  
	
   

  	
   

  	
  E-Mail Address: 
  Joanne.panizares@bmo.com

  
							

 

 

 

	
   

  	
  BANK OF SCOTLAND PLC, NEW YORK BRANCH

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Joseph
  Fratus

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Joseph Fratus

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  First Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  Notice Address:

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank of Scotland

  	
   

  
	
   

  	
  565 Fifth Avenue, 5th Floor

  	
   

  
	
   

  	
  New York, NY 10017

  	
   

  
	
   

  	
   

  
	
   

  	
  Attn.:

  	
  Victoria McFadden

  	
   

  
	
   

  	
  Facsimile No.:

  	
  (212) 479-2806

  	
   

  
								

 

 

	
   

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Monte E.
  Deckerd

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Monte E. Deckerd

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  950 17th St.

  
	
   

  	
   

  	
  DNCOT8E

  
	
   

  	
   

  	
  Denver, CO 80202

  
	
   

  	
   

  
	
   

  	
   

  	
  Facsimile number: 
  303-585-4362

  
	
   

  	
   

  	
  E-Mail Address:

  	
  monte.deckerd@usbank.com

  	
   

  
									

 

 

	
   

  	
  CAPITAL ONE N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Nancy G.
  Moragas

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: 

  	
   Nancy G.
  Moragas

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Senior Vice President 

  	
   

  
	
   

  	
   

  	
  Address:

  	
  313 Carondelet St., 
  10th Floor

  
	
   

  	
   

  	
  New Orleans, LA 70112

  
	
   

  	
   

  	
  Facsimile number: 
  504-533-5594

  
	
   

  	
   

  	
  E-Mail Address:

  	
   

  
	
   

  	
   

  	
  nancy.moragas@capitalonebank.com

  	
   

  
							

 

 

	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Josh
  Strong

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Josh Strong

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  Assistant Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  910 Louisiana, Ste 410

  
	
   

  	
   

  	
  Houston, Texas 77002

  
	
   

  	
   

  
	
   

  	
   

  	
  Facsimile number: 
  713-220-5651

  
	
   

  	
   

  	
  E-Mail:

  	
  jstrong@comerica.com

  	
   

  
							

 

 

Annex A

 

Commitment Annex 

(as of the Closing Date)

 

	
  Lender

  	
   

  	
  Revolving

  Loan

  Commitment

  Amount

  	
   

  	
  Initial

  Borrowing

  Base

  	
   

  	
  Overadvance

  Amount

  	
   

  	
  Revolving Loan

  Commitment

  Percentage

  	
   

  
	
  Merrill Lynch Capital

  	
   

  	
  $

  	
  54,000,000

  	
   

  	
  $

  	
  23,760,000

  	
   

  	
  $

  	
  3,240,000

  	
   

  	
  21.6

  	
  %

  
	
  Bank of Scotland plc

  	
   

  	
  $

  	
  44,000,000

  	
   

  	
  $

  	
  19,360,000

  	
   

  	
  $

  	
  2,640,000

  	
   

  	
  17.6

  	
  %

  
	
  Capital One, N.A.

  	
   

  	
  $

  	
  44,000,000

  	
   

  	
  $

  	
  19,360,000

  	
   

  	
  $

  	
  2,640,000

  	
   

  	
  17.6

  	
  %

  
	
  U.S. Bank National Association

  	
   

  	
  $

  	
  44,000,000

  	
   

  	
  $

  	
  19,360,000

  	
   

  	
  $

  	
  2,640,000

  	
   

  	
  17.6

  	
  %

  
	
  BMO Capital Markets Financing, Inc.

  	
   

  	
  $

  	
  36,000,000

  	
   

  	
  $

  	
  15,840,000

  	
   

  	
  $

  	
  2,160,000

  	
   

  	
  14.4

  	
  %

  
	
  Comerica Bank

  	
   

  	
  $

  	
  28,000,00

  	
   

  	
  $

  	
  12,320,000

  	
   

  	
  $

  	
  1,680,000

  	
   

  	
  11.2

  	
  %

  
	
  TOTALS

  	
   

  	
  $

  	
  250,000,000

  	
   

  	
  $

  	
  110,000,000

  	
   

  	
  $

  	
  15,000,000

  	
   

  	
  100

  	
  %

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}]]