Document:

Exhibit 10.1

AMENDED AND RESTATED CREDIT AGREEMENT

DATED AS OF

AUGUST 9, 2006

AMONG

WHITTIER ENERGY CORPORATION,

AS BORROWER,

BNP PARIBAS,

AS ADMINISTRATIVE AGENT,

AND

THE LENDERS PARTY HERETO

SOLE  LEAD ARRANGER AND
BOOKRUNNER

BNP PARIBAS

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  

  ARTICLE I

  DEFINITIONS AND ACCOUNTING MATTERS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.01

  	
   

  	
  Terms Defined Above

  	
   

  	
  1

  
	
  Section 1.02

  	
   

  	
  Certain Defined Terms

  	
   

  	
  1

  
	
  Section 1.03

  	
   

  	
  Types and Classes of Loans and Borrowings

  	
   

  	
  21

  
	
  Section 1.04

  	
   

  	
  Terms Generally

  	
   

  	
  21

  
	
  Section 1.05

  	
   

  	
  Accounting Terms and Determinations; GAAP

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  THE CREDITS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.01

  	
   

  	
  Commitments

  	
   

  	
  22

  
	
  Section 2.02

  	
   

  	
  Loans and Borrowings

  	
   

  	
  23

  
	
  Section 2.03

  	
   

  	
  Requests for Borrowings

  	
   

  	
  25

  
	
  Section 2.04

  	
   

  	
  Interest Elections

  	
   

  	
  25

  
	
  Section 2.05

  	
   

  	
  Funding of Borrowings

  	
   

  	
  27

  
	
  Section 2.06

  	
   

  	
  Termination and Reduction of Aggregate Maximum
  Revolving Credit Amounts and Term Loan Commitments

  	
   

  	
  27

  
	
  Section 2.07

  	
   

  	
  Borrowing Base

  	
   

  	
  28

  
	
  Section 2.08

  	
   

  	
  Letters of Credit

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.01

  	
   

  	
  Repayment of Loans

  	
   

  	
  36

  
	
  Section 3.02

  	
   

  	
  Interest

  	
   

  	
  36

  
	
  Section 3.03

  	
   

  	
  Alternate Rate of Interest

  	
   

  	
  37

  
	
  Section 3.04

  	
   

  	
  Prepayments

  	
   

  	
  37

  
	
  Section 3.05

  	
   

  	
  Fees

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.01

  	
   

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

  	
   

  	
  41

  
	
  Section 4.02

  	
   

  	
  Presumption of Payment by the Borrower

  	
   

  	
  42

  
	
  Section 4.03

  	
   

  	
  Certain Deductions by the Administrative Agent

  	
   

  	
  42

  
	
  Section 4.04

  	
   

  	
  Disposition of Proceeds

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  V

  INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.01

  	
   

  	
  Increased Costs

  	
   

  	
  43

  
	
  Section 5.02

  	
   

  	
  Break Funding Payments

  	
   

  	
  44

  
	
  Section 5.03

  	
   

  	
  Taxes

  	
   

  	
  44

  
	
  Section 5.04

  	
   

  	
  Designation of Different Lending Office

  	
   

  	
  45

  
	
  Section 5.05

  	
   

  	
  Illegality

  	
   

  	
  45

  
							

 

 i
 

 

 

	
  ARTICLE VI

  CONDITIONS PRECEDENT

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.01

  	
   

  	
  Effective Date

  	
   

  	
  46

  
	
  Section 6.02

  	
   

  	
  Each Credit Event

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  REPRESENTATIONS AND WARRANTIES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.01

  	
   

  	
  Organization; Powers

  	
   

  	
  48

  
	
  Section 7.02

  	
   

  	
  Authority; Enforceability

  	
   

  	
  49

  
	
  Section 7.03

  	
   

  	
  Approvals; No Conflicts

  	
   

  	
  49

  
	
  Section 7.04

  	
   

  	
  Financial Condition; No Material Adverse Change

  	
   

  	
  49

  
	
  Section 7.05

  	
   

  	
  Litigation

  	
   

  	
  50

  
	
  Section 7.06

  	
   

  	
  Environmental Matters

  	
   

  	
  50

  
	
  Section 7.07

  	
   

  	
  Compliance with the Laws and Agreements; No Defaults

  	
   

  	
  51

  
	
  Section 7.08

  	
   

  	
  Investment Company Act

  	
   

  	
  51

  
	
  Section 7.09

  	
   

  	
  Taxes

  	
   

  	
  51

  
	
  Section 7.10

  	
   

  	
  ERISA

  	
   

  	
  52

  
	
  Section 7.11

  	
   

  	
  Disclosure; No Material Misstatements

  	
   

  	
  53

  
	
  Section 7.12

  	
   

  	
  Insurance

  	
   

  	
  53

  
	
  Section 7.13

  	
   

  	
  Restriction on Liens

  	
   

  	
  53

  
	
  Section 7.14

  	
   

  	
  Subsidiaries

  	
   

  	
  53

  
	
  Section 7.15

  	
   

  	
  Location of Business and Offices

  	
   

  	
  54

  
	
  Section 7.16

  	
   

  	
  Properties; Titles, Etc

  	
   

  	
  54

  
	
  Section 7.17

  	
   

  	
  Maintenance of Properties

  	
   

  	
  55

  
	
  Section 7.18

  	
   

  	
  Gas Imbalances, Prepayments

  	
   

  	
  55

  
	
  Section 7.19

  	
   

  	
  Marketing of Production

  	
   

  	
  55

  
	
  Section 7.20

  	
   

  	
  Swap Agreements

  	
   

  	
  56

  
	
  Section 7.21

  	
   

  	
  Use of Loans and Letters of Credit

  	
   

  	
  56

  
	
  Section 7.22

  	
   

  	
  Solvency

  	
   

  	
  56

  
	
  Section 7.23

  	
   

  	
  Acquisition

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  AFFIRMATIVE COVENANTS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.01

  	
   

  	
  Financial Statements; Ratings Change; Other
  Information

  	
   

  	
  57

  
	
  Section 8.02

  	
   

  	
  Notices of Material Events

  	
   

  	
  59

  
	
  Section 8.03

  	
   

  	
  Existence; Conduct of Business

  	
   

  	
  60

  
	
  Section 8.04

  	
   

  	
  Payment of Obligations

  	
   

  	
  60

  
	
  Section 8.05

  	
   

  	
  Performance of Obligations under Loan Documents

  	
   

  	
  60

  
	
  Section 8.06

  	
   

  	
  Operation and Maintenance of Properties

  	
   

  	
  60

  
	
  Section 8.07

  	
   

  	
  Insurance

  	
   

  	
  61

  
	
  Section 8.08

  	
   

  	
  Books and Records; Inspection Rights

  	
   

  	
  61

  
	
  Section 8.09

  	
   

  	
  Compliance with Laws

  	
   

  	
  62

  
	
  Section 8.10

  	
   

  	
  Environmental Matters

  	
   

  	
  62

  
	
  Section 8.11

  	
   

  	
  Further Assurances

  	
   

  	
  63

  
	
  Section 8.12

  	
   

  	
  Reserve Reports

  	
   

  	
  63

  
	
  Section 8.13

  	
   

  	
  Title Information

  	
   

  	
  64

  

 

 ii
 

 

 

	
  Section 8.14

  	
   

  	
  Additional Collateral; Additional Guarantors

  	
   

  	
  65

  
	
  Section 8.15

  	
   

  	
  ERISA Compliance

  	
   

  	
  66

  
	
  Section 8.16

  	
   

  	
  Swap Agreements

  	
   

  	
  66

  
	
  Section 8.17

  	
   

  	
  Marketing Activities

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  NEGATIVE COVENANTS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 9.01

  	
   

  	
  Financial Covenants

  	
   

  	
  67

  
	
  Section 9.02

  	
   

  	
  Debt

  	
   

  	
  67

  
	
  Section 9.03

  	
   

  	
  Liens

  	
   

  	
  68

  
	
  Section 9.04

  	
   

  	
  Dividends, Distributions and Redemptions

  	
   

  	
  68

  
	
  Section 9.05

  	
   

  	
  Investments, Loans and Advances

  	
   

  	
  69

  
	
  Section 9.06

  	
   

  	
  Nature of Business

  	
   

  	
  69

  
	
  Section 9.07

  	
   

  	
  Limitation on Leases

  	
   

  	
  70

  
	
  Section 9.08

  	
   

  	
  Proceeds of Notes

  	
   

  	
  70

  
	
  Section 9.09

  	
   

  	
  ERISA Compliance

  	
   

  	
  70

  
	
  Section 9.10

  	
   

  	
  Sale or Discount of Receivables

  	
   

  	
  71

  
	
  Section 9.11

  	
   

  	
  Mergers, Etc

  	
   

  	
  71

  
	
  Section 9.12

  	
   

  	
  Sale of Properties

  	
   

  	
  71

  
	
  Section 9.13

  	
   

  	
  Environmental Matters

  	
   

  	
  72

  
	
  Section 9.14

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  72

  
	
  Section 9.15

  	
   

  	
  Subsidiaries

  	
   

  	
  72

  
	
  Section 9.16

  	
   

  	
  Negative Pledge Agreements; Dividend Restrictions

  	
   

  	
  72

  
	
  Section 9.17

  	
   

  	
  Gas Imbalances, Take-or-Pay or Other Prepayments

  	
   

  	
  73

  
	
  Section 9.18

  	
   

  	
  Swap Agreements

  	
   

  	
  73

  
	
  Section 9.19

  	
   

  	
  Amendment of Contracts

  	
   

  	
  73

  
	
  Section 9.20

  	
   

  	
  Acquisition Documents

  	
   

  	
  73

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  X

  EVENTS OF DEFAULT; REMEDIES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 10.01

  	
   

  	
  Events of Default

  	
   

  	
  73

  
	
  Section 10.02

  	
   

  	
  Remedies

  	
   

  	
  73

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  XI

  THE ADMINISTRATIVE AGENT

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 11.01

  	
   

  	
  Appointment; Powers

  	
   

  	
  77

  
	
  Section 11.02

  	
   

  	
  Duties and Obligations of Administrative Agent

  	
   

  	
  77

  
	
  Section 11.03

  	
   

  	
  Action by Administrative Agent

  	
   

  	
  78

  
	
  Section 11.04

  	
   

  	
  Reliance by Administrative Agent

  	
   

  	
  78

  
	
  Section 11.05

  	
   

  	
  Subagents

  	
   

  	
  79

  
	
  Section 11.06

  	
   

  	
  Resignation or Removal of Administrative Agent

  	
   

  	
  79

  
	
  Section 11.07

  	
   

  	
  Administrative Agent as Lender

  	
   

  	
  79

  
	
  Section 11.08

  	
   

  	
  No Reliance

  	
   

  	
  79

  
	
  Section 11.09

  	
   

  	
  Administrative Agent May File Proofs of Claim

  	
   

  	
  80

  
	
  Section 11.10

  	
   

  	
  Authority of Administrative Agent to Release
  Collateral and Liens

  	
   

  	
  81

  
	
  Section 11.11

  	
   

  	
  The Arranger

  	
   

  	
  81

  

 

 iii
 

 

 

	
  ARTICLE XII

  MISCELLANEOUS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 12.01

  	
   

  	
  Notices

  	
   

  	
  81

  
	
  Section 12.02

  	
   

  	
  Waivers; Amendments

  	
   

  	
  82

  
	
  Section 12.03

  	
   

  	
  Expenses, Indemnity; Damage Waiver.

  	
   

  	
  83

  
	
  Section 12.04

  	
   

  	
  Successors and Assigns

  	
   

  	
  86

  
	
  Section 12.05

  	
   

  	
  Survival; Revival; Reinstatement

  	
   

  	
  89

  
	
  Section 12.06

  	
   

  	
  Counterparts; Integration; Effectiveness

  	
   

  	
  89

  
	
  Section 12.07

  	
   

  	
  Severability

  	
   

  	
  90

  
	
  Section 12.08

  	
   

  	
  Right of Setoff

  	
   

  	
  90

  
	
  Section 12.09

  	
   

  	
  GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
  PROCESS

  	
   

  	
  90

  
	
  Section 12.10

  	
   

  	
  Headings

  	
   

  	
  91

  
	
  Section 12.11

  	
   

  	
  Confidentiality

  	
   

  	
  91

  
	
  Section 12.12

  	
   

  	
  Interest Rate Limitation

  	
   

  	
  92

  
	
  Section 12.13

  	
   

  	
  EXCULPATION PROVISIONS

  	
   

  	
  93

  
	
  Section 12.14

  	
   

  	
  Collateral Matters; Swap Agreements

  	
   

  	
  93

  
	
  Section 12.15

  	
   

  	
  No Third Party Beneficiaries

  	
   

  	
  94

  
	
  Section 12.16

  	
   

  	
  USA Patriot Act Notice

  	
   

  	
  91

  

 

 iv
 

 

ANNEXES,
EXHIBITS AND SCHEDULES

	
  Annex I

  	
   

  	
  List of Maximum Credit Amounts

  
	
   

  	
   

  	
   

  
	
  Exhibit A-1

  	
   

  	
  Form of Revolving Credit Note

  
	
  Exhibit A-2

  	
   

  	
  Form of Term Loan Note

  
	
  Exhibit B

  	
   

  	
  Form of Borrowing Request

  
	
  Exhibit C

  	
   

  	
  Form of Compliance Certificate

  
	
  Exhibit D

  	
   

  	
  Security Instruments

  
	
  Exhibit E

  	
   

  	
  Form of Assignment and Assumption

  
	
  Exhibit F

  	
   

  	
  Outstanding Letters of Credit

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 1.02

  	
   

  	
  Existing Letters of Credit

  
	
  Schedule 7.14

  	
   

  	
  Subsidiaries and Partnerships

  
	
  Schedule 7.18

  	
   

  	
  Gas Imbalances

  
	
  Schedule 7.19

  	
   

  	
  Marketing Contracts

  

 

 v

THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 9, 2006, is
among WHITTIER ENERGY CORPORATION, a corporation duly formed and existing under
the laws of the State of Nevada (the “Borrower”); each of the Lenders
from time to time party hereto; and BNP PARIBAS (in its individual capacity, “BNP Paribas”), as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the “Administrative Agent”).

RECITALS

A.            The Borrower, the Administrative
Agent and other financial institutions named and defined therein as lenders and
agents, are parties to that certain Credit Agreement dated as of June 15, 2005,
as amended by the First Amendment, dated May 31, 2006, pursuant to which such
lenders provided certain loans to and extensions of credit on behalf of the
Borrower (as heretofore amended, modified or supplemented, the “Existing
Credit Agreement”).

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

C.            Now, therefore, in consideration of
the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties
hereto agree as follows:

ARTICLE
I

Definitions and Accounting Matters

Section
1.01           Terms Defined Above.
 As used in this Agreement, each term
defined above has the meaning indicated above.

Section
1.02           Certain Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

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

“Acquisition” means the
acquisition of certain oil, gas and mineral Properties pursuant to the terms
and conditions of the Acquisition Documents.

“Acquisition
Documents” means (a) the Purchase and Sale Agreement among Imperial
Petroleum, Inc., as seller, and Whittier Energy Company and Premier Natural
Resources, LLC, as buyers, dated May 1, 2006, and (b) all bills of sale,
assignments, agreements, instruments and documents executed and delivered in
connection therewith, as amended.

“Acquisition Properties”
means the Oil and Gas Properties and other properties acquired by the Borrower
or any Guarantor pursuant to the Acquisition Documents.

 

“Adjusted LIBO Rate”
means, with respect to any Eurodollar Borrowing for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the
Statutory Reserve Rate.

“Administrative Questionnaire”
means an Administrative Questionnaire in a form supplied by the Administrative
Agent.

“Affected Loans” has the
meaning assigned such term in Section 5.05.

“Affiliate” means, with
respect to a specified Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under
common Control with the Person specified.

“Agents” means,
collectively, the Administrative Agent and any syndication agent, documentation
agent or similar agent that hereafter becomes a party hereto; and “Agent” shall
mean either the Administrative Agent or such other agent, as the context
requires.

“Aggregate Maximum Revolving
Credit Amounts” at any time shall equal the sum of the Maximum Revolving
Credit Amounts, as the same may be reduced or terminated pursuant to Section
2.06.

“Aggregate Revolving Credit
Commitments” at any time shall equal the sum of the Revolving Commitments
of the Revolving Credit Lenders, as the same may be reduced pursuant to Section
2.06.

“Aggregate Term Loan
Commitments” at any time shall equal the sum of the Term Loan Commitments
of the Term Loan Lenders.

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

“Alternate Base Rate”
means, for any day, a rate per annum equal to the greater of (a) the Prime Rate
in effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1⁄2 of 1%.  Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Applicable Margin” means
for any day, with respect to any ABR Revolving Credit Loan or Eurodollar
Revolving Credit Loan, as the case may be, the rate per annum set forth in the
Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization
Percentage then in effect:

Borrowing Base
Utilization Grid

	
  Borrowing Base Utilization
  Percentage

  	
   

  	
  <33

  	
  %

  	
  333% <66

  	
  %

  	
  366% <85

  	
  %

  	
  385

  	
  %

  
	
  Eurodollar Loans

  	
   

  	
  1.50

  	
  %

  	
  1.75

  	
  %

  	
  2.00

  	
  %

  	
  2.25

  	
  %

  
	
  ABR Loans

  	
   

  	
  0.00

  	
  %

  	
  0.25

  	
  %

  	
  0.50

  	
  %

  	
  0.75

  	
  %

  

 

 2
 

 

Each change in the Applicable
Margin shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change.

“Applicable Percentage”
means (a) with respect to any Revolving Credit Lender, the percentage of the
Aggregate Maximum Revolving Credit Amounts represented by such Lender’s Maximum
Revolving Credit Amount as such percentage is set forth on Annex I and (b) with
respect to any Term Loan Lender, the percentage of the Aggregate Term Loan
Commitments represented by such Lender’s Term Loan Commitment as such
percentage is set forth on Annex I.

“Approved Counterparty”
means (a) any Lender or any Affiliate of a Lender and (b) any other Person
whose long term senior unsecured debt rating is A/A2 by S&P or Moody’s (or
their equivalent) or higher.

“Approved Fund” means any
Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the
ordinary course of its business and that is administered or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.

“Arranger” means BNP
Paribas, in its capacities as the sole lead arranger and bookrunner hereunder.

“Assignment and Assumption”
means an assignment and assumption entered into by a Lender and an assignee
(with the consent of any party whose consent is required by Section 12.04(b)),
and accepted by the Administrative Agent, in the form of Exhibit E or
any other form approved by the Administrative Agent.

“Availability Period”
means the period from and including the Effective Date to but excluding the
Revolving Credit Termination Date.

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

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

“Borrowing Base” means at
any time an amount equal to the amount determined in accordance with Section
2.07, as the same may be adjusted from time to time pursuant to Section 2.07(e),
Section 8.13(c) or Section 9.12(d).

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

 3
 

 

“Borrowing Base Utilization
Percentage” means, as of any day, the fraction expressed as a percentage,
the numerator of which is the sum of the Revolving Credit Exposures of the
Lenders on such day, and the denominator of which is the Borrowing Base in
effect on such day.

“Borrowing Request”
means, with respect to the Revolving Credit Loans, a request for Revolving
Credit Loans or, with respect to the Term Loans, a request as of a Business Day
following the closing of the Acquisition, for the Term Loans, in each case, in
accordance with Section 2.03.

“Business Day” means any
day that is not a Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required by law to remain closed; and if such
day relates to a Borrowing or continuation of, a payment or prepayment of
principal of or interest on, or a conversion of or into, or the Interest Period
for, a Eurodollar Loan or a notice by the Borrower with respect to any such
Borrowing or continuation, payment, prepayment, conversion or Interest Period,
any day which is also a day on which dealings in dollar deposits are carried
out in the London interbank market.

“Capital Leases” means,
in respect of any Person, all leases which shall have been, or should have
been, in accordance with GAAP, recorded as capital leases on the balance sheet
of the Person liable (whether contingent or otherwise) for the payment of rent
thereunder.

“Casualty Event” means
any loss, casualty or other insured damage to, or any nationalization, taking
under power of eminent domain or by condemnation or similar proceeding of, any
Property of the Borrower or any of its Subsidiaries having a fair market value
in excess of $100,000.

“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 SEC thereunder as in effect on the date
hereof), of Equity Interests representing more than 33 1/3 % of the aggregate
ordinary voting power represented by the issued and outstanding Equity
Interests of the Borrower or (b) occupation of a majority of the seats (other
than vacant seats) on the board of directors of the Borrower by Persons who
were neither (i) nominated by the board of directors of the Borrower nor (ii)
appointed by directors so nominated.

“Change in Law” means (a)
the adoption of any law, rule or regulation after the date of this Agreement,
(b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or any Issuing Bank (or, for purposes
of Section 5.01(b)), by any lending office of such Lender or by such Lender’s
or such Issuing Bank’s holding company, if any) with any request, guideline or
directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.

“Class” means as to any
Loan, its nature as a Revolving Credit Loan or a Term Loan.

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

 4
 

 

“Commitment” means, as to
any Lender, its Revolving Commitment and/or its Term Loan Commitment, as
applicable.

“Consolidated
EBITDAX”:  with respect to the
Borrower, for any period, Consolidated Net Income for that period, plus
(a) to the extent deducted from revenues in determining Consolidated Net Income
for that period, (i) the aggregate amount of Consolidated Interest Expense for
that period, (ii) the aggregate amount of letter of credit fees paid during
that period, (iii) the aggregate amount of income Tax expense for that period
(including franchise Tax expense imposed on or measured by Borrower’s
Consolidated Net Income) and (iv) all amounts attributable to depreciation,
depletion, exploration, amortization and other non-cash charges and expenses
for that period, minus (b) to the extent included in revenues in
determining Consolidated Net Income for that period, all non-cash income during
that period, in each case determined on a consolidated basis in accordance with
GAAP and without duplication of amounts.

For the purposes of calculating
Consolidated EBITDAX for any period of four consecutive fiscal quarters (each,
a “Reference Period”) pursuant to any determination of the covenants set
forth in Section 9.01, (i) if at any time after the first day of such Reference
Period the Borrower or any Subsidiary shall have made any Material Disposition,
the Consolidated EBITDAX for such Reference Period shall be reduced by an
amount equal to the Consolidated EBITDAX (if positive) attributable to the
Property that is the subject of such Material Disposition for such Reference
Period and (ii) if at any time after the first day of such Reference Period the
Borrower or any Subsidiary shall have made a Material Acquisition, Consolidated
EBITDAX for such Reference Period shall be calculated after giving pro forma effect thereto as if such
Material Acquisition occurred on the first day of such Reference Period.

“Consolidated Interest
Expense”:  with respect to the
Borrower and its Subsidiaries on a consolidated basis for any period, the sum
of (i) gross interest expense (including all cash and accrued interest expense)
of the Borrower and its Subsidiaries for such period on a consolidated basis,
including to the extent included in interest expense in accordance with GAAP
(x) the amortization of debt discounts and (y) the portion of any payments or
accruals with respect to Capital Leases allocable to interest expense and (ii)
capitalized interest of the Borrower and its Subsidiaries on a consolidated
basis in accordance with GAAP.

“Consolidated Net Income”
means with respect to the Borrower and the Consolidated Subsidiaries, for any
period, the aggregate of the net income (or loss) of the Borrower and the
Consolidated Subsidiaries after allowances for Taxes for such period determined
on a consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein) the following:
(a) the net income of any Person in which the Borrower or any of the
Consolidated Subsidiaries has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of the
Borrower and the Consolidated Subsidiaries in accordance with GAAP), except to
the extent of the amount of dividends or distributions actually paid in cash
during such period by such other Person to the Borrower or to any of the
Consolidated Subsidiaries, as the case may be; (b) the net income (but not
loss) during such period of any Consolidated Subsidiary to the extent that the
declaration or payment of dividends or similar distributions or transfers or
loans by that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or

 5
 

 

any agreement,
instrument or Governmental Requirement applicable to such Consolidated
Subsidiary or is otherwise restricted or prohibited, in each case determined in
accordance with GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period and (e)
any gains or losses attributable to writeups or writedowns of assets, including
ceiling test writedowns.

“Consolidated Subsidiaries”
means each Subsidiary of the Borrower (whether now existing or hereafter
created or acquired) the financial statements of which shall be (or should have
been) consolidated with the financial statements of the Borrower in accordance
with GAAP.

“Control” 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 voting power, by contract or otherwise.  For the purposes of this definition, and
without limiting the generality of the foregoing, any Person that owns directly
or indirectly 10% or more of the Equity Interests having ordinary voting power
for the election of the directors or other governing body of a Person (other
than as a limited partner of such other Person) will be deemed to “control”
such other Person.  “Controlling”
and “Controlled” have meanings correlative thereto.

“Debt” means, for any
Person, the sum of the following (without duplication): (a) all obligations of
such Person for borrowed money or evidenced by bonds, bankers’ acceptances,
debentures, notes or other similar instruments; (b) all obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
surety or other bonds and similar instruments; (c) all accounts payable and all
accrued expenses, liabilities or other obligations of such Person to pay the
deferred purchase price of Property or services; (d) all obligations under
Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as
defined in the other clauses of this definition) of others secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise,
to be secured by) a Lien on any Property of such Person, whether or not such
Debt is assumed by such Person; (g) all Debt (as defined in the other clauses
of this definition) of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the extent of the lesser of the amount of such Debt and the
maximum stated amount of such guarantee or assurance against loss; (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the financial position or covenants of others or to purchase the Debt or
Property of others; (i) obligations to deliver commodities, goods or
services, including, without limitation, Hydrocarbons, in consideration of one
or more advance payments, other than gas balancing arrangements in the ordinary
course of business; (j) obligations to pay for goods or services even if such
goods or services are not actually received or utilized by such Person; (k) any
Debt of a partnership for which such Person is liable either by agreement, by
operation of law or by a Governmental Requirement but only to the extent of
such liability; (l) Disqualified Capital Stock; and (m) the undischarged
balance of any production payment created by such Person or for the creation of
which such Person directly or indirectly received payment.  The Debt of any Person shall include all
obligations of such Person of the character described above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is not included as a liability of such Person under GAAP.

 6
 

 

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

“Disqualified Capital Stock”
means any Equity Interest that, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or upon the
happening of any event, matures or is mandatorily redeemable for any consideration
other than other Equity Interests (which would not constitute Disqualified
Capital Stock), pursuant to a sinking fund obligation or otherwise, or is
convertible or exchangeable for Debt or redeemable for any consideration other
than other Equity Interests (which would not constitute Disqualified Capital
Stock) at the option of the holder thereof, in whole or in part, on or prior to
the date that is one year after the earlier of (a) the Maturity Date and (b)
the date on which there are no Loans, LC Exposure or other obligations
hereunder outstanding and all of the Commitments are terminated.

“dollars” or “$” refers
to lawful money of the United States of America.

“Domestic Subsidiary”
means any Subsidiary that is organized under the laws of the United States of
America or any state thereof or the District of Columbia.

“Effective Date” means
the date on which the conditions specified in Section 6.01 are satisfied (or
waived in accordance with Section 12.02).

“Engineering Reports” has
the meaning assigned such term in Section 2.07(c)(i).

“Environmental Laws”
means any and all Governmental Requirements pertaining in any way to health,
safety, the environment or the preservation or reclamation of natural
resources, in effect in any and all jurisdictions in which the Borrower or any
of its Subsidiaries is conducting or at any time has conducted business, or
where any Property of the Borrower or any of its Subsidiaries is located,
including without limitation, the Oil Pollution Act of 1990 (“OPA”), as
amended, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 (“CERCLA”), as
amended, the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental conservation or
protection Governmental Requirements. 
The term “oil” shall have the meaning specified in OPA, the terms “hazardous
substance” and “release” (or “threatened release”) have the
meanings specified in CERCLA, the terms “solid waste” and “disposal”
(or “disposed”) have the meanings specified in RCRA and the term “oil
and gas waste” shall have the meaning specified in Section 91.1011 of the
Texas Natural Resources Code (“Section 91.1011”); provided, however,
that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so
as to broaden the meaning of any term defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment and (b) to the
extent the laws of the state or other jurisdiction in which any Property of the
Borrower or any of its Subsidiaries is located establish a meaning for “oil,”
“hazardous substance,” “release,” “solid waste,” “disposal”
or “oil and gas waste” which is 

 7
 

 

broader than
that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader
meaning shall apply.

“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 such Equity Interest.

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute.

“ERISA Affiliate” means
each trade or business (whether or not incorporated) which together with the
Borrower or any of its Subsidiaries would be deemed to be a “single employer”
within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m)
or (o) of section 414 of the Code.

“ERISA Event” means (a) a
“Reportable Event” described in section 4043 of ERISA and the regulations
issued thereunder, (b) the withdrawal of the Borrower or any of its
Subsidiaries or any ERISA Affiliate from a Plan during a plan year in which it
was a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution of
proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event
or condition which might constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.

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

“Event of Default” has
the meaning assigned such term in Section 10.01.

“Excepted Liens”
means:  (a) Liens for Taxes, assessments
or other governmental charges or levies which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (b) Liens in connection
with workers’ compensation, unemployment insurance or other social security,
old age pension or public liability obligations which are not delinquent or
which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP; (c) statutory
landlord’s liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s,
mechanics’, suppliers’, workers’, materialmen’s, construction or other like
Liens arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP; (d)
contractual Liens which arise in the ordinary course of business under
operating agreements, joint venture agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, transportation or 

 8
 

 

exchange of oil
and natural gas, unitization and pooling declarations and agreements, area of
mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which
are not delinquent or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP, provided that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for the purposes
for which such Property is held by the Borrower or any of its Subsidiaries or
materially impair the value of such Property subject thereto; (e) Liens arising
solely by virtue of any statutory or common law provision relating to banker’s
liens, rights of set-off or similar rights and remedies and burdening only
deposit accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
and no such deposit account is intended by the Borrower or any of its
Subsidiaries to provide collateral to the depository institution; (f)
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations in any Property of the Borrower or any of its Subsidiaries for
the purpose of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals or
timber, and other like purposes, or for the joint or common use of real estate,
rights of way, facilities and equipment, which in the aggregate do not
materially impair the use of such Property for the purposes of which such
Property is held by the Borrower or any of its Subsidiaries or materially
impair the value of such Property subject thereto; (g) Liens on cash or
securities pledged to secure performance of tenders, surety and appeal bonds,
government contracts, performance and return of money bonds, bids, trade
contracts, leases, statutory obligations, regulatory obligations and other
obligations of a like nature incurred in the ordinary course of business and
(h) judgment and attachment Liens not giving rise to an Event of Default,
provided that any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall
not have expired and no action to enforce such Lien has been commenced;
provided, further that Liens described in clauses (a) through (e) shall remain “Excepted
Liens” only for so long as no action to enforce such Lien has been commenced
and no intention to subordinate the first priority Lien granted in favor of the
Administrative Agent and the Lenders is to be hereby implied or expressed by
the permitted existence of such Excepted Liens.

“Excluded Taxes” means,
with respect to the Administrative Agent, any Lender, any Issuing Bank or any
other recipient of any payment to be made by or on account of any obligation of
the Borrower or any Guarantor hereunder or under any other Loan Document, (a)
income or franchise Taxes imposed on (or measured by) its net income by the
United States of America or such other jurisdiction under the laws of which
such recipient is organized or in which its principal office is located or, in
the case of any Lender, in which its applicable lending office is located, (b)
any branch profits Taxes imposed by the United States of America or any similar
Tax imposed by any other jurisdiction in which the Borrower or any Guarantor is
located and (c) in the case of a Foreign Lender, any withholding Tax that is
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or 

 9
 

 

designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with Section 5.03(e), except to the extent that such Foreign Lender (or
its assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts with respect to such
withholding Tax pursuant to Section 5.03(a) or Section 5.03(c).

“Existing Credit Agreement”
has the meaning assigned such term in paragraph A of the Recitals.

“Existing Letters of Credit”
means those Letters of Credit listed on Schedule 1.02.

“Existing Shell Hedges”
means those Swap Agreements listed on Schedule 1.02 that are between
Shell Trading (US) Co. and the Borrower.

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

“Financial Officer”
means, for any Person, the chief financial officer, principal accounting
officer, treasurer or controller of such Person.  Unless otherwise specified, all references
herein to a Financial Officer shall mean a Financial Officer of the Borrower.

“Financial Statements”
means the financial statement or statements of the Borrower and its
Consolidated Subsidiaries referred to in Section 7.04(a).

“Foreign Lender” means
any Lender that is organized under the laws of a jurisdiction other than that
in which the Borrower is located.  For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.

“Foreign Subsidiary”
means any Subsidiary that is not a Domestic Subsidiary.

“GAAP” means generally
accepted accounting principles in the United States of America as in effect
from time to time subject to the terms and conditions set forth in Section 1.05.

“Governmental Authority”
means the government of the United States of America, any other nation or any
political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government over the Borrower
or any of its Subsidiaries, any of their Properties, the Administrative Agent,
any Issuing Bank or any Lender.

“Governmental Requirement”
means any law, statute, code, ordinance, order, determination, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate,

 10

 

license,
authorization or other directive or requirement, whether now or hereinafter in
effect, including, without limitation, Environmental Laws, energy regulations
and occupational, safety and health standards or controls, of any Governmental
Authority.

“Guarantors” means each
Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b).

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

“Highest Lawful Rate”
means, with respect to each Lender, the maximum nonusurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other Indebtedness under laws
applicable to such Lender which are presently in effect or, to the extent
allowed by law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum nonusurious interest rate than applicable laws
allow as of the date hereof.

“Hydrocarbon Interests”
means all rights, titles, interests and estates now or hereafter acquired 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 interests of whatever nature.

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

“Indebtedness” means any
and all amounts owing or to be owing by the Borrower, any of its Subsidiaries
or any Guarantor (whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or
hereafter arising): (a) to the Administrative Agent, any Issuing Bank or any
Lender under any Loan Document; (b) to any Lender or any Affiliate of a Lender
under any Swap Agreement between the Borrower or any Subsidiary and such Lender
or Affiliate of a Lender while such Person (or in the case of its Affiliate,
the Person affiliated therewith) is a Lender hereunder and (c) all renewals,
extensions and/or rearrangements of any of the above.

“Indemnified Taxes” means
Taxes other than Excluded Taxes.

“Initial Reserve Report”
means the report of HJ Gruy and Associates, Inc. dated February 21, 2006 with
respect to the value of certain Oil and Gas Properties of the Borrower and its
Subsidiaries.

“Interest Election Request”
means a request by the Borrower to convert or continue a Borrowing in
accordance with Section 2.04.

 11
 

 

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

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

“Interim Redetermination”
has the meaning assigned such term in Section 2.07(b).

“Interim Redetermination Date”
means the date on which a Borrowing Base that has been redetermined pursuant to
an Interim Redetermination becomes effective as provided in Section 2.07(d).

“Investment” means, for
any Person: (a) the acquisition (whether for cash, Property, services or
securities or otherwise) of Equity Interests of any other Person or any
agreement to make any such acquisition (including, without limitation, any “short
sale” or any sale of any securities at a time when such securities are not
owned by the Person entering into such short sale); (b) the making of any
deposit with, or advance, loan or capital contribution to, assumption of Debt
of, purchase or other acquisition of any other Debt or equity participation or
interest in, or other extension of credit to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person, but
excluding any such advance, loan or extension of credit having a term not
exceeding ninety (90) days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business); (c) the
purchase or acquisition (in one or a series of transactions) of Property of
another Person that constitutes a business unit or (d) the entering into of any
guarantee of, or other contingent obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person.

“Issuing Bank” means BNP
Paribas and each Lender that agrees to act as an issuer of Letters of Credit
hereunder at the request of the Borrower, in each case, in its capacity as an
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.08(i).  Any Issuing
Bank may, in its discretion, arrange for one or more Letters of Credit to be

 12
 

 

issued by
Affiliates of such Issuing Bank, in which case the term “Issuing Bank”
shall also include any such Affiliate with respect to Letters of Credit issued
by such Affiliate.

“LC Commitment” at any
time means Five Million Dollars ($5,000,000).

“LC Disbursement” means a
payment made by any Issuing Bank pursuant to a Letter of Credit issued by such
Issuing Bank.

“LC Exposure” means, at
any time, the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit at such time plus (b) the aggregate amount of all LC
Disbursements that have not yet been reimbursed by or on behalf of the Borrower
at such time.  The LC Exposure of any
Lender at any time shall be its Applicable Percentage of the total LC Exposure
at such time.

“Lenders” means the
Revolving Credit Lenders and the Term Loan Lenders.

“Letter of Credit” means
any letter of credit issued or deemed issued pursuant to this Agreement,
including the Existing Letters of Credit.

“Letter of Credit Agreements”
means all letter of credit applications and other agreements (including any
amendments, modifications or supplements thereto) submitted by the Borrower, or
entered into by the Borrower, with any Issuing Bank relating to any Letter of
Credit issued by such Issuing Bank.

“LIBO Rate” means, with
respect to any Eurodollar Borrowing for any Interest Period, the rate appearing
on Page 3750 of the Dow Jones Market Service (or on any successor or substitute
page of such Service, or any successor to or substitute for such Service,
providing rate quotations comparable to those currently provided on such page
of such Service, as determined by the Administrative Agent from time to time
for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, as
the rate for dollar deposits with a maturity comparable to such Interest
Period.  In the event that such rate is
not available at such time for any reason, then the “LIBO Rate” with
respect to such Eurodollar Borrowing for such Interest Period shall be the rate
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.

“Lien” means any interest
in Property securing an obligation owed to, or a claim by, a Person other than
the owner of the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or
contingent, and including but not limited to (a) the lien or security interest
arising from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes
or (b) production payments and the like payable out of Oil and Gas
Properties.  The term “Lien” shall
include easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations. For the purposes of this Agreement, the Borrower
and its Subsidiaries shall be deemed to be the owner of any Property which they
have acquired or hold subject to a 

 13
 

 

conditional
sale agreement, or leases under a financing lease or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
Person in a transaction intended to create a financing.

“Loan Documents” means
this Agreement, the Notes, the Letter of Credit Agreements, the Letters of
Credit and the Security Instruments.

“Loans” means the loans
as provided for by Sections 2.01(a) and (b). 
“Loans” shall include Revolving Credit Loans and Term Loans.

“Majority Lenders” means,
at any time, Lenders having Revolving Credit and Term Loans, a share of the LC
Exposure and the unused Aggregate Revolving Credit Commitments representing at
least sixty-six and two-thirds percent (66-2/3%) of the sum of (i) all Loans
outstanding, (ii) the aggregate LC Exposure and (iii) the unused Aggregate
Revolving Credit Commitments.

“Majority Revolving Credit
Lenders” means, at any time, Revolving Credit Lenders having Revolving
Credit Loans, a share of the LC Exposure and the unused Aggregate Revolving
Credit Commitments representing at least sixty-six and two-thirds percent
(66-2/3%) of the sum of (i) all Revolving Credit Loans outstanding, (ii) the
aggregate LC Exposure and (iii) the unused Aggregate Revolving Credit
Commitments.

“Material Acquisition”:  any acquisition of Property or series of
related acquisitions of Property that involves the payment of consideration
(including, without limitation, the issuance of Equity Interests of the
Borrower) by the Borrower and its Subsidiaries in excess of ten percent (10%)
of the then current Borrowing Base.

“Material Adverse Effect”
means a material adverse change in, or material adverse effect on (a) the
business, operations, Property, liabilities (actual or contingent), condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole, (b) the ability of the Borrower, any of its Subsidiaries or
any Guarantor to perform any of its obligations under any Loan Document to
which it is a party, (c) the validity or enforceability of any Loan Document or
(d) the rights and remedies of or benefits available to the Administrative
Agent, any other Agent, any Issuing Bank or any Lender under any Loan Document.

“Material Disposition”:  any sale, transfer or other disposition of
Property or series of related sales, transfers or other dispositions of Property
that yields gross proceeds to the Borrower or any Subsidiaries in excess of ten
percent (10%) of the then current Borrowing Base.

“Material Indebtedness”
means Debt (other than the Loans and Letters of Credit), or obligations in
respect of one or more Swap Agreements, of any one or more of the Borrower and
its Subsidiaries in an aggregate principal amount exceeding $500,000.  For purposes of determining Material
Indebtedness, the “principal amount” of the obligations of the Borrower or any
of its Subsidiaries in respect of any Swap Agreement at any time shall be the
Swap Termination Value.

“Maturity Date” means
June 15, 2009.

 14
 

 

“Maximum Revolving Credit
Amount” means, as to each Revolving Credit Lender, the amount set forth
opposite such Revolving Credit Lender’s name on Annex I under the caption “Maximum
Revolving Credit Amounts”, as the same may be (a) reduced or terminated from
time to time in connection with a reduction or termination of the Aggregate
Maximum Revolving Credit Amounts pursuant to Section 2.06(b) or (b) modified
from time to time pursuant to any assignment permitted by Section 12.04(b).

“Mayfield Disposition”
means that certain disposition of Oil & Gas Properties located in Beckham
County, Oklahoma to Chesapeake Exploration Limited Partnership pursuant to the
Letter Agreement dated July 5, 2006.

“Moody’s” means Moody’s
Investors Service, Inc. and any successor thereto that is a nationally
recognized rating agency.

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

“Multiemployer Plan”
means a Plan which is a multiemployer plan as defined in section 3(37) or 4001
(a)(3) of ERISA.

“Net Cash Proceeds” means
in connection with any issuance or sale of Equity Interests or Debt securities
or instruments or the incurrence of loans, the cash proceeds received from such
issuance or incurrence, net of attorneys’ fees, investment banking fees,
accountants’ fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.

“New Borrowing Base Notice”
has the meaning assigned such term in Section 2.07(d).

“Notes” means the
Revolving Credit Notes and/or the Term Loan Notes, as applicable.

“Oil and Gas Properties”
means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or
unitized with Hydrocarbon Interests; (c) all presently existing or future
unitization, pooling agreements and declarations of pooled units and the units
created thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect all or
any portion of the Hydrocarbon Interests; (d) all operating agreements,
contracts and other agreements, including production sharing contracts and
agreements, which relate to any of the Hydrocarbon Interests or the production,
sale, purchase, exchange or processing of Hydrocarbons from or attributable to
such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be
produced and saved or attributable to the Hydrocarbon Interests, including all
oil in tanks, and all rents, issues, profits, proceeds, products, revenues and
other incomes from or attributable to the Hydrocarbon Interests; (f) all
tenements, hereditaments, appurtenances and Properties in any manner
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests;
and (g) all Properties, rights, titles, interests and estates described or
referred to above, including any and all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other

 15
 

 

similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, fuel separators, liquid extraction
plants, plant compressors, pumps, pumping units, field gathering systems, tanks
and tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing.

“Other Taxes” means any
and all present or future stamp or documentary Taxes or any other excise or
Property taxes, charges or similar levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with
respect to, this Agreement and any other Loan Document.

“Participant” has the
meaning set forth in Section 12.04(c)(i).

“PBGC” means the Pension
Benefit Guaranty Corporation, or any successor thereto.

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

“Plan” means any employee
pension benefit plan, as defined in section 3(2) of ERISA, which (a) is
currently or hereafter sponsored, maintained or contributed to by the Borrower,
any of its Subsidiaries or an ERISA Affiliate or (b) was at any time during the
six calendar years preceding the date hereof, sponsored, maintained or
contributed to by the Borrower, any of its Subsidiaries or an ERISA Affiliate.

“Prime Rate” means the
rate of interest per annum publicly announced from time to time by BNP Paribas
as its prime rate in effect at its principal office in New York City; each
change in the Prime Rate shall be effective from and including the date such
change is publicly announced as being effective.  Such rate is set by BNP Paribas as a general
reference rate of interest, taking into account such factors as BNP Paribas may
deem appropriate; it being understood that many of BNP Paribas’ commercial or
other loans are priced in relation to such rate, that it is not necessarily the
lowest or best rate actually charged to any customer and that BNP Paribas may
make various commercial or other loans at rates of interest having no
relationship to such rate.

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

“Proposed Borrowing Base”
has the meaning assigned to such term in Section 2.07(c)(i).

“Proposed Borrowing Base
Notice” has the meaning assigned to such term in Section 2.07(c)(ii).

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

 16
 

 

Developed
Reserves”
means Proved Reserves which are categorized as “Developed” in the Definitions, “Proved
Developed Producing Reserves” means Proved Reserves which are categorized
as both “Developed” and “Producing” in the Definitions, “Proved Developed
Nonproducing Reserves” means Proved Reserves which are categorized as both “Developed”
and “Nonproducing” in the Definitions, and “Proved Undeveloped Reserves”
means Proved Reserves which are categorized as “Undeveloped” in the
Definitions.

“Redemption” means with
respect to any Debt, the repurchase, redemption, prepayment, repayment,
defeasance or any other acquisition or retirement for value (or the segregation
of funds with respect to any of the foregoing) of such Debt.  “Redeem” has the correlative meaning
thereto.

“Redetermination Date”
means, with respect to any Scheduled Redetermination or any Interim Redetermination,
the date that the redetermined Borrowing Base related thereto becomes effective
pursuant to Section 2.07(d).

“Register” has the
meaning assigned such term in Section 12.04(b)(iv).

“Regulation D” means
Regulation D of the Board, as the same may be amended, supplemented or replaced
from time to time.

“Related Parties” means,
with respect to any specified Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors (including
attorneys, accountants and experts) of such Person and such Person’s
Affiliates.

“Remedial Work” has the
meaning assigned such term in Section 8.10(a).

“Reserve Report” means a
report, in form and substance reasonably satisfactory to the Administrative
Agent, setting forth, as of each January 1st or July 1st (or such other date in
the event of an Interim Redetermination) the oil and gas reserves attributable
to the Oil and Gas Properties of the Borrower and its Subsidiaries, together
with a projection of the rate of production and future net income, Taxes,
operating expenses and capital expenditures with respect thereto as of such
date, based upon the economic assumptions consistent with the Administrative
Agent’s lending requirements at the time.

“Responsible Officer”
means, as to any Person, the Chief Executive Officer, the President, any
Financial Officer or any Vice President of such Person.  Unless otherwise specified, all references to
a Responsible Officer herein shall mean a Responsible Officer of the Borrower.

“Restricted Payment”
means any dividend or other distribution (whether in cash, securities or other
Property) with respect to any Equity Interests in the Borrower or any of its
Subsidiaries, or any payment (whether in cash, securities or other Property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
Equity Interests in the Borrower or any of its Subsidiaries or any option,
warrant or other right to acquire any such Equity Interests in the Borrower or
any of its Subsidiaries.

 17
 

 

“Revolving Borrowing”
means any Borrowing by the Borrower of Revolving Credit Loans.

“Revolving Commitment”
means, with respect to each Revolving Credit Lender, the commitment of such
Revolving Credit Lender to make Revolving Credit Loans, and to acquire
participations in Letters of Credit hereunder, expressed as an amount
representing the maximum aggregate amount of such Revolving Credit Lender’s
Revolving Credit Exposure hereunder, as such commitment may be (a) modified
from time to time pursuant to Section 2.06 and (b) modified from time to time
pursuant to assignments by or to such Revolving Credit Lender pursuant to
Section 12.04(b).  The amount
representing each Revolving Credit Lender’s Revolving Commitment shall at any
time be the lesser of such Revolving Credit Lender’s Maximum Revolving Credit
Amount and such Revolving Credit Lender’s Applicable Percentage of the
Revolving Credit then effective Borrowing Base.

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

“Revolving Credit Lenders”
means the Persons listed on Annex I as such, any Person that shall have become
a party hereto pursuant to an Assignment and Assumption by assigning a
Revolving Commitment, but not any such Person that ceases to be a party hereto
pursuant to an Assignment and Assumption.

“Revolving Credit Loans”
means the revolving credit loans made by each Revolving Credit Lender pursuant
to Section 2.01(a).

“Revolving Credit Notes”
means the promissory notes of the Borrower described in Section 2.02(d)(i) and
being substantially in the form of Exhibit A-1, together with all
amendments, modifications, replacements, extensions and rearrangements thereof.

“Revolving Credit Termination
Date” means the earlier to occur of (i) the Maturity Date or (ii) the date
that the Aggregate Revolving Credit Commitments are sooner terminated pursuant
to Section 2.06 or Section 10.02.

“Scheduled Redetermination”
has the meaning assigned such term in Section 2.07(b).

“Scheduled Redetermination
Date” means the date on which a Borrowing Base that has been redetermined
pursuant to a Scheduled Redetermination becomes effective as provided in
Section 2.07(d).

“SEC” means the
Securities and Exchange Commission or any successor Governmental Authority.

“Security Instruments”
means the Guaranty Agreement, mortgages, deeds of trust and other agreements,
instruments or certificates described or referred to in Exhibit D, and any and
all other agreements, instruments, consents or certificates now or hereafter
executed and delivered by the Borrower or any other Person (other than Swap
Agreements with the Lenders or any Affiliate of a Lender or participation or
similar agreements between any Lender and any other lender or creditor with
respect to any Indebtedness pursuant to this Agreement) in 

 18
 

 

connection
with, or as security for the payment or performance of the Indebtedness, the
Notes, this Agreement, or reimbursement obligations under the Letters of
Credit, as such agreements may be amended, modified, supplemented or restated
from time to time.

“S&P” means Standard
& Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and
any successor thereto that is a nationally recognized rating agency.

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

“Subsidiary” means:  (a) any Person of which at least a majority
of the outstanding Equity Interests having by the terms thereof ordinary voting
power to elect a majority of the board of directors, manager or other governing
body of such Person (irrespective of whether or not at the time Equity
Interests of any other class or classes of such Person shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower or one or more of
its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b)
any partnership of which the Borrower or any of its Subsidiaries is a general
partner.  Unless otherwise indicated
herein, each reference to the term “Subsidiary” shall mean a Subsidiary
of the Borrower.

“Swap Agreement” means
any agreement with respect to any swap, forward, future or derivative
transaction or option or similar agreement, whether exchange traded, “over-the-counter”
or otherwise, involving, or settled by reference to, one or more rates,
currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk
or value or any similar transaction or any combination of these transactions;
provided that no phantom stock or similar plan providing for payments only on
account of services provided by current or former directors, officers,
employees or consultants of the Borrower or any of its Subsidiaries shall be a
Swap Agreement.

“Swap Termination Value”
means, in respect of any one or more Swap Agreements, after taking into account
the effect of any legally enforceable netting agreement relating to such Swap
Agreements, (a) for any date on or after the date such Swap Agreements have
been closed out and termination value(s) determined in accordance therewith,
such termination value(s) and (b) for any date prior to the date referenced in
clause (a), the amount(s) determined as the mark-to-market value(s) for such
Swap Agreements, as determined by the counterparties to such Swap Agreements.

 19
 

 

“Synthetic Leases” means,
in respect of any Person, all leases which shall have been, or should have
been, in accordance with GAAP, treated as operating leases on the financial
statements of the Person liable (whether contingently or otherwise) for the
payment of rent thereunder and which were properly treated as indebtedness for
borrowed money for purposes of U.S. federal income Taxes, if the lessee in
respect thereof is obligated to either purchase for an amount in excess of, or
pay upon early termination an amount in excess of, 80% of the residual value of
the Property subject to such operating lease upon expiration or early
termination of such lease.

“Taxes” means any and all
present or future taxes, levies, imposts, duties, deductions, charges or
withholdings imposed by any Governmental Authority.

“Term Loan Commitment”
shall mean, as to each Term Loan Lender, its obligation to make its Term Loan
in the amount set forth opposite its name under “Term Loans” on Annex I, as the
same may be modified from time to time to reflect any assignment permitted by
Section 12.04(b).

“Term Loan Lenders” shall
mean each Person listed on Annex I as such and any Person which purchases a
Term Loan Commitment pursuant to Section 12.04(b).

“Term Loan Notes” means
the promissory notes of the Borrower described in Section 2.02(d)(ii) and being
substantially in the form of Exhibit A-2, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.

“Term Loans” means the
term loan made by each Term Loan Lender pursuant to Section 2.01(b).

“Term Loan Termination Date”
means the first Business Day that is eighteen (18) months after the Effective
Date.

“Total Debt” means, at
any date, all Debt of the Borrower and the Consolidated Subsidiaries on a
consolidated basis, excluding (i) non-cash obligations under FAS 133 and (ii)
accounts payable and other accrued liabilities (for the deferred purchase price
of Property or services) from time to time incurred in the ordinary course of
business which are not greater than sixty (60) days past the date of invoice or
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP.

“Total Reserve Value”
means, with respect to any Proved Reserves expected to be produced from any Oil
and Gas Properties, the net present value, discounted at 10% per annum, of the
future net revenues expected to accrue to the Borrower’s and its Subsidiaries’
collective interests in such reserves during the remaining expected economic
lives of such reserves.  Total Reserve
Value means, with respect to the Borrower’s and its Subsidiaries’ separate
interests in such Proved Reserves, the net present value, discounted at 10% per
annum, of the future net revenues expected to accrue to such separate interests
in such reserves during the remaining expected economic lives of such
reserves.  Each calculation of such
expected future net revenues shall be made in accordance with the then existing
standards of the Society of Petroleum Engineers, provided that in any event (a)
appropriate deductions shall be made for severance and

 20

 

ad valorem
taxes, and for operating, gathering, transportation and marketing costs
required for the production and sale of such reserves, (b) appropriate
adjustments shall be made for hedging operations, provided that Swap Agreements
with non-investment grade counterparties shall not be taken into account to the
extent that such Swap Agreements improve the position of or otherwise benefit
the Borrower or any of its Subsidiaries, (c) the pricing assumptions used in
determining Total Reserve Value for any particular reserves shall be based upon
the following price decks:  (i) for
natural gas, the lesser of (A) the quotation for deliveries of natural gas
for each such year from the New York Mercantile Exchange for Henry Hub and
(B) $6.50/Mcf, and (ii) for crude oil, the lesser of (A) the quotation for
deliveries of West Texas Intermediate crude oil for each such calendar year
from the New York Mercantile Exchange for Cushing, Oklahoma, and
(B) $45.00/Bbl and (d) the cash-flows derived from the pricing assumptions
set forth in clauses (b) and (c) above shall be further adjusted to account for
the historical basis differentials for each month during the preceding 12-month
period calculated by comparing realized crude oil and natural gas prices to
Cushing, Oklahoma and Henry Hub NYMEX prices for each month during such period;
provided that for purposes of this calculation, Proved Developed
Reserves shall constitute not less than 70% of the Total Reserve Value.

“Transactions” means,
with respect to (a) the Borrower, the execution, delivery and performance by
the Borrower of this Agreement, and each other Loan Document and Acquisition
Document to which it is a party, the Acquisition, the borrowing of Loans, the
use of the proceeds thereof and the issuance of Letters of Credit hereunder,
and the grant of Liens by the Borrower on Mortgaged Properties and other
Properties pursuant to the Security Instruments and (b) each Guarantor, the
execution, delivery and performance by such Guarantor of each Loan Document and
Acquisition Document to which it is a party, the Acquisition, the guaranteeing
of the Indebtedness and the other obligations under the Guaranty Agreement by
such Guarantor and such Guarantor’s grant of the security interests and
provision of collateral under the Security Instruments, and the grant of Liens
by such Guarantor on Mortgaged Properties and other Properties pursuant to the
Security Instruments.

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

“Wholly-Owned Subsidiary”
means any Subsidiary of which all of the outstanding Equity Interests (other
than any directors’ qualifying shares mandated by applicable law), on a
fully-diluted basis, are owned by the Borrower or one or more of the
Wholly-Owned Subsidiaries or are owned by the Borrower and one or more of the
Wholly-Owned Subsidiaries.

Section 1.03           Types and Classes of Loans and
Borrowings.  For purposes of this
Agreement, Loans and Borrowings, respectively, may be classified and referred
to by Type and/or Class (e.g., a “Eurodollar Term Loan” or a “Eurodollar
Revolving Borrowing”).

Section
1.04           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

 21
 

 

“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 in the Loan Documents), (b) any reference herein to any law shall be
construed as referring to such law as amended, modified, codified or reenacted,
in whole or in part, and in effect from time to time, (c) any reference herein
to any Person shall be construed to include such Person’s successors and
assigns (subject to the restrictions contained in the Loan Documents), (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) with respect to the determination of any time period, the
word “from” means “from and including” and the word “to” means “to and
including” and (f) any reference herein to Articles, Sections, Annexes,
Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Annexes, Exhibits and Schedules to, this Agreement.  No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.

Section
1.05           Accounting Terms and
Determinations; GAAP.  Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Administrative Agent or the
Lenders hereunder shall be prepared, in accordance with GAAP, applied on a
basis consistent with the Financial Statements except for changes in which the
Borrower’s independent certified public accountants concur and which are
disclosed to Administrative Agent on the next date on which financial
statements are required to be delivered to the Lenders pursuant to Section
8.01(a); provided that, unless the Borrower and all of the Lenders shall
otherwise agree in writing, no such change shall modify or affect the manner in
which compliance with the covenants contained herein is computed such that all
such computations shall be conducted utilizing financial information presented
consistently with prior periods.

ARTICLE II

The Credits

Section
2.01           Commitments.

(a)           Revolving Credit Loans.  Each Revolving Credit Lender severally agrees,
on the terms and conditions of this Agreement, to make revolving credit loans
to the Borrower during the Availability Period in an aggregate principal amount
at any one time outstanding up to, but not exceeding, the amount of such Lender’s
Revolving Commitment as then in effect; provided, however, that the aggregate
principal amount of all such Revolving Credit Loans by all Revolving Credit
Lenders hereunder at any one time outstanding together with the LC Exposure
shall not exceed the Aggregate Revolving Credit Commitments.  Subject to the terms of this Agreement,
during the Availability Period, the Borrower may borrow, repay and reborrow the
amount described in this Section 2.01(a).

 22
 

 

(b)           Term Loans.  Each Term Loan Lender severally agrees,
subject to the terms and conditions of this Agreement, to make a term loan to
the Borrower in a single Borrowing from the Term Loan Lender in an amount equal
to its Term Loan Commitment.

Section
2.02           Loans and Borrowings.

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

(b)           Types of Loans.  Subject to Section 3.03, each Borrowing of
any Class shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. 
Each Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of
the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c)           Minimum Amounts; Limitation on
Number of Borrowings.  At the
commencement of each Interest Period for any Eurodollar Borrowing of any Class,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $25,000.  At
the time that each ABR Borrowing is made of any Class, such Borrowing shall be
in an aggregate amount that is an integral multiple of $100,000 and not less
than $25,000; provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Revolving
Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.08(e).  Borrowings of more than one Type may be outstanding
at the same time; provided that there shall not at any time be more than a
total of five (5) Eurodollar Revolver Borrowings outstanding and not more than
two (2) Eurodollar Term Borrowings. 
Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.

(d)           Notes.

(i)            The Revolving Credit Loans made by
each Revolving Credit Lender shall be evidenced by a single promissory note of
the Borrower in substantially the form of Exhibit A-1, dated, in the
case of (A) any Revolving Credit Lender party hereto as of the date of this
Agreement, as of the date of this Agreement, or (B) any Revolving Credit Lender
that becomes a party hereto pursuant to an Assignment and Assumption, as of the
effective date of the Assignment and Assumption, payable to the order of such
Lender in a principal amount equal to its Maximum Revolving Credit Amount as in
effect on such date, and otherwise duly completed.  In the event that any Revolving Credit Lender’s
Maximum Revolving Credit Amount increases or decreases for any reason (whether
pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrower shall
deliver or cause to be delivered on the effective date 

 23
 

 

of such
increase or decrease, a new Revolving Credit Note payable to the order of such
Lender in a principal amount equal to its Maximum Revolving Credit Amount after
giving effect to such increase or decrease, and otherwise duly completed.

(ii)           The Term Loans made by each Term Loan
Lender shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit A-2, dated as of (A) the Effective
Date or (B) the effective date of an Assignment pursuant to Section 12.04(b),
payable to the order of such Lender and otherwise duly completed.

(iii)          The date, amount, Type, Class,
interest rate and, if applicable, Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Notes, and, prior to any transfer,
may be endorsed by such Lender on a schedule attached to such Notes or any
continuation thereof or on any separate record maintained by such Lender.  Failure to make any such notation or to
attach a schedule shall not affect any Lender’s or the Borrower’s rights or
obligations in respect of such Loans or affect the validity of such transfer by
any Lender of its Notes.

(e)           Loans and Borrowings under the
Existing Credit Agreement.  On the
Effective Date (or as soon as practicable with respect to (iii)):

(i)            the Borrower shall pay all accrued
and unpaid commitment fees, break funding fees under Section 5.02 and all other
fees that are outstanding under the Existing Credit Agreement for the account
of each “Lender” under the Existing Credit Agreement;

(ii)           each “ABR Loan” and “Eurodollar Loan”
outstanding under the Existing Credit Agreement shall be deemed to be repaid
with the proceeds of a new ABR Revolving Credit Loan or Eurodollar Revolving
Credit Loan, as applicable, under this Agreement;

(iii)          the Administrative Agent shall use
reasonable efforts to cause such “Lender” under the Existing Credit Agreement
to deliver to the Borrower as soon as practicable after the Effective Date the
Note issued by the Borrower to it under the Existing Credit Agreement, marked “canceled”
or otherwise similarly defaced;

(iv)          any letters of credit outstanding
under the Existing Credit Agreement shall be deemed issued under this Agreement;
and

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

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

 24
 

 

Section
2.03           Requests for Borrowings.  To request a Borrowing of any Class, the
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 11:00 a.m., Houston time,
three Business Days before the date of the proposed Borrowing or (b) in the
case of an ABR Borrowing, not later than 11:00 a.m., Houston time, on the date
of the proposed Borrowing; provided that no such notice shall be required for
any deemed request of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as provided in Section 2.08(e). 
Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of
a written Borrowing Request substantially in the form of Exhibit B and
signed by the Borrower.  Each such
telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:

(i)            the aggregate amount of the
requested Borrowing;

(ii)           the date of such Borrowing, which
shall be a Business Day; and if Borrowing of the Term Loans, the Effective
Date;

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

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

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

(vi)          the location and number of the
Borrower’s account to which funds are to be disbursed, which shall comply with
the requirements of Section 2.05.

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

Promptly
following receipt of a Borrowing Request in accordance with this Section 2.03,
the Administrative Agent shall advise each Lender of the relevant Class and
other details thereof and of the amount of such Lender’s Loan to be made as
part of the requested Borrowing.

Section
2.04           Interest Elections.

(a)           Conversion and Continuance.  Each Borrowing of any Class of Loan initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a 

 25
 

 

Eurodollar
Borrowing, shall have an initial Interest Period as specified in such Borrowing
Request.  Thereafter, the Borrower may
elect to convert such Borrowing of any Class of Loan to a different Type or to
continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect
Interest Periods therefor, all as provided in this Section 2.04.  The Borrower may elect different options with
respect to different portions of the affected Borrowing of any Class of Loan,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Class of Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.

(b)           Interest Election Requests.  To make an election pursuant to this Section
2.04, the Borrower shall notify the Administrative Agent of such election by
telephone by the time that a Borrowing Request would be required under Section
2.03 if the Borrower was requesting a Borrowing of the Type resulting from such
election to be made on the effective date of such election.  Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery
or telecopy to the Administrative Agent of a written Interest Election Request
in substantially a form approved by the Administrative Agent and signed by the
Borrower.

(c)           Information in Interest Election
Requests.  Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:

(i)            the Borrowing to which such Interest
Election Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting
Borrowing);

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

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

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

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

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

(e)           Effect of Failure to Deliver
Timely Interest Election Request and Events of Default and Borrowing Base
Deficiencies on Interest Election. 
If the Borrower fails to deliver a timely Interest Election Request with
respect to a Eurodollar Borrowing prior to the end of the 

 26
 

 

Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein,
at the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing.  Notwithstanding any contrary
provision hereof, if an Event of Default or a Borrowing Base Deficiency has
occurred and is continuing:  (i) no
outstanding Borrowing may be converted to or continued as a Eurodollar
Borrowing (and any Interest Election Request that requests the conversion of
any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing
shall be ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall
be converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.

Section
2.05           Funding of Borrowings.

(a)           Funding
by Lenders.  Each Lender shall make
each Loan of each Class to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 1:00 p.m., Houston time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders.  The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
and designated by the Borrower in the applicable Borrowing Request; provided
that ABR Loans made to finance the reimbursement of an LC Disbursement as provided
in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing
Bank that made such LC Disbursement. 
Nothing herein shall be deemed to obligate any Lender to obtain the
funds for its Loan in any particular place or manner or to constitute a
representation by any Lender that it has obtained or will obtain the funds for
its Loan in any particular place or manner.

(b)           Presumption of Funding by the
Lenders.  Unless the Administrative
Agent shall have received notice from a Lender prior to the proposed date of
any Borrowing of a Class that such Lender will not make available to the
Administrative Agent such Lender’s share of such Borrowing, the Administrative
Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.05(a) and may, in reliance upon such assumption, make
available to the Borrower a corresponding amount.  In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans.  If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lender’s Loan
included in such Borrowing.

Section
2.06           Termination and
Reduction of Aggregate Maximum Revolving Credit Amounts and Term Loan
Commitments.

(a)           Scheduled Termination of
Commitments.  The Aggregate Term Loan
Commitments shall be terminated upon the funding of the Term Loans.  Unless previously terminated, the Aggregate
Revolving Credit Commitments shall terminate on the Maturity Date.  If at any time the Aggregate Maximum
Revolving Credit Amounts or the Borrowing Base is 

 27
 

 

terminated or
reduced to zero, then the Commitments shall terminate on the effective date of
such termination or reduction.

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

(i)            The Borrower may at any time
terminate, or from time to time reduce, the Aggregate Maximum Revolving Credit
Amounts; provided that (A) each reduction of the Aggregate Maximum Revolving
Credit Amounts shall be in an amount that is an integral multiple of $500,000
and not less than $500,000 and (B) the Borrower shall not terminate or reduce
the Aggregate Maximum Revolving Credit Amounts if, after giving effect to any
concurrent prepayment of the Loans in accordance with Section 3.04(c), the
total Revolving Credit Exposures would exceed the total Commitments.

(ii)           The Borrower shall notify the
Administrative Agent of any election to terminate or reduce the Aggregate
Maximum Revolving Credit Amounts under Section 2.06(b)(i) at least three
Business Days prior to the effective date of such termination or reduction,
specifying such election and the effective date thereof.  Promptly following receipt of any notice, the
Administrative Agent shall advise the Revolving Credit Lenders of the contents
thereof.  Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable.  Any termination or reduction of the Aggregate
Maximum Revolving Credit Amounts shall be permanent and may not be
reinstated.  Each reduction of the
Aggregate Maximum Revolving Credit Amounts shall be made ratably among the
Revolving Credit Lenders in accordance with each Revolving Credit Lender’s
Applicable Percentage.

Section
2.07           Borrowing Base.

(a)           Initial Borrowing Base.  For the period from and including the
Effective Date to but excluding the next Scheduled Redetermination, the amount
of the Borrowing Base shall be $45,000,000. 
Notwithstanding the foregoing, the Borrowing Base may be subject to
further adjustments from time to time pursuant to Section 2.07(e), Section
8.13(c) or Section 9.12(d).

(b)           Scheduled and Interim
Redeterminations.  Subject to Section
2.07(d), the Borrowing Base shall be redetermined (a “Scheduled
Redetermination”) on April 1st and October 1st of each year,
commencing October 1, 2005.  In addition,
either the Borrower or the Administrative Agent may, or the Administrative
Agent shall at the direction of the Majority Lenders, one time during each
calendar year, each elect to cause the Borrowing Base to be redetermined
between Scheduled Redeterminations (an “Interim Redetermination”) in
accordance with this Section 2.07.

(c)           Scheduled and Interim
Redetermination Procedure.

(i)            Each
Scheduled Redetermination and each Interim Redetermination shall be effectuated
as follows:  Upon receipt by the
Administrative Agent of (A) the Reserve Report and the certificate required to
be delivered by the Borrower to the Administrative Agent, in the case of a Scheduled
Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an
Interim Redetermination, pursuant to Section 8.12(b) and (c), and (B) such
other reports, data and supplemental 

 28
 

 

information,
including, without limitation, the information provided pursuant to Section
8.12(c), as may, from time to time, be reasonably requested by the Majority
Lenders (the Reserve Report, such certificate and such other reports, data and
supplemental information being the “Engineering Reports”), the Administrative
Agent shall evaluate the information contained in the Engineering Reports and
shall, in good faith, propose a new Borrowing Base (the “Proposed Borrowing
Base”) based upon such information and such other information (including,
without limitation, the status of title information with respect to the Oil and
Gas Properties as described in the Engineering Reports and the existence of any
other Debt) as the Administrative Agent deems appropriate in its sole
discretion and consistent with its normal oil and gas lending criteria as it
exists at the particular time.  In no
event shall the Proposed Borrowing Base exceed the Aggregate Maximum Credit
Amounts.

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

(A)          in the case of a Scheduled
Redetermination (1) if the Administrative Agent shall have received the
Engineering Reports required to be delivered by the Borrower pursuant to
Section 8.12(a) and (c) in a timely and complete manner, then on or before the
March 15th and September 15th of such year following the date of
delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrower pursuant to
Section 8.12(a) and (c) in a timely and complete manner, then promptly after
the Administrative Agent has received complete Engineering Reports from the
Borrower and has had a reasonable opportunity to determine the Proposed
Borrowing Base in accordance with Section 2.07(c)(i); and

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

(iii)          Any
Proposed Borrowing Base that would increase the Borrowing Base then in effect
must be approved or deemed to have been approved by all of the Revolving Credit
Lenders as provided in this Section 2.07(c)(iii) and any Proposed Borrowing
Base that would maintain or decrease the Borrowing Base then in effect must be
approved or deemed to have been approved by the Majority Revolving Credit
Lenders as provided in this Section 2.07(c)(iii).  Upon receipt of the Proposed Borrowing Base
Notice, each Revolving Credit Lender shall have fifteen (15) days to agree with
the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by
proposing an alternate Borrowing Base. 
If at the end of such fifteen (15) days, any Revolving Credit Lender has
not communicated its approval or disapproval in writing to the Administrative
Agent, such silence shall be deemed to be an approval of the Proposed Borrowing
Base.  If, at the end of such 15-day
period, all of the Revolving Credit Lenders, in the case of a Proposed
Borrowing Base that would increase the Borrowing Base then in effect, or the
Majority Revolving Credit Lenders, in the case of a Proposed Borrowing Base
that would decrease or maintain the Borrowing Base then in effect, have
approved or deemed to have approved, as aforesaid, then the Proposed 

 29
 

 

Borrowing
Base shall become the new Borrowing Base and made available to the Borrower,
effective on the date specified in Section 2.07(d).  If, however, at the end of such 15-day
period, all of the Revolving Credit Lenders or the Majority Revolving Credit
Lenders, as applicable, have not approved or deemed to have approved, as
aforesaid, then the Administrative Agent shall poll the Revolving Credit
Lenders to ascertain the highest Borrowing Base then acceptable to all of the
Revolving Credit Lenders or the Majority Revolving Credit Lenders and, so long
as such amount does not increase the Borrowing Base then in effect, such amount
shall become the new Borrowing Base, effective on the date specified in Section
2.07(d)

(d)           Effectiveness of a Redetermined
Borrowing Base.  After a redetermined
Borrowing Base is approved or is deemed to have been approved by all of the
Revolving Credit Lenders or the Majority Revolving Credit Lenders pursuant to
Section 2.07(c)(iii), the Administrative Agent shall notify the Borrower and
the Revolving Credit Lenders of the amount of the redetermined Borrowing Base
(the “New Borrowing Base Notice”), and such amount shall become the new
Borrowing Base, effective and applicable to the Borrower, the Administrative
Agent, each Issuing Bank and the Revolving Credit Lenders:

(A)          in the case of a Scheduled
Redetermination, (1) if the Administrative Agent shall have received the
Engineering Reports required to be delivered by the Borrower pursuant to
Section 8.12(a) and (c) in a timely and complete manner, then on the April 1st
or October 1st, as applicable, following such notice, or (2) if the
Administrative Agent shall not have received the Engineering Reports required
to be delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely
and complete manner, then on the Business Day next succeeding delivery of such
notice; and

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

Such amount
shall then become the Borrowing Base until the next Scheduled Redetermination
Date, the next Interim Redetermination Date or the next adjustment to the
Borrowing Base under Section 2.07(e), Section 8.13(c) or Section 9.12(d),
whichever occurs first.  Notwithstanding
the foregoing, no Scheduled Redetermination or Interim Redetermination shall
become effective until the New Borrowing Base Notice related thereto is
received by the Borrower.

(e)           Amortization.  In each Proposed Borrowing Base Notice, the
Administrative Agent will also propose a new monthly amortization rate subject
to the approval of the Majority Revolving Credit Lenders.  Each Revolving Credit Lender shall have
fifteen (15) days to agree with such amortization rate or disagree with the proposed
monthly amortization rate by proposing an alternate monthly amortization
rate.  If at the end of such fifteen (15)
days, any Revolving Credit Lender has not communicated its approval or
disapproval in writing to the Administrative Agent, such silence shall be
deemed to be an approval of the new monthly amortization rate.  After the amortization rate is approved or
deemed to be approved, the proposed monthly amortization rate shall then be
effective as of the Business Day next succeeding notice of the new monthly
amortization rate, which shall be delivered concurrently

 30

 

with the New
Borrowing Base Notice.  As of the
Effective Date, until the first Scheduled Redetermination or Interim
Redetermination, the amortization rate will be $0.00.

Section 2.08           Letters of Credit.

(a)           General.  Subject to the terms and conditions set forth
herein, the Borrower may request any Issuing Bank to issue Letters of Credit
for its own account or for the account of the Borrower or any of its
Subsidiaries, in a form reasonably acceptable to the Administrative Agent and
such Issuing Bank, at any time and from time to time during the Availability
Period; provided that the Borrower may not request the issuance, amendment,
renewal or extension of Letters of Credit hereunder if a Borrowing Base
Deficiency exists at such time or would exist as a result thereof.  In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, an Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.

(b)           Notice of Issuance, Amendment,
Renewal, Extension; Certain Conditions. 
To request the issuance of a Letter of Credit (or the amendment, renewal
or extension of an outstanding Letter of Credit), the Borrower shall hand
deliver or telecopy (or transmit by electronic communication, if arrangements
for doing so have been approved by the Issuing Bank) to any Issuing Bank and
the Administrative Agent (not less than five (5) Business Days in advance of
the requested date of issuance, amendment, renewal or extension) a notice:

(i)            requesting the issuance of a Letter
of Credit or identifying the Letter of Credit issued by such Issuing Bank to be
amended, renewed or extended;

(ii)           specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day);

(iii)          specifying the date on which such
Letter of Credit is to expire (which shall comply with Section 2.08(c));

(iv)          specifying the amount of such Letter
of Credit;

(v)           specifying the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit; and

(vi)          specifying the amount of the then
effective Borrowing Base and whether a Borrowing Base Deficiency exists at such
time, the current total Revolving Credit Exposures (without regard to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit) and the pro
forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).

Each
notice shall constitute a representation that after giving effect to the
requested issuance, amendment, renewal or extension, as applicable, (i) the LC
Exposure shall not exceed the LC 

 31
 

 

Commitment
and (ii) the total Revolving Credit Exposures shall not exceed the lesser of
the Aggregate Maximum Revolving Credit Amounts and the then effective Borrowing
Base.

If requested by
any Issuing Bank, the Borrower also shall submit a letter of credit application
on such Issuing Bank’s standard form in connection with any request for a
Letter of Credit.

(c)           Expiration Date.  Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after
the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or extension) and (ii)
the date that is five Business Days prior to the Maturity Date.

(d)           Participations.  By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank that issues such Letter of
Credit or the Revolving Credit Lenders, each Issuing Bank that issues a Letter
of Credit hereunder hereby grants to each Revolving Credit Lender, and each
Revolving Credit Lender hereby acquires from such Issuing Bank, a participation
in such Letter of Credit equal to such Lender’s Applicable Percentage of the
aggregate amount available to be drawn under such Letter of Credit.  In consideration and in furtherance of the
foregoing, each Revolving Credit Lender hereby absolutely and unconditionally
agrees to pay to the Administrative Agent, for the account of any Issuing Bank
that issues a Letter of Credit hereunder, such Lender’s Applicable Percentage
of each LC Disbursement made by such Issuing Bank and not reimbursed by the
Borrower on the date due as provided in Section 2.08(e), or of any
reimbursement payment required to be refunded to the Borrower for any
reason.  Each Revolving Credit Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this Section 2.08(d) in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including any amendment, renewal or extension of any Letter of Credit or the
occurrence and continuance of a Default, the existence of a Borrowing Base
Deficiency or reduction or termination of the Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever

(e)           Reimbursement.  If any Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit issued by such Issuing Bank, the
Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 11:00 a.m.,
Houston time, on the date that such LC Disbursement is made, if the Borrower
shall have received notice of such LC Disbursement prior to 9:00 a.m., Houston
time, on such date, or, if such notice has not been received by the Borrower
prior to such time on such date, then not later than 11:00 a.m., Houston time,
on (i) the Business Day that the Borrower receives such notice, if such notice
is received prior to 9:00 a.m., Houston time, on the day of receipt, or (ii)
the Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of
receipt; provided that if such LC Disbursement is not less than $1,000,000, the
Borrower shall, subject to the conditions to Borrowing set forth herein, be
deemed to have requested, and the Borrower does hereby request under such
circumstances, that such payment be financed with an ABR Borrowing in an
equivalent amount and, to the extent so financed, the Borrower’s obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing.  If the Borrower fails to make
such payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and 

 32
 

 

such Lender’s
Applicable Percentage thereof.  Promptly
following receipt of such notice, each Revolving Credit Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.05 with respect to Loans
made by such Lender (and Section 2.05 shall apply, mutatis
mutandis, to the payment obligations of the Revolving Credit
Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank
that issued such Letter of Credit the amounts so received by it from the
Revolving Credit Lenders.  Promptly
following receipt by the Administrative Agent of any payment from the Borrower
pursuant to this Section 2.08(e), the Administrative Agent shall distribute
such payment to the Issuing Bank that issued such Letter of Credit or, to the
extent that Revolving Credit Lenders have made payments pursuant to this
Section 2.08(e) to reimburse such Issuing Bank, then to such Lenders and such
Issuing Bank as their interests may appear. 
Any payment made by a Revolving Credit Lender pursuant to this Section
2.08(e) to reimburse any Issuing Bank for any LC Disbursement (other than the
funding of ABR Loans as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.

(f)            Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms
of this Agreement under any and all circumstances whatsoever and irrespective
of (i) any lack of validity or enforceability of any Letter of Credit, any
Letter of Credit Agreement or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of Credit proving to
be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by any Issuing Bank under a
Letter of Credit issued by such Issuing Bank against presentation of a draft or
other document that does not comply with the terms of such Letter of Credit or
any Letter of Credit Agreement, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section 2.08(f), constitute a legal or equitable
discharge of, or provide a right of setoff against, the Borrower’s obligations
hereunder.  Neither the Administrative
Agent, the Revolving Credit Lenders nor any Issuing Bank, nor any of their
Related Parties shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
any Issuing Bank; provided that the foregoing shall not be construed to excuse
any Issuing Bank from liability to the Borrower to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by such Issuing Bank’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 hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of any
Issuing Bank (as finally determined by a court of competent jurisdiction), such
Issuing Bank shall be deemed to have exercised all requisite 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 

 33
 

 

Bank that
issued such Letter of Credit 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.

(g)           Disbursement Procedures.  Each Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit issued by such Issuing Bank.  Such Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether such Issuing Bank has made or will make an
LC Disbursement thereunder; provided that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to
reimburse such Issuing Bank and the Revolving Credit Lenders with respect to
any such LC Disbursement.

(h)           Interim Interest.  If any Issuing Bank shall make any LC Disbursement,
then, until the Borrower shall have reimbursed such Issuing Bank for such LC
Disbursement (either with its own funds or a Borrowing under Section 2.08(e)),
the unpaid amount thereof shall bear interest, for each day from and including
the date such LC Disbursement is made to but excluding the date that the
Borrower reimburses such LC Disbursement, at the rate per annum then applicable
to ABR Loans.  Interest accrued pursuant
to this Section 2.08(h) shall be for the account of such Issuing Bank, except
that interest accrued on and after the date of payment by any Revolving Credit
Lender pursuant to Section 2.08(e) to reimburse such Issuing Bank shall be for
the account of such Revolving Credit Lender to the extent of such payment.

(i)            Replacement of an Issuing Bank.  Any Issuing Bank may be replaced or resign at
any time by written agreement among the Borrower, the Administrative Agent,
such resigning or replaced Issuing Bank and, in the case of a replacement, the
successor Issuing Bank.  The Administrative
Agent shall notify the Revolving Credit Lenders of any such resignation or
replacement of an Issuing Bank.  At the
time any such resignation or replacement shall become effective, the Borrower
shall pay all unpaid fees accrued for the account of the resigning or replaced
Issuing Bank pursuant to Section 3.05(b). 
In the case of the replacement of an Issuing Bank, from and after the
effective date of such replacement, (i) the successor Issuing Bank shall have
all the rights and obligations of the replaced Issuing Bank under this
Agreement with respect to Letters of Credit to be issued thereafter and (ii)
references herein to “Issuing Bank” shall be deemed to refer to such successor
or to any previous Issuing Bank, or to such successor and all previous Issuing
Banks, as the context shall require. 
After the resignation or replacement of an Issuing Bank hereunder, the
resigning or replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such
resignation or replacement, but shall not be required to issue additional
Letters of Credit.

(j)            Cash Collateralization.  If (i) any Event of Default shall occur and
be continuing and the Borrower receives notice from the Administrative Agent or
the Majority Revolving Credit Lenders demanding the deposit of cash collateral
pursuant to this Section 2.08(j), or (ii) the Borrower is required to pay to
the Administrative Agent the excess attributable to an LC Exposure in
connection with any prepayment pursuant to Section 3.04(c), then the Borrower
shall deposit, in an account with the Administrative Agent, in the name of the

 34
 

 

Administrative
Agent and for the benefit of the Revolving Credit Lenders, an amount in cash
equal to, in the case of an Event of Default, the LC Exposure, and in the case
of a payment required by Section 3.04(c), the amount of such excess as provided
in Section 3.04(c), as of such date plus any accrued and unpaid interest
thereon; provided that the obligation to deposit such cash collateral shall
become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower or any of its Subsidiaries
described in Section 10.01(h) or Section 10.01(i).  The Borrower hereby grants to the
Administrative Agent, for the benefit of each Issuing Bank and the Revolving
Credit Lenders, an exclusive first priority and continuing perfected security
interest in and Lien on such account and all cash, checks, drafts, certificates
and instruments, if any, from time to time deposited or held in such account,
all deposits or wire transfers made thereto, any and all investments purchased
with funds deposited in such account, all interest, dividends, cash,
instruments, financial assets and other Property from time to time received,
receivable or otherwise payable in respect of, or in exchange for, any or all
of the foregoing, and all proceeds, products, accessions, rents, profits,
income and benefits therefrom, and any substitutions and replacements
therefor.  The Borrower’s obligation to
deposit amounts pursuant to this Section 2.08(j) shall be absolute and
unconditional, without regard to whether any beneficiary of any such Letter of
Credit has attempted to draw down all or a portion of such amount under the
terms of a Letter of Credit, and, to the fullest extent permitted by applicable
law, shall not be subject to any defense or be affected by a right of set-off,
counterclaim or recoupment which the Borrower or any of its Subsidiaries may
now or hereafter have against any such beneficiary, any Issuing Bank, the
Administrative Agent, the Revolving Credit Lenders or any other Person for any
reason whatsoever.  Such deposit shall be
held as collateral securing the payment and performance of the Borrower’s and
the Guarantor’s obligations under this Agreement and the other Loan
Documents.  The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account.  Deposits
in such account shall be invested at the direction of the Borrower in an
Investment of the type described in Section 9.05(c), Section 9.05(d), Section
9.05(e) or Section 9.05(f) and at the Borrower’s risk and expense.  Interest or profits, if any, on such
investments shall accumulate in such account. 
Moneys in such account shall be applied by the Administrative Agent to
reimburse, on a pro rata basis,
each Issuing Bank for LC Disbursements for which it has not been reimbursed
and, to the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or,
if the maturity of the Loans has been accelerated, be applied to satisfy other
obligations of the Borrower and the Guarantors under this Agreement or the
other Loan Documents.  If the Borrower is
required to provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, and the Borrower is not otherwise required
to pay to the Administrative Agent the excess attributable to an LC Exposure in
connection with any prepayment pursuant to Section 3.04(c), then such amount
(to the extent not applied as aforesaid) shall be returned to the Borrower
within three Business Days after all Events of Default have been cured or
waived.

(k)           Existing Letters of Credit.  On the Effective Date, the Existing Letters
of Credit listed on Schedule 1.02 shall be deemed to have been issued under
this Agreement by BNP Paribas, as an Issuing Bank, or Compass Bank, as an
Issuing Bank, as specified on Schedule 1.02, without payment of any fees
otherwise due upon the issuance of a Letter of Credit, and BNP Paribas and
Compass Bank shall be deemed, without further action by any party hereto, to
have sold to each Revolving Credit Lender, and each Revolving Credit Lender
shall be 

 35
 

 

deemed, without
further action by any party hereto, to have purchased from BNP Paribas and
Compass Bank, as Issuing Banks, a participation, to the extent of such
Revolving Credit Lender’s Applicable Percentage, in such Letters of Credit.

ARTICLE III

Payments of Principal and Interest; Prepayments; Fees

Section
3.01           Repayment of Loans.

(a)           On the Revolving Credit Termination
Date, the Borrower shall repay the outstanding aggregate principal under the
Revolving Credit Notes. The Borrower unconditionally promises to pay to the
Administrative Agent for the account of each Revolving Credit Lender the then
unpaid principal amount of each Revolving Credit Loan on the Revolving Credit
Termination Date.

(b)           The aggregate principal amount of the
Term Loan Notes shall be payable in full on the Term Loan Termination Date.

Section
3.02           Interest.

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

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

(c)           ABR Term Loans.  The Term Loans comprising each ABR Term
Borrowing shall bear interest at the Alternate Base Rate plus 2.75%, but in no
event to exceed the Highest Lawful Rate.

(d)           Eurodollar Term Loans.  The Term Loans comprising each Eurodollar
Term Borrowing shall bear interest at the LIBO Rate for the Interest Period in
effect for such Borrowing plus 3.75%, but in no event to exceed the Highest
Lawful Rate.

(e)           Post-Default and Borrowing Base
Deficiency Rate.  Notwithstanding the
foregoing, (i) if an Event of Default has occurred and is continuing, or
if any principal of or interest on any Loan or any fee or other amount payable
by the Borrower or any Guarantor hereunder or under any other Loan Document is
not paid when due, whether at stated maturity, upon acceleration or otherwise,
and including any payments in respect of a Borrowing Base Deficiency under
Section 3.04(c), then all Loans outstanding, in the case of an Event of
Default, and such overdue amount, in the case of a failure to pay amounts when
due, shall bear interest, after as well as before judgment, at a rate per annum
equal to two percent (2%) plus the rate applicable to ABR Loans or Borrowings
set forth in Section 3.02(a) and Section 3.02(c) above, as applicable, but in
no event to exceed the Highest Lawful Rate, and (ii)  during any Borrowing
Base Deficiency, the amount of such Borrowing Base Deficiency shall bear
interest, after as well

 36
 

 

as before
judgment, at the rate then applicable to the relevant Loan or Loans, plus the
Applicable Margin, if any, plus an additional two percent (2%), but in no event
to exceed the Highest Lawful Rate.

(f)            Interest Payment Dates.  Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and on the
Revolving Credit Termination Date for the Revolving Credit Loans and the Term
Loan Termination Date for the Term Loans; provided that (i) interest accrued
pursuant to Section 3.02(e) shall be payable on demand, (ii) in the event of
any repayment or prepayment of any Loan (other than an optional prepayment of
an ABR Revolving Credit Loan prior to the Revolving Credit Termination Date),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment, and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.

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

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

(a)           the Administrative Agent determines
(which determination shall be conclusive absent manifest error) that adequate
and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or
the LIBO Rate for such Interest Period; or

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

then the
Administrative Agent shall give notice thereof to the Borrower and the Lenders
by telephone or telecopy as promptly as practicable thereafter and, until the
Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.

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Section 3.04           Prepayments.

(a)           Optional Prepayments.  The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part, subject to
prior notice in accordance with Section 3.04(b).

(b)           Notice and Terms of Optional
Prepayment.  The Borrower shall
notify the Administrative Agent by telephone (confirmed by telecopy) of any
prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing,
not later than 11:00 a.m., Houston time, three Business Days before the date of
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., Houston time, one Business Day before the date of
prepayment.  Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid.  Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof.  Each partial
prepayment of any Borrowing shall be in an amount that would be permitted in
the case of an advance of a Borrowing of the same Type as provided in Section
2.02.  Each prepayment of a Borrowing
shall be applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 3.02.

(c)           Mandatory Prepayments.

(i)            If, after giving effect to any
termination or reduction of the Aggregate Maximum Revolving Credit Amounts
pursuant to Section 2.06(b), the total Revolving Credit Exposures exceeds the
Aggregate Revolving Credit Commitments, then the Borrower shall (A) prepay the
Revolving Borrowings on the date of such termination or reduction in an
aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Revolving Borrowings as a result of an LC Exposure,
pay to the Administrative Agent on behalf of the Lenders an amount equal to
such excess to be held as cash collateral as provided in Section 2.08(j).

(ii)           If, after giving effect to any change
in the then effective Borrowing Base as the result of monthly amortization
established pursuant Section 2.07(e), the total Revolving Credit Exposures
exceeds the Borrowing Base, as reduced, then the Borrower shall (A) prepay the
Revolving Borrowings three (3) Business Days following the date of such
amortization in an aggregate principal amount equal to such excess and (B) if
any excess remains after prepaying all of the Borrowings as a result of an LC
Exposure, pay to the Administrative Agent on behalf of the Lenders an amount
equal to such excess to be held as cash collateral as provided in Section
2.08(j).

(iii)          Upon any redetermination of or
adjustment to the amount of the Borrowing Base in accordance with Section 2.07
or Section 8.13(c), if the total Revolving Credit Exposures exceeds the
redetermined or adjusted Borrowing Base, then the Borrower shall (A) prepay the
Revolving Borrowings in an aggregate principal amount equal to such excess, and
(B) if any excess remains after prepaying all of the Revolving Borrowings as a
result of an LC Exposure, pay to the Administrative Agent on behalf of the
Revolving Credit Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(j). 
The Borrower shall be obligated to make such prepayment and/or deposit
of cash collateral within ninety days (90) following its receipt of the New
Borrowing Base Notice in accordance with Section 2.07(d)

 38
 

 

or the date the
adjustment occurs; provided that all payments required to be made pursuant to
this Section 3.04(c)(iii) must be made on or prior to the Revolving Credit
Termination Date.

(iv)          Upon any adjustments to the Borrowing
Base pursuant to Section 9.12(d), if the total Revolving Credit Exposures
exceed the Borrowing Base as adjusted, then the Borrower shall (A) prepay the
Revolving Borrowings in an aggregate principal amount equal to such excess, and
(B) if any excess remains after prepaying all of the Revolving Borrowings as a
result of an LC Exposure, pay to the Administrative Agent on behalf of the
Revolving Credit Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.08(j). 
The Borrower shall be obligated to make such prepayment and/or deposit
of cash collateral on the date it receives cash proceeds as a result of such
disposition; provided that all payments required to be made pursuant to this
Section 3.04(c)(iv) must be made on or prior to the Revolving Credit
Termination Date.

(v)           Each prepayment of Revolving
Borrowings pursuant to this Section 3.04(c) shall be applied, first, ratably to
any ABR Revolving Borrowings then outstanding, and, second, to any Eurodollar
Revolving Borrowings then outstanding, and if more than one Eurodollar
Revolving Borrowing is then outstanding, to each such Eurodollar Revolving
Borrowing in order of priority beginning with the Eurodollar Revolving
Borrowing with the least number of days remaining in the Interest Period
applicable thereto and ending with the Eurodollar Revolving Borrowing with the
most number of days remaining in the Interest Period applicable thereto.

(vi)          Each prepayment of Revolving
Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the
Revolving Credit Loans of each Revolving Credit Lender included in the prepaid
Revolving Borrowings.  Prepayments
pursuant to this Section 3.04(c) shall be accompanied by accrued interest to
the extent required by Section 3.02.

(vii)         The Borrower shall, to the extent such
Net Cash Proceeds are not required as prepayments by Section 3.04(c)(i) through
(vi) above, prepay the Term Loan Notes and accrued and unpaid interest thereon
in amounts equal to:

(A)          100% of the Net Cash Proceeds of any
sale or disposition of Properties permitted by Section 9.12, provided, that the
Borrower shall not be required to make such prepayment of the Term Loan Notes
for the Mayfield Disposition.

(B)           100% of the Net Cash Proceeds of any
Debt incurrence of the Borrower or any of its Subsidiaries or of the sale or
issuance of any Equity Interests of the Borrower, excluding Debt permitted by
Section 9.02.  Such prepayment shall be
made no later than the next Business Day after the receipt of such proceeds.

(C)           100% of the Net Cash Proceeds of any
Casualty Event related to the Borrower or any of its Subsidiaries.

(D)          Notwithstanding anything herein to the
contrary, if the amount of any Net Cash Proceeds referred to in Section
3.04(c)(vii)(A) through (C) would otherwise be payable under Section 3.04(c)(i)
through (vi) but such payment is waived, such amount shall be payable to the Borrower
pursuant to this Section 3.04(c)(vii).

 39
 

 

(d)           No Premium or Penalty.  Prepayments permitted or required under this
Section 3.04 shall be without premium or penalty, except as required under
Section 5.02.

Section
3.05           Fees.

(a)           Commitment Fees.  The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee, which shall accrue at a rate per annum equal to 0.375% on the
average daily amount of the unused amount of the Revolving Commitment of such
Revolving Credit Lender during the period from and including the date of this
Agreement to but excluding the Revolving Credit Termination Date.  Accrued commitment fees shall be payable in
arrears on the last day of March, June, September and December of each year and
on the Revolving Credit Termination Date, commencing on the first such date to
occur after the date hereof.  All
commitment fees shall be computed on the basis of a year of 360 days, unless
such computation would exceed the Highest Lawful Rate, in which case interest
shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).

(b)           Letter of Credit Fees.  The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Revolving Credit Lender a
participation fee with respect to its participations in Letters of Credit,
which shall accrue at the same Applicable Margin used to determine the interest
rate applicable to Eurodollar Revolving Credit Loans on the average daily
amount of such Revolving Credit Lender’s LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including the date of this Agreement to but excluding the later of the date
on which such Lender’s Revolving Commitment terminates and the date on which
such Lender ceases to have any LC Exposure, (ii) to each Issuing Bank a
fronting fee equal to 0.125% per annum on the face amount of each Letter of
Credit issued by such Issuing Bank hereunder, provided that in no event shall
such fee be less than $500 and (iii) to each Issuing Bank, for its own account,
its standard fees with respect to the issuance, amendment, renewal or extension
of any Letter of Credit issued by such Issuing Bank or processing of drawings
thereunder.  Participation fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the date of this Agreement and
fronting fees with respect to any Letter of Credit shall be payable at the time
of issuance of such Letter of Credit; provided that all such fees shall be
payable on the Revolving Credit Termination Date and any such fees accruing
after the Revolving Credit Termination Date shall be payable on demand.  Any other fees payable to an Issuing Bank
pursuant to this Section 3.05(b) shall be payable within 10 days after
demand.  All participation fees and
fronting fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall
be computed on the basis of a year of 365 days (or 366 days in a leap year),
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).

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

 40

 

(d)           Borrowing Base Increase Fees.  The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee to be agreed by the Lenders and the Borrower on the amount of
any increase of the Borrowing Base over the highest Borrowing Base previously
in effect, payable on the effective date of any such increase to the Borrowing
Base.

ARTICLE
IV

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

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

(a)           Payments by the Borrower.  The Borrower shall make each payment required
to be made by it hereunder (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 5.01,
Section 5.02, Section 5.03 or otherwise) prior to 11:00 a.m., Houston time, on
the date when due, in immediately available funds, without defense, deduction,
recoupment, set-off or counterclaim. 
Fees, once paid, shall be fully earned and shall not be refundable under
any circumstances.  Any amounts received
after such time on any date may, in the discretion of the Administrative Agent,
be deemed to have been received on the next succeeding Business Day for
purposes of calculating interest thereon. 
All such payments shall be made to the Administrative Agent at its
offices specified in Section 12.01, except payments to be made directly to an
Issuing Bank as expressly provided herein and except that payments pursuant to
Section 5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made
directly to the Persons entitled thereto. 
The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof.  If any
payment hereunder shall be due on a day that is not a Business Day, the date
for payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for
the period of such extension.  All
payments hereunder shall be made in dollars.

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

(c)           Sharing of Payments by Lenders.  If any Lender of a Class shall, by exercising
any right of set-off or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender of such Class receiving payment of a
greater proportion of the aggregate amount of its Loans and participations in
LC Disbursements and accrued interest thereon than the proportion received by
any other Lender of such Class, then the Lender of such Class receiving such
greater proportion shall purchase (for cash at face value) participations in
the Loans and participations in LC Disbursements of other Lenders of the same
Class to the extent necessary so 

 41
 

 

that the
benefit of all such payments shall be shared by the Lenders of the same Class
ratably in accordance with the aggregate amount of principal of and accrued
interest on their respective Loans and participations in LC Disbursements;
provided that (i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest, and (ii) the provisions of this Section 4.01(c)
shall not be construed to apply to any payment made by the Borrower pursuant to
and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any
assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this Section 4.01(c) shall
apply).  The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender of such Class acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.

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

Section
4.03           Certain Deductions by
the Administrative Agent.  If any
Lender shall fail to make any payment required to be made by it pursuant to
Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid.

Section 4.04           Disposition of Proceeds.  The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property.  The Security Instruments further provide in
general for the application of such proceeds to the satisfaction of the
Indebtedness and other obligations described therein and secured thereby.  Notwithstanding the assignment contained in
such Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but
the 

 42
 

 

Lenders will
instead permit such proceeds to be paid to the Borrower and its Subsidiaries
and (b) the Lenders hereby authorize the Administrative Agent to take such
actions as may be necessary to cause such proceeds to be paid to the Borrower
and/or its Subsidiaries.

ARTICLE
V

Increased Costs; Break Funding Payments; Taxes; Illegality

Section
5.01           Increased Costs.

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

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

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

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

(b)           Capital Requirements.  If any Lender or any Issuing Bank determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or such Issuing Bank’s
capital or on the capital of such Lender’s or such Issuing Bank’s holding
company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by such Issuing Bank, to a level below that which such Lender or
such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could
have achieved but for such Change in Law (taking into consideration such Lender’s
or such Issuing Bank’s policies and the policies of such Lender’s or such
Issuing Bank’s holding company with respect to capital adequacy), then from
time to time the Borrower will pay to such Lender or such Issuing Bank, as the
case may be, such additional amount or amounts as will compensate such Lender
or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company
for any such reduction suffered.

(c)           Certificates.  A certificate of a Lender or any Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or such
Issuing Bank or its holding company, as the case may be, as specified in
Section 5.01(a) or (b) shall be delivered to the Borrower and shall be
conclusive absent manifest error.  The
Borrower shall pay such Lender or such Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt
thereof.

(d)           Effect of Failure or Delay in
Requesting Compensation.  Failure or
delay on the part of any Lender or any Issuing Bank to demand compensation
pursuant to this Section 

 43
 

 

5.01 shall not
constitute a waiver of such Lender’s or such Issuing Bank’s right to demand
such compensation.

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

A certificate
of any Lender setting forth any amount or amounts that such Lender is entitled
to receive pursuant to this Section 5.02 shall be delivered to the Borrower and
shall be conclusive absent manifest error. 
The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.

Section
5.03           Taxes.

(a)           Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such Guarantor shall make
such deductions and (iii) the Borrower or such Guarantor shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.

(b)           Payment of Other Taxes by the
Borrower.  The Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

(c)           Indemnification by the Borrower.  The Borrower shall indemnify the
Administrative Agent, each Lender and each Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as
the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or

 44
 

 

Other Taxes
imposed or asserted on or attributable to amounts payable under this Section
5.03) and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority.  A certificate of the
Administrative Agent, a Lender or an Issuing Bank as to the amount of such
payment or liability under this Section 5.03 shall be delivered to the Borrower
and shall be conclusive absent manifest error.

(d)           Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.

(e)           Foreign Lenders.  Any Foreign Lender that is entitled to an
exemption from or reduction of withholding Tax under the law of the jurisdiction
in which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement or any other Loan Document
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law or reasonably requested by
the Borrower as will permit such payments to be made without withholding or at
a reduced rate.

Section
5.04           Designation of Different
Lending Office.  If any Lender or
Participant requests compensation under Section 5.01, or if the Borrower
is required to pay any additional amount to any Lender or Participant or any
Governmental Authority for the account of any Lender or Participant pursuant to
Section 5.03, then such Lender or
Participant shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender or Participant, such designation or assignment (i)
would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may be, in the
future and (ii) would not subject such Lender or Participant to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender or Participant.  The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender
or Participant in connection with any such designation or assignment.

Section
5.05           Illegality.  Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
applicable lending office to honor its obligation to make or maintain
Eurodollar Loans either generally or having a particular Interest Period
hereunder, then (a) such Lender shall promptly notify the Borrower and the
Administrative Agent thereof and such Lender’s obligation to make such
Eurodollar Loans shall be suspended (the “Affected Loans”) until such
time as such Lender may again make and maintain such Eurodollar Loans and (b)
all Affected Loans which would otherwise be made by such Lender shall be made
instead as ABR Loans (and, if such Lender so requests by notice to the Borrower
and the Administrative Agent, all Affected Loans of such Lender then
outstanding shall be automatically converted into ABR Loans on the date
specified by such Lender in such notice) and, to the extent that Affected Loans
are so made as (or converted into) ABR Loans, all 

 45
 

 

payments of
principal which would otherwise be applied to such Lender’s Affected Loans
shall be applied instead to its ABR Loans.

ARTICLE
VI

Conditions Precedent

Section
6.01           Effective Date.  The obligations of the Lenders to make Loans
and of any Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 12.02):

(a)           The Arranger, the Administrative
Agent and the Lenders shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Borrower hereunder.

(b)           The Administrative Agent shall have
received a compliance certificate which shall be substantially in the form of Exhibit
C, duly and properly executed by a Responsible Officer and dated as of the
Effective Date.

(c)           The Administrative Agent shall have
received from each party hereto counterparts (in such number as may be
requested by the Administrative Agent) of this Agreement signed on behalf of
such party.

(d)           The Administrative Agent shall have
received duly executed (i) Revolving Credit Notes payable to the order of each
Revolving Credit Lender in a principal amount equal to its Maximum Revolving
Credit Amount dated as of the date hereof and (ii) Term Loan Notes to the order
of each Term Loan Lender in a principal amount equal to its Term Loan
Commitment dated as of the date hereof.

(e)           The Administrative Agent shall have
received from each party thereto duly executed counterparts (in such number as
may be requested by the Administrative Agent) of the Security Instruments.  In connection with the execution and delivery
of the Security Instruments, the Administrative Agent shall be reasonably
satisfied that the Security Instruments create first priority, perfected Liens
(provided the Excepted Liens identified in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such
definition) on at least 85% of the total value of the Oil and Gas Properties
evaluated in the most recently delivered Reserve Report.

(f)            The Administrative Agent shall have
received an opinion of (i) Thompson & Knight LLP, special counsel to the
Borrower, in form and substance satisfactory to the Administrative Agent and
(ii) local counsel in each of the following states: Mississippi and any other
jurisdictions requested by the Administrative Agent, in form and substance
satisfactory to the Administrative Agent.

(g)           The Administrative Agent shall have
received such information as the Administrative Agent may reasonably require,
all of which shall be reasonably satisfactory to the Administrative Agent in
form and substance, on the title to the Oil and Gas Properties evaluated in the
Initial Reserve Report.

 46
 

 

(h)           The Administrative Agent shall have
received a certificate of a Responsible Officer certifying that the Borrower has
received all consents and approvals required by Section 7.03.

(i)            The Administrative Agent shall have
received (i) a certificate of a Responsible Officer of the Borrower
certifying:  (A) that the Borrower is
concurrently consummating the Acquisition in accordance with the terms of the
Acquisition Documents (with all of the material conditions precedent thereto
having been satisfied in all material respects by the parties thereto) and
acquiring substantially all of the Acquisition Properties contemplated by the
Acquisition Documents; (B) as to the final purchase price for the Acquisition
Properties after giving effect to all adjustments as of the closing date
contemplated by the Acquisition Documents and specifying, by category, the
amount of such adjustment; (C) that attached thereto is a true and complete
list of the Acquisition Properties which have been excluded from the
Acquisition pursuant to the terms of the Acquisition Documents, specifying with
respect thereto the basis of exclusion as (1) title defect, (2) preferential
purchase right, (3) environmental or (4) casualty loss; (D) that attached
thereto is a true and complete list of all Acquisition Properties for which any
seller has elected to cure a title defect, (E) that attached thereto is a true and
complete list of all Acquisition Properties for which any seller has elected to
remediate an adverse environmental condition, and (F) that attached thereto is
a true and complete list of all Acquisition Properties which are currently
pending final decision by a third party regarding purchase of such property in
accordance with any preferential right; (ii) a true and complete executed copy
of each of the Acquisition Documents; (iii) original counterparts or copies,
certified as true and complete, of the assignments, deeds and leases for all of
the Acquisition Properties; and (iv) such other related documents and
information as the Administrative Agent shall have reasonably requested.

(j)            The
Administrative Agent shall have received evidence that the Borrower has (a)
cash or cash equivalents on hand and (b) there is an unused amount of Revolving
Commitment totaling $5,000,000.00 as of the Effective Date.

(k)           The Administrative Agent shall have
received the financial statements referred to in Section 7.04(a) and the
Initial Reserve Report accompanied by a certificate covering the matters
described in Section 8.12(c).

(l)            The Administrative Agent shall be
reasonably satisfied with the environmental condition of the Oil and Gas
Properties of the Borrower and its Subsidiaries.

(m)          The Administrative Agent shall have
received such other documents as the Administrative Agent or special counsel to
the Administrative Agent may reasonably request.

The
Administrative Agent shall notify the Borrower and the Lenders of the Effective
Date, and such notice shall be conclusive and binding.  Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of each Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless each of the foregoing
conditions is satisfied (or waived pursuant to Section 12.02) at or prior to
3:00 p.m., Houston time, on September 30, 2006 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at
such time).

 47
 

 

Section
6.02           Each Credit Event.  The obligation of each Lender to make a Loan
on the occasion of any Borrowing (including the initial funding), and of each
Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject
to the satisfaction of the following conditions:

(a)           At the time of and immediately after
giving effect to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.

(b)           At the time of and immediately after
giving effect to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, no Material Adverse Effect
shall have occurred.

(c)           The representations and warranties of
the Borrower and the Guarantors set forth in this Agreement and in the other
Loan Documents shall be true and correct on and as of the date of such
Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, except to the extent any such representations
and warranties are expressly limited to an earlier date, in which case, on and
as of the date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, such representations and warranties
shall continue to be true and correct as of such specified earlier date.

(d)           The making of such Loan or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, would not conflict with, or cause any Lender or any Issuing Bank to
violate or exceed, any applicable Governmental Requirement, and no Change in
Law shall have occurred, and no litigation shall be pending or threatened,
which does or, with respect to any threatened litigation, seeks to, enjoin,
prohibit or restrain, the making or repayment of any Loan, the issuance,
amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by
this Agreement or any other Loan Document.

(e)           The receipt by the Administrative
Agent of a Borrowing Request in accordance with Section 2.03 or a request for a
Letter of Credit in accordance with Section 2.08(b), as applicable.

Each request
for a Borrowing and each issuance, amendment, renewal or extension of any
Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in Section 6.02(a)
through (e).

ARTICLE VII

Representations and Warranties

The
Borrower represents and warrants to the Lenders that:

Section
7.01           Organization; Powers.  Each of the Borrower and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and
has all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as 

 48
 

 

now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.

Section
7.02           Authority;
Enforceability.  The Transactions are
within the Borrower’s and each Guarantor’s corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action
(including, without limitation, any action required to be taken by any class of
directors of the Borrower or any other Person, whether interested or
disinterested, in order to ensure the due authorization of the
Transactions).  Each Loan Document and
Acquisition Document to which the Borrower and each Guarantor is a party has
been duly executed and delivered by the Borrower and such Guarantor and
constitutes a legal, valid and binding obligation of the Borrower and such
Guarantor, as applicable, enforceable in accordance with its terms, 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.

Section
7.03           Approvals; No Conflicts.  The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by,
any Governmental Authority or any other third Person (including shareholders or
any class of directors of the Borrower or any other Person, whether interested
or disinterested), nor is any such consent, approval, registration, filing or
other action necessary for the validity or enforceability of any Loan Document
or the consummation of the transactions contemplated thereby, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon the
Borrower or any of its Subsidiaries or their Properties, or give rise to a
right thereunder to require any payment to be made by the Borrower or such
Subsidiary and (d) will not result in the creation or imposition of any Lien on
any Property of the Borrower or any of its Subsidiaries (other than the Liens
created by the Loan Documents).

Section
7.04           Financial Condition; No
Material Adverse Change.

(a)           The Borrower has heretofore furnished
to the Lenders on or before the date of this Agreement its audited consolidated
balance sheet and statements of income, stockholders equity and cash flows as
of and for the fiscal year ended December 31, 2005.  Such financial statement presents fairly, in
all material respects, the financial position and results of operations and
cash flows of the Borrower and its Subsidiaries as of such date and for such
period in accordance with GAAP.

(b)           Since December 31, 2005, (i) there
has been no event, development or circumstance that has had or could reasonably
be expected to have a Material Adverse Effect and (ii) the business of the
Borrower and its Subsidiaries has been conducted only in the ordinary course
consistent with past business practices.

 49
 

 

(c)           Neither the Borrower nor any of its
Subsidiaries has on the date hereof any material Debt (including Disqualified
Capital Stock), or any contingent liabilities, off-balance sheet liabilities or
partnerships, liabilities for Taxes, unusual forward or long-term commitments
or unrealized or anticipated losses from any unfavorable commitments.

Section
7.05           Litigation.

(a)           There are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries or involving the
Acquisition (i) as to which there is a reasonable possibility of an adverse
determination that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect, (ii)
that involve any Loan Document, any Acquisition Document or the Transactions,
or (iii) that could impair the consummation of the Acquisition on the time and in
the manner contemplated by the Acquisition Documents.

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

(a)           neither any Property of the Borrower
or any of its Subsidiaries nor the operations conducted thereon violate any
order or requirement of any court or Governmental Authority or any Environmental
Laws.

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

(c)           all notices, permits, licenses,
exemptions, approvals or similar authorizations, if any, required to be
obtained or filed in connection with the operation or use of any and all
Property of the Borrower and each of its Subsidiaries, including, without
limitation, past or present treatment, storage, disposal or release of a
hazardous substance, oil and gas waste or solid waste into the environment,
have been duly obtained or filed, and the Borrower and each of its Subsidiaries
are in compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations.

(d)           all hazardous substances, solid waste
and oil and gas waste, if any, generated at any and all Property of the
Borrower or any of its Subsidiaries have in the past been transported, treated
and disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and, to the knowledge of the Borrower, all such transport carriers
and treatment and disposal facilities have been and are operating in compliance
with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws.

 50

 

(e)           the Borrower has taken all steps
reasonably necessary to determine and has determined that no oil, hazardous
substances, solid waste or oil and gas waste, have been disposed of or
otherwise released and there has been no threatened release of any oil, hazardous
substances, solid waste or oil and gas waste on or to any Property of the
Borrower or any of its Subsidiaries except in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment.

(f)            to the extent applicable, all
Property of the Borrower and each of its Subsidiaries currently satisfies all
design, operation, and equipment requirements imposed by the OPA, and the
Borrower does not have any reason to believe that such Property, to the extent
subject to the OPA, will not be able to maintain compliance with the OPA
requirements during the term of this Agreement.

(g)           neither the Borrower nor any of its
Subsidiaries has any known contingent liability or Remedial Work in connection
with any release or threatened release of any oil, hazardous substance, solid
waste or oil and gas waste into the environment.

Section
7.07           Compliance with the Laws
and Agreements; No Defaults.

(a)           Each of the Borrower and its
Subsidiaries is in compliance with all Governmental Requirements applicable to
it or its Property and all agreements and other instruments binding upon it or
its Property, and possesses all licenses, permits, franchises, exemptions,
approvals and other governmental authorizations necessary for the ownership of
its Property and the conduct of its business, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

(b)           Neither the Borrower nor any of its
Subsidiaries is in default nor has any event or circumstance occurred which,
but for the expiration of any applicable grace period or the giving of notice,
or both, would constitute a default or would require the Borrower or any of its
Subsidiaries to Redeem or make any offer to Redeem under any indenture, note,
credit agreement or instrument pursuant to which any Material Indebtedness is
outstanding or by which the Borrower or any of its Subsidiaries or any of their
Properties is bound.

(c)           No Default has occurred and is
continuing.

Section
7.08           Investment Company Act.  Neither the Borrower nor any of its
Subsidiaries is an “investment company” or a company “controlled” by an “investment
company,” within the meaning of, or subject to regulation under, the Investment
Company Act of 1940, as amended.

Section 7.09           Taxes.  Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves in accordance with
GAAP or (b) to the extent that the failure to do so could not reasonably
be expected to result in a Material Adverse Effect.  The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of Taxes and other
governmental charges are, in the reasonable opinion of the Borrower,

 51
 

 

adequate.  No Tax Lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted with respect to any such
Tax or other such governmental charge.

Section
7.10           ERISA.

(a)           The Borrower, its Subsidiaries and
each ERISA Affiliate have complied in all material respects with ERISA and,
where applicable, the Code regarding each Plan.

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

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

(d)           No Plan (other than a defined
contribution plan) or any trust created under any such Plan has been terminated
since September 2, 1974.  No
liability to the PBGC (other than for the payment of current premiums which are
not past due) by the Borrower, any of its Subsidiaries or any ERISA Affiliate has
been or is expected by the Borrower, any of its Subsidiaries or any ERISA
Affiliate to be incurred with respect to any Plan.  No ERISA Event with respect to any Plan has
occurred.

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

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

(g)           Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the Borrower, any of
its Subsidiaries or any ERISA Affiliate in its sole discretion at any time
without any material liability.

(h)           Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or
has at any time in the six-year period preceding the date hereof sponsored,
maintained or contributed to, any Multiemployer Plan.

 52
 

 

(i)            Neither the Borrower, its
Subsidiaries nor any ERISA Affiliate is required to provide security under
section 401(a)(29) of the Code due to a Plan amendment that results in an
increase in current liability for the Plan.

Section
7.11           Disclosure; No Material
Misstatements.  The Borrower has
disclosed or made available to the Lenders all agreements, instruments and
corporate or other restrictions to which it or any of its Subsidiaries is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.  None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Borrower or
any of its Subsidiaries to the Administrative Agent, any other Agent or any
Lender or any of their Affiliates in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or under any other
Loan Document (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.  There is no fact
peculiar to the Borrower or any of its Subsidiaries that could reasonably be
expected to have a Material Adverse Effect or in the future is reasonably
likely to have a Material Adverse Effect and which has not been set forth in
this Agreement or the Loan Documents or the other documents, certificates and
statements furnished to the Administrative Agent, any other Agent or the
Lenders by or on behalf of the Borrower or any of its Subsidiaries prior to, or
on, the date hereof in connection with the transactions contemplated
hereby.  There are no statements or
conclusions in any Reserve Report which are based upon or include misleading
information or fail to take into account material information regarding the
matters reported therein.

Section
7.12           Insurance.  The Borrower has, and has caused all of its
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all material Governmental Requirements and all material
agreements and (b) insurance coverage in at least amounts and against such risk
(including, without limitation, public liability) that are usually insured
against by companies similarly situated and engaged in the same or a similar
business for the assets and operations of the Borrower and its
Subsidiaries.  The Administrative Agent
and the Lenders have been named as additional insureds in respect of such
liability insurance policies and the Administrative Agent has been named as
loss payee for the benefit of the Administrative Agent and the Lenders with
respect to Property loss insurance.

Section
7.13           Restriction on Liens.  Neither the Borrower nor any of its
Subsidiaries is a party to any material agreement or arrangement, or subject to
any order, judgment, writ or decree, which either restricts or purports to
restrict its ability to grant Liens to the Administrative Agent and the Lenders
on or in respect of their Properties to secure the Indebtedness and the Loan
Documents.

Section
7.14           Subsidiaries.  Except as set forth on Schedule 7.14
or as disclosed in writing to the Administrative Agent (which shall promptly
furnish a copy to the Lenders), which shall be a supplement to Schedule 7.14,
the Borrower has no Subsidiaries.  The
Borrower has no Foreign Subsidiaries.

 53
 

 

Section
7.15           Location of Business and
Offices.  The Borrower’s jurisdiction
of organization is Nevada; the name of the Borrower as listed in the public
records of its jurisdiction of organization is Whittier Energy Corporation; and
the organizational identification number of the Borrower in its jurisdiction of
organization is C28115-2003 (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(m) in accordance
with Section 12.01).  The Borrower’s
principal place of business and chief executive offices are located at the
address specified in Section 12.01 (or as set forth in a notice delivered
pursuant to Section 8.01(m) and Section 12.01(c)).  Each Subsidiary’s jurisdiction of
organization, name as listed in the public records of its jurisdiction of
organization, organizational identification number in its jurisdiction of
organization, and the location of its principal place of business and chief
executive office is stated on Schedule 7.14 (or as set forth in a notice
delivered pursuant to Section 8.01(m)).

Section
7.16           Properties; Titles, Etc.

(a)           Each of the Borrower and its
Subsidiaries has good and defensible title to the Oil and Gas Properties
evaluated in the most recently delivered Reserve Report and good title to all
its personal Properties, in each case, free and clear of all Liens except Liens
permitted by Section 9.03.  After giving
full effect to the Excepted Liens, the Borrower or any of its Subsidiaries specified
as the owner owns the net interests in production attributable to the
Hydrocarbon Interests as reflected in the most recently delivered Reserve
Report, and the ownership of such Properties shall not in any material respect
obligate the Borrower or any of its Subsidiaries to bear the costs and expenses
relating to the maintenance, development and operations of each such Property
in an amount in excess of the working interest of each Property set forth in
the most recently delivered Reserve Report that is not offset by a
corresponding proportionate increase in the Borrower’s or any of its
Subsidiaries’ net revenue interest in such Property.

(b)           All material leases and agreements
necessary for the conduct of the business of the Borrower and its Subsidiaries
are valid and subsisting, in full force and effect, and there exists no default
or event or circumstance which with the giving of notice or the passage of time
or both would give rise to a default under any such lease or leases, which
could reasonably be expected to have a Material Adverse Effect.

(c)           The rights and Properties presently
owned, leased or licensed by the Borrower and its Subsidiaries including,
without limitation, all easements and rights of way, include all rights and
Properties necessary to permit the Borrower and its Subsidiaries to conduct
their business in all material respects in the same manner as their business
has been conducted prior to the date hereof.

(d)           All of the Properties of the Borrower
and each of its Subsidiaries that are reasonably necessary for the operation of
their businesses are in good working condition and are maintained in accordance
with prudent business standards.

(e)           The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual Property material to its business,
and the use thereof by the Borrower and such Subsidiary does not infringe upon
the

 54
 

 

rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.  The Borrower and its
Subsidiaries either own or have valid licenses or other rights to use all
databases, geological data, geophysical data, engineering data, seismic data,
maps, interpretations and other technical information used in their businesses
as presently conducted, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for companies
engaged in the business of the exploration and production of Hydrocarbons, with
such exceptions as could not reasonably be expected to have a Material Adverse
Effect.

Section
7.17           Maintenance of
Properties.  Except for such acts or
failures to act as could not be reasonably expected to have a Material Adverse
Effect, the Oil and Gas Properties (and Properties unitized therewith) have
been maintained, operated and developed in a good and workmanlike manner and in
conformity with all Government Requirements and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the
Oil and Gas Properties.  Specifically in
connection with the foregoing, except for those as could not be reasonably
expected to have a Material Adverse Effect, (i) no Oil and Gas Property is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) and (ii) none of the
wells comprising a part of the Oil and Gas Properties (or Properties unitized
therewith) is deviated from the vertical more than the maximum permitted by
Government Requirements, and such wells are, in fact, bottomed under and are
producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on Properties unitized therewith,
such unitized Properties).  All
pipelines, wells, gas processing plants, platforms and other material
improvements, fixtures and equipment owned in whole or in part by the Borrower
or any of its Subsidiaries that are necessary to conduct normal operations are
being maintained in a state adequate to conduct normal operations, and with
respect to such of the foregoing which are operated by the Borrower or any of
its Subsidiaries, in a manner consistent with the Borrower’s or its
Subsidiaries’ past practices (other than those the failure of which to maintain
in accordance with this Section 7.17 could not reasonably be expect to have a
Material Adverse Effect).  The
representations and warranties of this Section 7.17 are limited to the Borrower’s
knowledge insofar as they relate to (i) any Acquisition Properties prior to the
date such properties were acquired and (ii) any Property not operated by
Borrower or one of its Subsidiaries.

Section
7.18           Gas Imbalances,
Prepayments.  As of the date hereof,
except as set forth on Schedule 7.18 or on the most recent certificate
delivered pursuant to Section 8.12(c), on a net basis there are no gas
imbalances, take or pay or other prepayments which would require the Borrower
or any of its Subsidiaries to deliver Hydrocarbons produced from the Oil and
Gas Properties at some future time without then or thereafter receiving full
payment therefor exceeding 50,000 Mcf of gas (on an Mcf equivalent basis) in
the aggregate.

Section
7.19           Marketing of Production.  Except for contracts listed and in effect on
the date hereof on Schedule 7.19, and thereafter either disclosed in
writing to the Administrative Agent or included in the most recently delivered
Reserve Report (with respect to all of which contracts the Borrower represents
that it or its Subsidiaries are receiving a price for all

 55
 

 

production sold
thereunder which is computed substantially in accordance with the terms of the
relevant contract and are not having deliveries curtailed substantially below
the subject Property’s delivery capacity), no material agreements exist which
are not cancelable on 60 days notice or less without penalty or detriment for
the sale of production from the Borrower’s or its Subsidiaries’ Hydrocarbons
(including, without limitation, calls on or other rights to purchase,
production, whether or not the same are currently being exercised) that (a)
pertain to the sale of production at a fixed price and (b) have a maturity or
expiry date of longer than six (6) months from the date hereof.

Section
7.20           Swap Agreements.  Each report required to be delivered by the
Borrower pursuant to Section 8.01(e), sets forth, a true and complete list of
all Swap Agreements of the Borrower and each of its Subsidiaries, the material
terms thereof (including the type, term, effective date, termination date and
notional amounts or volumes), the net mark to market value thereof, all credit
support agreements relating thereto (including any margin required or supplied)
and the counterparty to each such agreement.

Section
7.21           Use of Loans and Letters
of Credit.  The proceeds of the Loans
and the Letters of Credit shall be used to provide funding in connection with
the Acquisition, to refinance existing debt of the Borrower, and for general
corporate purposes of the Borrower or any of its Subsidiaries (including in
connection with Investments permitted by Section 9.05(i)).  The Borrower and its Subsidiaries are not
engaged principally, or as one of its or their important activities, in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of Regulation
T, U or X of the Board).  No part of the
proceeds of any Loan or Letter of Credit will be used for any purpose which
violates the provisions of Regulations T, U or X of the Board.

Section
7.22           Solvency.  After giving effect to the transactions
contemplated hereby, (a) the aggregate assets (after giving effect to amounts
that could reasonably be received by reason of indemnity, offset, insurance or
any similar arrangement), at a fair valuation, of the Borrower and the
Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower
and the Guarantors on a consolidated basis, as the Debt becomes absolute and
matures, (b) each of the Borrower and the Guarantors will not have incurred or
intended to incur, and will not believe that it will incur, Debt beyond its
ability to pay such Debt (after taking into account the timing and amounts of
cash to be received by each of the Borrower and the Guarantors and the amounts
to be payable on or in respect of its liabilities, and giving effect to amounts
that could reasonably be received by reason of indemnity, offset, insurance or
any similar arrangement) as such Debt becomes absolute and matures and (c) each
of the Borrower and the Guarantors will not have (and will have no reason to
believe that it will have thereafter) unreasonably small capital for the
conduct of its business.

Section 7.23           Acquisition.  The copies of the Acquisition Documents
previously delivered by the Borrower to the Administrative Agent are true,
accurate and complete and have not been amended or modified in any manner,
other than pursuant to amendments or modifications previously delivered to the
Administrative Agent.  Neither the
Borrower nor any of its Subsidiaries is in default in respect of any material
term or obligation under any Acquisition Document.

 56
 

 

ARTICLE
VIII

Affirmative Covenants

Until the Commitments have
expired or been terminated and the principal of and interest on each Loan and
all fees payable hereunder and all other amounts payable under the Loan
Documents shall have been paid in full and all Letters of Credit shall have
expired or terminated and all LC Disbursements shall have been reimbursed, the
Borrower covenants and agrees with the Lenders that:

Section
8.01           Financial Statements;
Ratings Change; Other Information. 
The Borrower will furnish to the Administrative Agent and each Lender:

(a)           Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing and reasonably acceptable to the
Administrative Agent (without a “going concern” or like qualification or
exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of
the Borrower and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied.

(b)           Quarterly Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Borrower,
its unaudited, consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in each
case, in comparative form the figures for the corresponding period or periods
of (or, in the case of the balance sheet, as of the end of) the previous fiscal
year, all certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes.

(c)           Certificate of Financial Officer —
Compliance.  Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit C
hereto (i) certifying as to whether a Default has occurred and, if a Default
has occurred, specifying the details thereof and any action taken or proposed
to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since
December 31, 2004 and, if any such change has occurred, specifying the effect
of such change on the financial statements accompanying such certificate.

 57
 

 

(d)           Certificate of Accounting Firm — Defaults.  Concurrently with any delivery of financial
statements under Section 8.01(a), a certificate of the accounting firm that
reported on such financial statements stating whether they obtained knowledge
during the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by accounting
rules or guidelines).

(e)           Certificate of Financial Officer –
Swap Agreements.  Concurrently with
any delivery of financial statements under Section 8.01(a) and Section 8.01(b),
a certificate of a Financial Officer, in form and substance reasonably
satisfactory to the Administrative Agent, setting forth as of a recent date, a
true and complete list of all Swap Agreements of the Borrower and each of its
Subsidiaries, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark-to-market
value therefor, any new credit support agreements relating thereto, any margin
required or supplied under any credit support document, and the counterparty to
each such agreement.

(f)            Certificate of Insurer –
Insurance Coverage.  Concurrently
with any delivery of financial statements under Section 8.01(a), a certificate
of insurance coverage from each insurer with respect to the insurance required
by Section 8.07, in form and substance reasonably satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any
Lender, all copies of the applicable policies.

(g)           Other Accounting Reports.  Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the Board of Directors
of the Borrower or any such Subsidiary, to such letter or report.

(h)           Filings; Reports to Shareholders.  Promptly after distribution thereof, copies
of all periodic and other reports and other materials distributed by the
Borrower to its shareholders generally.

(i)            Notices Under Material
Instruments.  Promptly after the
furnishing thereof, copies of any financial statement, report or notice
furnished to or by any Person pursuant to the terms of any preferred stock
designation, indenture, loan or credit or other similar agreement, other than
this Agreement and not otherwise required to be furnished to the Lenders
pursuant to any other provision of this Section 8.01.

(j)            Lists of Purchasers.  Concurrently with the delivery of any Reserve
Report to the Administrative Agent pursuant to Section 8.12, a list of all
Persons purchasing in the aggregate not less than 80% of the Hydrocarbons from
the Borrower or any of its Subsidiaries.

(k)           Notice of Sales of Oil and Gas
Properties.  In the event the
Borrower or any of its Subsidiaries intends to sell, transfer, assign or
otherwise dispose of any Oil or Gas Properties or any Equity Interests in any
Subsidiary included in the most recently delivered Reserve Report during any
period between two successive Scheduled Redetermination Dates having a fair
market value, individually or in the aggregate, in excess of $500,000, prior
written 

 58
 

 

notice of such
disposition, the price thereof, the anticipated date of closing and any other
details thereof requested by the Administrative Agent or any Lender.

(l)            Notice of Casualty Events.  Prompt written notice, and in any event
within three Business Days, of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Casualty Event.

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

(n)           Production
Report and Lease Operating Statements.  Within 60 days after the end of each quarter,
a report setting forth, on an accrual basis for each quarter during the
then-current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and
the revenues derived from such sales) for each such quarter from the Oil and
Gas Properties, and setting forth the related ad valorem, severance and
production Taxes and lease operating expenses attributable thereto and incurred
for each such quarter.

(o)           Notices of Certain Changes.  Promptly, but in any event within five (5)
Business Days after the execution thereof, copies of any amendment,
modification or supplement to the certificate or articles of incorporation,
by-laws, any preferred stock designation or any other organic document of the
Borrower or any of its Subsidiaries.

(p)           Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any of its Subsidiaries (including, without
limitation, any Plan or Multiemployer Plan and any reports or other information
required to be filed under ERISA), or compliance with the terms of this
Agreement or any other Loan Document, as the Administrative Agent or any Lender
may reasonably request.

(q)           Notices Relating to Acquisition.  The Borrower shall promptly give the
Administrative Agent the Final Statement (as such term is defined in Section
11(c)(ii) of the Acquisition Documents) when such document is completed and the
details of any material additional adjustments made pursuant to Section 11(d)
of the Acquisition Documents.

Section
8.02           Notices of Material
Events.  The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the
following:

(a)           the occurrence of any Default;

 59
 

 

(b)           the filing or commencement of, or the
threat in writing of, any action, suit, investigation, arbitration or
proceeding by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Subsidiary thereof, or any material adverse
development in any action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders), that, in either case, if
adversely determined, could reasonably be expected to result in liability in
excess of $500,000;

(c)           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 the Borrower and its
Subsidiaries in an aggregate amount exceeding $500,000; and

(d)           any other development that results
in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice
delivered under this Section 8.02 shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.

Section
8.03           Existence; Conduct of
Business.  The Borrower will, and
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business and maintain, if necessary, its qualification to
do business in each other jurisdiction in which any of its Oil and Gas
Properties is located or the ownership of its Properties requires such
qualification, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

Section
8.04           Payment of Obligations.  The Borrower will, and will cause each of its
Subsidiaries to, pay its obligations, including Tax liabilities of the Borrower
and all of its Subsidiaries before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance
with GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect or result in the
seizure or levy of any material Property of the Borrower or any of its
Subsidiaries.

Section
8.05           Performance of
Obligations under Loan Documents. 
The Borrower will pay the Notes according to the reading, tenor and
effect thereof, and the Borrower will, and the Borrower will cause each of its
Subsidiaries to do and perform every act and discharge all of the obligations
to be performed and discharged by them under the Loan Documents, including,
without limitation, this Agreement, at the time or times and in the manner
specified.

Section
8.06           Operation and
Maintenance of Properties.  The
Borrower will, and will cause each of its Subsidiaries to:

(a)           operate its Oil and Gas Properties
and other material Properties or cause such Oil and Gas Properties and other
material Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with all
applicable contracts and agreements and in compliance with all Governmental
Requirements, including,

 60

 

without
limitation, applicable pro ration requirements and Environmental Laws, and all
applicable laws, rules and regulations of every other Governmental Authority
from time to time constituted to regulate the development and operation of its
Oil and Gas Properties and the production and sale of Hydrocarbons and other
minerals therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.

(b)           keep and maintain all Property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted and preserve, maintain and keep in good repair,
working order and efficiency (ordinary wear and tear excepted) all of its
material Oil and Gas Properties and other material Properties, including,
without limitation, all material equipment, machinery and facilities.

(c)           promptly pay and discharge, or make
reasonable and customary efforts to cause to be paid and discharged, all delay
rentals, royalties, expenses and indebtedness accruing under the leases or
other agreements affecting or pertaining to its Oil and Gas Properties and will
do all other things necessary to keep unimpaired their rights with respect
thereto and prevent any forfeiture thereof or default thereunder.

(d)           promptly perform or make reasonable
and customary efforts to cause to be performed, in accordance with industry
standards and in all material respects, the obligations required by each and
all of the assignments, deeds, leases, sub-leases, contracts and agreements
affecting its interests in its Oil and Gas Properties and other material
Properties.

(e)           operate its Oil and Gas Properties
and other material Properties or cause or make reasonable and customary efforts
to cause such Oil and Gas Properties and other material Properties to be
operated in accordance with the practices of the industry and in material
compliance with all applicable contracts and agreements and in compliance in
all material respects with all Governmental Requirements.

(f)            to the extent the Borrower or one of
its Subsidiaries is not the operator of any of its Property, the Borrower shall
use reasonable efforts to cause the operator to comply with this Section 8.06.

Section
8.07           Insurance.  The Borrower will, and will cause each of its
Subsidiaries to, 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.  The loss
payable clauses or provisions in said insurance policy or policies insuring any
of the collateral for the Loans shall be endorsed in favor of and made payable
to the Administrative Agent as its interests may appear and such policies shall
name the Administrative Agent and the Lenders as “additional insureds” and
provide that the insurer will endeavor to give at least 30 days prior notice of
any cancellation to the Administrative Agent.

Section
8.08           Books and Records;
Inspection Rights.  The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings
and transactions in relation to its business and activities.  The Borrower will, and will cause each of its
Subsidiaries to, permit any representatives

 61
 

 

designated by the
Administrative Agent or any Lender, upon reasonable prior notice, to visit and
inspect its Properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.

Section
8.09           Compliance with Laws.  The Borrower will, and will cause each of its
Subsidiaries to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to them or their Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

Section
8.10           Environmental Matters.

(a)           The Borrower shall: (i) comply, and
shall cause its Properties and operations and each of its Subsidiaries and each
Subsidiary’s Properties and operations to comply, with all applicable
Environmental Laws, the breach of which could be reasonably expected to have a
Material Adverse Effect; (ii) not dispose of or otherwise release, and shall
cause each Subsidiary not to dispose of or otherwise release, any oil, oil and
gas waste, hazardous substance, or solid waste on, under, about or from any of
the Borrower’s or its Subsidiaries’ Properties or any other Property to the
extent caused by the Borrower’s or any of its Subsidiaries’ operations except
in compliance with applicable Environmental Laws, the disposal or release of
which could reasonably be expected to have a Material Adverse Effect; (iii)
timely obtain or file, and shall cause each of its Subsidiaries to timely
obtain or file, all notices, permits, licenses, exemptions, approvals,
registrations or other authorizations, if any, required under applicable
Environmental Laws to be obtained or filed in connection with the operation or
use of the Borrower’s or its Subsidiaries’ Properties, which failure to obtain
or file could reasonably be expected to have a Material Adverse Effect; (iv)
promptly commence and diligently prosecute to completion, and shall cause each
of its Subsidiaries to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment,
cleanup, removal, repair, restoration, remediation or other remedial
obligations (collectively, the “Remedial Work”) in the event any
Remedial Work is required or reasonably necessary under applicable
Environmental Laws because of or in connection with the actual or suspected
past, present or future disposal or other release of any oil, oil and gas
waste, hazardous substance or solid waste on, under, about or from any of the
Borrower’s or its Subsidiaries’ Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; and (v) establish and implement, and shall cause
each of its Subsidiaries to establish and implement, such procedures as may be
necessary to continuously determine and assure that the Borrower’s and its
Subsidiaries’ obligations under this Section 8.10(a) are timely and fully
satisfied, which failure to establish and implement could reasonably be
expected to have a Material Adverse Effect.

(b)           The Borrower will promptly, but in no
event later than five days of the occurrence of a triggering event, notify the
Administrative Agent and the Lenders in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by any landowner or other third party against the Borrower or its
Subsidiaries or their Properties of which the Borrower has knowledge in
connection with any Environmental Laws (excluding routine testing and
corrective action) if the Borrower reasonably anticipates that 

 62
 

 

such action
will result in liability (whether individually or in the aggregate) in excess
of $500,000, not fully covered by insurance, subject to normal deductibles.

(c)           The Borrower will, and will cause
each of its Subsidiaries to, provide environmental audits and tests in
accordance with American Society of Testing Materials standards upon request by
the Administrative Agent and the Lenders and no more than once per year in the
absence of any Event of Default (or as otherwise required to be obtained by the
Administrative Agent or the Lenders by any Governmental Authority), in
connection with any future acquisitions of Oil and Gas Properties or other
Properties.

Section
8.11           Further Assurances.

(a)           The Borrower at its sole expense
will, and will cause each of its Subsidiaries to, promptly execute and deliver
to the Administrative Agent all such other documents, agreements and
instruments reasonably requested by the Administrative Agent to comply with,
cure any defects or accomplish the conditions precedent, covenants and
agreements of the Borrower or any of its Subsidiaries, as the case may be, in
the Loan Documents, including the Notes, or to further evidence and more fully
describe the collateral intended as security for the Indebtedness, or to
correct any omissions in this Agreement or the Security Instruments, or to
state more fully the obligations secured therein, or to perfect, protect or
preserve any Liens created pursuant to this Agreement or any of the Security
Instruments or the priority thereof, or to make any recordings, file any
notices or obtain any consents, all as may be reasonably necessary or
appropriate, in the reasonable discretion of the Administrative Agent, in
connection therewith.

(b)           The Borrower hereby authorizes the
Administrative Agent to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Mortgaged Property
without the signature of the Borrower or any other Guarantor where permitted by
law.  A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering
the Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.

Section
8.12           Reserve Reports.

(a)           On or
before March 1st and September 1st of each year, commencing September 1st,
2006, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report as of the immediately preceding January 1 or July 1, as
applicable.  The Reserve Report as of
January 1 of each year shall be prepared by one or more petroleum engineers
reasonably acceptable to the Administrative Agent and the July 1 Reserve Report
of each year shall be prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used in
the immediately preceding January 1 Reserve Report.

(b)           In the event of an Interim
Redetermination, the Borrower shall furnish to the Administrative Agent and the
Lenders a Reserve Report prepared by or under the supervision of the chief
engineer of the Borrower who shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used in
the immediately 

 63
 

 

preceding
January 1 Reserve Report.  For any
Interim Redetermination requested by the Administrative Agent or the Borrower
pursuant to Section 2.07(b), the Borrower shall provide such Reserve Report
with an “as of” date as required by the Administrative Agent as soon as
possible, but in any event no later than thirty (30) days following the receipt
of such request.

(c)           With the delivery of each Reserve
Report, the Borrower shall provide to the Administrative Agent and the Lenders
a certificate from a Responsible Officer of the Borrower certifying that in all
material respects: (i) the information contained in the Reserve Report and any
other information delivered in connection therewith is true and correct, (ii)
the Borrower or its Subsidiaries owns good and defensible title to the Oil and
Gas Properties evaluated in such Reserve Report and such Properties are free of
all Liens except for Liens permitted by Section 9.03, (iii) except as set forth
on an exhibit to the certificate, on a net basis there are no gas imbalances,
take or pay or other prepayments in excess of the volume specified in Section
7.18 with respect to their Oil and Gas Properties evaluated in such Reserve
Report that would require the Borrower or any of its Subsidiaries to deliver
Hydrocarbons either generally or produced from such Oil and Gas Properties at
some future time without then or thereafter receiving full payment therefor,
(iv) none of their Oil and Gas Properties have been sold since the date of the
last Borrowing Base determination except as set forth on an exhibit to the
certificate, which certificate shall list all of its Oil and Gas Properties
sold and in such detail as reasonably required by the Administrative Agent, (v)
attached to the certificate is a list of all marketing agreements entered into
subsequent to the later of the date hereof or the most recently delivered
Reserve Report that the Borrower could reasonably be expected to have been
obligated to list on Schedule 7.19 had such agreement been in effect on
the date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the Borrowing Base that the value of such
Mortgaged Properties represent.

Section
8.13           Title Information.

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

(b)           If the Borrower has provided title
information for additional Properties under Section 8.13(a), the Borrower
shall, within 60 days of notice from the Administrative Agent that title
defects or exceptions exist with respect to such additional Properties, either
(i) cure any such title defects or exceptions (including defects or exceptions
as to priority) which are not permitted by Section 9.03 raised by such
information, (ii) substitute acceptable Mortgaged Properties with no title
defects or exceptions except for Excepted Liens (other than Excepted Liens
described in clauses (e), (g) and (h) of such definition) having an equivalent
value or (iii) deliver title information in form and substance acceptable to
the Administrative Agent so that the Administrative Agent shall have received,
together with title information previously delivered to

 64
 

 

the
Administrative Agent, satisfactory title information on at least 80% of the
value of the Oil and Gas Properties evaluated by such Reserve Report.

(c)           If the Borrower is unable to cure any
title defect requested by the Administrative Agent or the Lenders to be cured
within the 60-day period or the Borrower does not comply with the requirements
to provide acceptable title information covering 80% of the value of the Oil
and Gas Properties evaluated in the most recent Reserve Report, such default shall
not be a Default, but instead the Administrative Agent and/or the Majority
Lenders shall have the right to exercise the following remedy in their
reasonable discretion from time to time, and any failure to so exercise this
remedy at any time shall not be a waiver as to future exercise of the remedy by
the Administrative Agent or the Lenders. 
To the extent that the Administrative Agent or the Majority Lenders are
not satisfied with title to any Mortgaged Property after the 60-day period has
elapsed, such unacceptable Mortgaged Property shall not count towards the 80%
requirement, and the Administrative Agent may send a notice to the Borrower and
the Lenders that the then outstanding Borrowing Base shall be reduced by an
amount as determined by the Majority Lenders to cause the Borrower to be in
compliance with the requirement to provide acceptable title information on 80%
of the value of the Oil and Gas Properties evaluated in the most recent Reserve
Report.  This new Borrowing Base shall
become effective immediately after receipt of such notice.

Section 8.14           Additional Collateral; Additional
Guarantors.

(a)           In connection with each
redetermination of the Borrowing Base, the Borrower shall review the Reserve
Report and the list of current Mortgaged Properties (as described in Section
8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least
85% of the total value of the Oil and Gas Properties evaluated in the most
recently completed Reserve Report after giving effect to exploration and production
activities, acquisitions, dispositions and production.  In the event that the Mortgaged Properties do
not represent at least 85% of such total value, then the Borrower shall, and
shall cause its Subsidiaries to, grant to the Administrative Agent as security
for the Indebtedness a first-priority Lien (provided the Excepted Liens of the
type described in clauses (a) to (d) and (f) of the definition thereof may
exist, but subject to the provisos at the end of such definition) on additional
Oil and Gas Properties not already subject to a Lien of the Security
Instruments such that after giving effect thereto, the Mortgaged Properties
will represent at least 85% of such total value.  All such Liens will be created and perfected
by and in accordance with the provisions of deeds of trust, security agreements
and financing statements or other Security Instruments, all in form and
substance reasonably satisfactory to the Administrative Agent and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for
recording purposes.

(b)           The Borrower shall promptly cause
each Subsidiary, except those Subsidiaries acquired in the Acquisition which
will be dissolved shortly thereafter, to guarantee the Indebtedness pursuant to
the Guaranty Agreement.  In connection
with any such guaranty, the Borrower shall, or shall cause such Subsidiary to,
(A) execute and deliver the Guaranty Agreement or a supplement to the Guaranty
Agreement as required by the Administrative Agent, (B) pledge all of the Equity
Interests of such Subsidiary (including, without limitation, delivery of
original stock certificates evidencing the Equity Interests of such Subsidiary,
together with an appropriate undated stock powers for each certificate duly
executed in blank by the registered 

 65
 

 

owner thereof)
and (C) execute and deliver such other additional closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent.

(c)           If any Event of Default shall occur
and be continuing, then the Borrower shall, and shall cause each of its
Subsidiaries to, within 10 Business Days, grant to the Administrative Agent as
security for the Indebtedness a first-priority Lien (provided Excepted Liens of
the type described in clauses (a) to (d) and (f) of the definition thereof may
exist, but subject to the provisos at the end of such definition) on all of
their Oil and Gas Properties not already subject to a Lien of the Security
Instruments such that after giving effect thereto, the Mortgaged Properties
will represent substantially all of the Oil and Gas Properties of the Borrower
and its Subsidiaries.  All such Liens
will be created and perfected by and in accordance with the provisions of deeds
of trust, security agreements and financing statements or other Security
Instruments, all in form and substance reasonably satisfactory to the
Administrative Agent and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.

Section
8.15           ERISA Compliance.  The Borrower will promptly furnish, and will
cause its Subsidiaries and any ERISA Affiliate to promptly furnish, to the
Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA
Event or of any “prohibited transaction,” as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust
created thereunder, a written notice signed by the President or the principal
Financial Officer of the Borrower, its Subsidiaries or the ERISA Affiliate, as
the case may be, specifying the nature thereof, what action the Borrower, its
Subsidiaries or the ERISA Affiliate is taking or proposes to take with respect
thereto, and, when known, any action taken or proposed by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto, and (iii)
immediately upon receipt thereof, copies of any notice of the PBGC’s intention
to terminate or to have a trustee appointed to administer any Plan.  With respect to each Plan (other than a
Multiemployer Plan), the Borrower will, and the Borrower will cause each of its
Subsidiaries and ERISA Affiliates to, (i) satisfy in full and in a timely
manner, without incurring any late payment or underpayment charge or penalty
and without giving rise to any lien, all of the contribution and funding
requirements of section 412 of the Code (determined without regard to
subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii)
pay, or cause to be paid, to the PBGC in a timely manner, without incurring any
late payment or underpayment charge or penalty, all premiums required pursuant
to sections 4006 and 4007 of ERISA.

Section
8.16           Swap Agreements.  The Borrower shall maintain the hedge
position established by the Swap Agreements currently in place during the
period specified therein and shall neither assign, terminate or unwind any such
Swap Agreements nor sell any Swap Agreements if the effect of such action (when
taken together with any other Swap Agreements executed contemporaneously with
the taking of such action) would have the effect of canceling its positions
under such Swap Agreements required hereby.

 66
 

 

Section
8.17           Marketing Activities.  The Borrower will not, and will not permit
any of its Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (i) contracts for the
sale of Hydrocarbons scheduled or reasonably estimated to be produced from
their proved Oil and Gas Properties during the period of such contract, (ii)
contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be
produced from proved Oil and Gas Properties of third parties during the period
of such contract associated with the Oil and Gas Properties of the Borrower and
its Subsidiaries that the Borrower or one of its Subsidiaries has the right to
market pursuant to joint operating agreements, unitization agreements or other
similar contracts that are usual and customary in the oil and gas business and
(iii) other contracts for the purchase and/or sale of Hydrocarbons of third
parties (A) which have generally offsetting provisions (i.e. corresponding
pricing mechanics, delivery dates and points and volumes) such that no “position”
is taken and (B) for which appropriate credit support has been taken to
alleviate the material credit risks of the counterparty thereto.

ARTICLE
IX

Negative Covenants

Until the Commitments have
expired or terminated and the principal of and interest on each Loan and all
fees payable hereunder and all other amounts payable under the Loan Documents
have been paid in full and all Letters of Credit have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:

Section
9.01           Financial Covenants.

(a)           Ratio of Total Debt to
Consolidated EBITDAX.  The Borrower
will not, as of any date of determination, permit its ratio of Total Debt as of
such day to Consolidated EBITDAX for the most recent period of four fiscal
quarters then ending for which financial statements are available to be greater
than 3.5 to 1.0.

(b)           Current Ratio.  The Borrower will not permit, as of the last
day of any fiscal quarter, its ratio of (i) consolidated current assets
(including the unused amount of the total Commitments, but excluding non-cash
assets under FAS 133) to (ii) consolidated current liabilities (excluding
non-cash obligations under FAS 133, asset and asset retirement obligations and
current maturities of Indebtedness under this Agreement) to be less than 1.0 to
1.0.

(c)           Asset Coverage Ratio.  So long as the Term Loan is outstanding, the
Borrower will not, as of any date of determination, permit its ratio of Total
Reserve Value for the most recent semi-annual period for which data is
available to Total Debt as of such date to be less than 1.5 to 1.0.

Section
9.02           Debt.  The Borrower will not, and will not permit
any of its Subsidiaries to, incur, create, assume or suffer to exist any Debt,
except:

(a)           the Notes or other Indebtedness
arising under the Loan Documents or any guaranty of or suretyship arrangement
for the Notes or other Indebtedness arising under the Loan Documents.

 67
 

 

(b)           accounts payable and accrued
expenses, liabilities or other obligations to pay the deferred purchase price
of Property or services from time to time incurred in the ordinary course of
business which are not outstanding more than sixty (60) days past the date of
receipt of the invoice or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.

(c)           Debt under Capital Leases not to
exceed $500,000.

(d)           Debt associated with bonds or surety
obligations required by Governmental Requirements in connection with the
operation of the Oil and Gas Properties.

(e)           intercompany Debt between the
Borrower and any of its Subsidiaries or between Subsidiaries to the extent
permitted by Section 9.05(g); provided that such Debt is not held, assigned,
transferred, negotiated or pledged to any Person other than the Borrower or one
of their Wholly-Owned Subsidiaries, and, provided further, that any such Debt
owed by either the Borrower or a Guarantor shall be subordinated to the
Indebtedness on terms set forth in the Guaranty Agreement.

(f)            endorsements of negotiable
instruments for collection in the ordinary course of business.

(g)           other Debt not to exceed $500,000 in
the aggregate at any one time outstanding.

Section
9.03           Liens.  The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or permit to exist any Lien
on any of its Properties (now owned or hereafter acquired), except:

(a)           Liens securing the payment of any
Indebtedness.

(b)           Excepted Liens.

(c)           Liens securing Capital Leases
permitted by Section 9.02(c) but only on the Property under lease.

(d)           Liens on Property not constituting
collateral for the Indebtedness and not otherwise permitted by the foregoing
clauses of this Section 9.03; provided that the aggregate principal or face
amount of all Debt secured under this Section 9.03(d) shall not exceed $250,000
at any time.

Section
9.04           Dividends, Distributions
and Redemptions.  The Borrower will
not, and will not permit any of its Subsidiaries to, declare or make, or agree
to pay or make, directly or indirectly, any Restricted Payment, return any
capital to its stockholders or make any distribution of their Property to their
respective Equity Interest holders, except (i) the Borrower may declare
and pay cash dividends with respect to its Equity Interests payable solely in
additional shares of its Equity Interests (other than Disqualified Capital
Stock); (ii) Subsidiaries may declare and pay dividends ratably with respect to
their Equity Interests and (iii) the Borrower may declare and pay cash
dividends to its Equity Interest holders in an aggregate amount not to exceed
$100,000 

 68
 

 

in any fiscal
year, so long as no Default or Borrowing Base Deficiency has occurred and is
continuing, or would result after giving effect to such payment.

Section
9.05           Investments, Loans and
Advances.  The Borrower will not, and
will not permit any of its Subsidiaries to, make or permit to remain
outstanding any Investments in or to any Person, except that the foregoing
restriction shall not apply to:

(a)           Investments reflected in the
Financial Statements.

(b)           accounts receivable arising in the
ordinary course of business.

(c)           direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States or
any agency thereof, in each case maturing within one year from the date of
creation thereof.

(d)           commercial paper maturing within one
year from the date of creation thereof rated in the highest grade by S&P or
Moody’s.

(e)           deposits maturing within one year
from the date of creation thereof with, including certificates of deposit
issued by, any Lender or any office located in the United States of any other
bank or trust company which is organized under the laws of the United States or
any state thereof, has capital, surplus and undivided profits aggregating at
least $500,000,000 (as of the date of such bank or trust company’s most recent
financial reports) and has a short term deposit rating of no lower than A2 or
P2, as such rating is set forth from time to time, by S&P or Moody’s,
respectively.

(f)            deposits in money market funds
investing exclusively in Investments described in Section 9.05(c), Section
9.05(d) or Section 9.05(e).

(g)           Investments (i) made by the Borrower
in or to the Guarantors, and (ii) made by any Subsidiary of the Borrower in or
to the Borrower or any Guarantor.

(h)           Investments in stock, obligations or
securities received in settlement of debts arising from Investments permitted
under this Section 9.05 owing to the Borrower or any of its Subsidiaries as a
result of a bankruptcy or other insolvency proceeding of the obligor in respect
of such debts or upon the enforcement of any Lien in favor of the Borrower or
any of its Subsidiaries; provided that the Borrower shall give the
Administrative Agent prompt written notice in the event that the aggregate
amount of all investments held at any one time under this Section 9.05(h)
exceeds $250,000.

(i)            other Investments not to exceed
$250,000 in the aggregate at any time.

Section
9.06           Nature of Business.  The Borrower will not, and will not permit
any of its Subsidiaries to, allow any material change to be made in the
character of its business as an independent oil and gas exploration and
production company.  The Borrower will
not, and will not permit any of its Subsidiaries to, operate its business
outside the geographical boundaries of the United States.

 69
 

 

Section
9.07           Limitation on Leases.  The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any
obligation for the payment of rent or hire of Property of any kind whatsoever
(real or personal but excluding leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Borrower and its Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $750,000 in any period of twelve consecutive calendar
months during the life of such leases.

Section
9.08           Proceeds of Notes.  The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section
7.21.  Neither the Borrower nor any
Person acting on behalf of the Borrower has taken or will take any action which
might cause any of the Loan Documents to violate Regulations T, U or X or any
other regulation of the Board or to violate Section 7 of the Securities
Exchange Act of 1934 or any rule or regulation thereunder, in each case as now
in effect or as the same may hereinafter be in effect.  If requested by the Administrative Agent, the
Borrower will furnish to the Administrative Agent and each Lender a statement
to the foregoing effect in conformity with the requirements of FR Form U-1 or
such other form referred to in Regulation U, Regulation T or Regulation X of
the Board, as the case may be.

Section
9.09           ERISA Compliance.  The Borrower will not, and will not permit
any of its Subsidiaries to, at any time:

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

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

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

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

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

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(f)            contribute to or assume an
obligation to contribute to, or permit any ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan.

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

(h)           incur, or permit any ERISA Affiliate
to incur, a liability to or on account of a Plan under sections 515, 4062,
4063, 4064, 4201 or 4204 of ERISA.

(i)            contribute to or assume an
obligation to contribute to, or permit any ERISA Affiliate to contribute to or
assume an obligation to contribute to, any employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan
maintained to provide benefits to former employees of such entities, that may
not be terminated by such entities in their sole discretion at any time without
any material liability.

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

Section 9.10           Sale
or Discount of Receivables.  Except for receivables obtained by the
Borrower or any of its Subsidiaries out of the ordinary course of business or
the settlement of joint interest billing accounts in the ordinary course of business
or discounts granted to settle collection of accounts receivable or the sale of
defaulted accounts arising in the ordinary course of business in connection
with the compromise or collection thereof and not in connection with any
financing transaction, the Borrower will not, and will not permit any of its
Subsidiaries to, discount or sell (with or without recourse) any of its notes
receivable or accounts receivable.

Section 9.11           Mergers,
Etc. 
Except as contemplated by the Acquisition Documents, the Borrower will
not, and will not permit any of its Subsidiaries to, merge into or with or
consolidate with any other Person, or sell, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its Property to any other Person, except that any
Wholly-Owned Subsidiary may merge with any other Wholly-Owned Subsidiary and
that the Borrower may merge with any Wholly-Owned Subsidiary so long as the
Borrower is the survivor.

Section 9.12           Sale
of Properties.  The Borrower will not, and will not permit
any of its Subsidiaries to, sell, assign, farm-out, convey or otherwise
transfer any Property except for: (a) the sale of Hydrocarbons in the ordinary
course of business; (b) farmouts of undeveloped acreage and assignments in
connection with such farmouts; (c) the sale or transfer of equipment that is no

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longer necessary
for the business of the Borrower or such Subsidiary or is replaced by equipment
of at least comparable value and use; (d) sales or other dispositions
(including Casualty Events) of Oil and Gas Properties or any interest therein
or Subsidiaries owning Oil and Gas Properties; provided that (i) 100% of the
consideration received in respect of such sale or other disposition shall be
cash, (ii) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of the Oil
and Gas Property, interest therein or Subsidiary subject of such sale or other
disposition (as reasonably determined by the board of directors of the Borrower
and, if requested by the Administrative Agent, the Borrower shall deliver a
certificate of a Responsible Officer of the Borrower certifying to that
effect), (iii) if such sale or other disposition of Oil and Gas Property or
Subsidiary owning Oil and Gas Properties included in the most recently
delivered Reserve Report during any period between two successive Scheduled
Redetermination Dates has a fair market value (as determined by the
Administrative Agent), individually or in the aggregate, in excess of five
percent (5%) of the Borrowing Base as then in effect, the Borrowing Base shall
be reduced, effective immediately upon such sale or disposition, by an amount
equal to the value, if any, assigned such Property as determined by the
Majority Lenders and (iv) if any such sale or other disposition is of a
Subsidiary owning Oil and Gas Properties, such sale or other disposition shall
include all the Equity Interests of such Subsidiary; and (e) sales and other
dispositions of Properties not regulated by Section 9.12(a) to (d) having a
fair market value not to exceed $500,000 during
any 12-month period.

Section 9.13           Environmental
Matters. 
The Borrower will not, and will not permit any of its Subsidiaries to,
cause or permit any of its Property to be in violation of, or do anything or
permit anything to be done which will subject any such Property to any Remedial
Work under any Environmental Laws, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and circumstances, if
any, pertaining to such Property where such violations or remedial obligations
could reasonably be expected to have a Material Adverse Effect.

Section 9.14           Transactions
with Affiliates. 
The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any transaction, including, without limitation, any purchase, sale,
lease or exchange of Property or the rendering of any service, with any
Affiliate (other than the Guarantors and Wholly-Owned Subsidiaries of the
Borrower) unless such transactions are otherwise permitted under this Agreement
and are upon fair and reasonable terms no less favorable to it than it would
obtain in a comparable arm’s length transaction with a Person not an Affiliate.

Section 9.15           Subsidiaries.  The Borrower shall have no Subsidiaries other
than Wholly-Owned Subsidiaries.  The
Borrower shall not, and shall not permit its Subsidiaries to, create or acquire
any additional Subsidiary unless the Borrower gives written notice to the
Administrative Agent of such creation or acquisition and complies with Section
8.14(b).  The Borrower shall not, and
shall not permit any of its Subsidiaries to, sell, assign or otherwise dispose
of any Equity Interests in any of its Subsidiaries.  The Borrower shall have no Foreign
Subsidiaries.

Section 9.16           Negative
Pledge Agreements; Dividend Restrictions.  The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any
contract, agreement or understanding (other than this Agreement or the Security
Instruments) 

 72
 

 

that in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property in favor of the Administrative Agent and the
Lenders or restricts any Subsidiary from paying dividends or making
distributions to the Borrower or any Guarantor, or which requires the consent
of or notice to other Persons in connection therewith.

Section 9.17           Gas
Imbalances, Take-or-Pay or Other Prepayments.  The Borrower will not, and will not permit
any of its Subsidiaries to, allow gas imbalances, take-or-pay or other
prepayments with respect to the Oil and Gas Properties of the Borrower or any
of its Subsidiaries that would require the Borrower or such Subsidiary to
deliver Hydrocarbons at some future time without then or thereafter receiving
full payment therefor to exceed 50,000 Mcf of gas (on an Mcfe equivalent basis)
in the aggregate.

Section 9.18           Swap
Agreements. 
The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any Swap Agreements with any Person other than (a) Swap Agreements
in respect of commodities (i) with an Approved Counterparty and (ii) the
notional volumes for which (when aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Swap Agreements) do not exceed, as of the date
such Swap Agreement is executed, 85% of the reasonably anticipated projected
production from Proved Developed Producing Reserves for each month during the
period during which such Swap Agreement is in effect for each of crude oil and
natural gas, calculated separately, and (b) Swap Agreements in respect of
interest rates with an Approved Counterparty, which effectively convert interest
rates from floating to fixed, the notional amounts of which (when aggregated
with all other Swap Agreements of the Borrower and its Subsidiaries then in
effect effectively converting interest rates from floating to fixed) do not
exceed 75% of the then outstanding principal amount of the Borrower’s Debt for
borrowed money which bears interest at a floating rate.  Other than the Existing Shell Hedges, in no
event shall any Swap Agreement contain any requirement, agreement or covenant
for the Borrower or any of its Subsidiaries to post collateral or margin to
secure their obligations under such Swap Agreement or to cover market
exposures.

Section 9.19           Amendment
of Contracts. 
Neither the Borrower nor any of its Subsidiaries will amend or permit
any amendment to any contract that could reasonably be expected to release,
qualify, limit, make contingent or otherwise detrimentally affect, in any
material way, the rights and benefits of the Administrative Agent, any other
Agent, any Issuing Bank or the Lenders, under or acquired pursuant to any of
the Loan Documents. 

Section 9.20           Acquisition
Documents.  The
Borrower will not, and will not permit any of its Subsidiaries to, amend,
modify or supplement any Acquisition Document if the effect thereof could
reasonably be expected to have a Material Adverse Effect (and provided that the
Borrower promptly furnishes to the Administrative Agent a copy of such
amendment, modification or supplement).

ARTICLE X

Events
of Default; Remedies

Section 10.01         Events
of Default. 
One or more of the following events shall constitute an “Event of
Default”:

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(a)           the Borrower shall fail to pay any
principal of any Loan or any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof, by acceleration or
otherwise.

(b)           the Borrower shall fail to pay any
interest on any Loan or any fee or any other amount (other than an amount
referred to in Section 10.01(a)) payable under any Loan Document, when and as
the same shall become due and payable, and such failure shall continue
unremedied for a period of three (3) Business Days.

(c)           any representation or warranty made
or deemed made by or on behalf of the Borrower or any of its Subsidiaries in or
in connection with any Loan Document or any amendment or modification of any
Loan Document or waiver under such Loan Document, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with any Loan Document or any amendment or modification thereof or
waiver thereunder, shall prove to have been incorrect when made or deemed made.

(d)           the Borrower or any of its
Subsidiaries shall fail to observe or perform any covenant, condition or agreement
contained in, Section 8.01(i), Section 8.01(m), Section 8.02, Section 8.03,
Section 8.15 or in ARTICLE IX.

(e)           the Borrower or any of its
Subsidiaries shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in Section
10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and
such failure shall continue unremedied for a period of 30 days after the
earlier to occur of (A) notice thereof from the Administrative Agent to the
Borrower (which notice will be given at the request of any Lender) or (B) a
Responsible Officer of the Borrower or any of its Subsidiaries otherwise
becoming aware of such default.

(f)            the Borrower or any of its
Subsidiaries shall fail to make any payment (whether of principal or interest
and regardless of amount) in respect of any Material Indebtedness, when and as
the same shall become due and payable.

(g)           any event or condition occurs that
results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of such Material Indebtedness or
any trustee or agent on its or their behalf to cause such Material Indebtedness
to become due, or to require the Redemption thereof or any offer to Redeem to
be made in respect thereof, prior to its scheduled maturity or require the
Borrower or any of its Subsidiaries to make an offer in respect thereof.

(h)           an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any of its
Subsidiaries or its debts, or of a substantial part of its assets, under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any of its
Subsidiaries or for a substantial part of its assets, and, in any such

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case, such proceeding or petition shall continue
undismissed for 90 days or an order or decree approving or ordering any of the
foregoing shall be entered.

(i)            the Borrower or any of its
Subsidiaries shall (i) voluntarily commence any proceeding or file any petition
seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in Section 10.01(h),
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower or any
of its Subsidiaries or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the foregoing; or any
stockholder of the Borrower shall make any request or take any action for the
purpose of calling a meeting of the stockholders of the Borrower to consider a
resolution to dissolve and wind-up the Borrower’s affairs.

(j)            the Borrower or any of its
Subsidiaries shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due.

(k)           (i) one or more judgments for the
payment of money in an aggregate amount in excess of $500,000
(to the extent not covered by independent third party insurance provided by
insurers as to which the insurer does not dispute coverage and is not subject
to an insolvency proceeding) or (ii) any one or more non-monetary judgments
that have, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, shall be rendered against the Borrower,
any of its Subsidiaries or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution shall
not be effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of the Borrower or any of its
Subsidiaries to enforce any such judgment.

(l)            the Loan Documents after delivery
thereof shall for any reason, except to the extent permitted by the terms
thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms against the Borrower or a Guarantor
party thereto or shall be repudiated by any of them, or cease to create a valid
and perfected Lien of the priority required thereby on any of the Oil and Gas
Properties purported to be covered thereby, except to the extent permitted by
the terms of this Agreement, or the Borrower or any of its Subsidiaries shall
so state in writing.

(m)          an ERISA Event shall have occurred
that, in the opinion of the Majority Lenders, when taken together with all
other ERISA Events that have occurred, could reasonably be expected to result
in liability of the Borrower and its Subsidiaries in an aggregate amount
exceeding $500,000 in any year.

(n)           a Change in Control shall occur.

(o)           any event or events which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect shall occur.

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Section 10.02         Remedies.

(a)           In the case of an Event of Default
other than one described in Section 10.01(h), Section 10.01(i) or Section
10.01(j), at any time thereafter during the continuance of such Event of
Default, the Administrative Agent may, and at the request of the Majority
Lenders, shall, by notice to the Borrower, take either or both of the following
actions, at the same or different times: 
(i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Notes and the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower and the Guarantors accrued hereunder and under the
Notes and the other Loan Documents (including, without limitation, the payment
of cash collateral to secure the LC Exposure as provided in Section 2.08(j)),
shall become due and payable immediately, without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other notice of any
kind, all of which are hereby waived by the Borrower and each Guarantor; and in
case of an Event of Default described in Section 10.01(h), Section 10.01(i) or Section
10.01(j), the Commitments shall automatically terminate and the Notes and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and the other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents (including,
without limitation, the payment of cash collateral to secure the LC Exposure as
provided in Section 2.08(j)), shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower and each Guarantor.

(b)           In the case of the occurrence of an
Event of Default, the Administrative Agent and the Lenders will have all other
rights and remedies available at law and equity.

(c)           All proceeds realized from the
liquidation or other disposition of collateral or otherwise received after
maturity of the Notes, whether by acceleration or otherwise, shall be applied:  

(i)            first,
to payment or reimbursement of that portion of the Indebtedness constituting
fees, expenses and indemnities payable to the Administrative Agent in its
capacity as such;

(ii)           second,
pro rata to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Lenders;

(iii)          third,
pro rata to payment of accrued interest on the Revolving Credit Loans and Term
Loans; 

(iv)          fourth,
pro rata to payment of principal outstanding on the Revolving Credit Loans and
Term Loans and Indebtedness referred to in Clause (b) of the definition of
Indebtedness owing to a Lender or an Affiliate of a Lender;

(v)           fifth,
pro rata to any other Indebtedness;

(vi)          sixth,
to serve as cash collateral to be held by the Administrative Agent to secure
the LC Exposure; and 

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(vii)         seventh,
any excess, after all of the Indebtedness shall have been indefeasibly paid in
full in cash, shall be paid to the Borrower or as otherwise required by any
Governmental Requirement. 

ARTICLE XI

The Administrative Agent

Section 11.01         Appointment;
Powers.  Each of
the Lenders and each Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof and the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto.

Section 11.02         Duties and Obligations of Administrative Agent.  The Administrative Agent shall have no duties
or obligations except those expressly set forth in the Loan Documents.  Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary
or other implied duties, regardless of whether a Default has occurred and is
continuing (the use of the term “agent” herein and in the other Loan Documents
with reference to the Administrative Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall have no duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates
in any capacity.  The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower or
a Lender, and shall not be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement or any other Loan Document, (ii) the contents of
any certificate, report or other document delivered hereunder or under any
other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction
of any condition set forth in ARTICLE VI or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the
Administrative Agent, (vi) the existence, value, perfection or priority of any
collateral security or the financial or other condition of the Borrower and its
Subsidiaries or any other obligor or guarantor, or (vii) any failure by the
Borrower or any other Person (other than itself) to perform any of its
obligations hereunder or under any other Loan Document or the performance or
observance of any covenants, agreements or other terms or conditions set forth
herein or therein.  For purposes of
determining compliance with the conditions specified in ARTICLE VI, each Lender
shall be deemed to have consented to, approved or accepted or to be satisfied
with, each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to a Lender unless the Administrative
Agent shall have received 

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written notice
from such Lender prior to the proposed closing date specifying its objection
thereto.

Section 11.03         Action
by Administrative
Agent.  The Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative
Agent is required to exercise in writing as directed by the Majority Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 12.02) and in all cases the
Administrative Agent shall be fully justified in failing or refusing to act
hereunder or under any other Loan Documents unless it shall (a) receive written
instructions from the Majority Lenders or the Lenders, as applicable, (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) specifying the action to be taken
and (b) be indemnified to its satisfaction by the Lenders against any and all
liability and expenses which may be incurred by it by reason of taking or
continuing to take any such action.  The
instructions as aforesaid and any action taken or failure to act pursuant
thereto by the Administrative Agent shall be binding on all of the
Lenders.  If a Default has occurred and
is continuing, then the Administrative Agent shall take such action with
respect to such Default as shall be directed by the requisite Lenders in the
written instructions (with indemnities) described in this Section 11.03,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interests of the Lenders.  In no event, however, shall the Administrative
Agent be required to take any action which exposes the Administrative Agent to
personal liability or which is contrary to this Agreement, the Loan Documents
or applicable law.  The Administrative
Agent shall not be liable for any action taken or not taken by it with the
consent or at the request of the Majority Lenders or the Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02), and otherwise the Administrative Agent
shall not be liable for any action taken or not taken by it hereunder or under
any other Loan Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith
INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or
willful misconduct.

Section 11.04         Reliance
by Administrative
Agent.  The Administrative
Agent shall be entitled to rely upon, and shall not incur any liability for
relying upon, any notice, request, certificate, consent, statement, instrument,
document or other writing believed by it to be genuine and to have been signed
or sent by the proper Person.  The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon and each of the Borrower, the Lenders
and each Issuing Bank hereby waives the right to dispute the Administrative
Agent’s record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent. 
The Administrative Agent may consult with legal counsel (who may be
counsel for the Borrower), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.  The Administrative Agent may deem and treat
the payee of any Note as the holder thereof for all purposes hereof unless and
until a written notice of the 

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assignment or
transfer thereof permitted hereunder shall have been filed with the
Administrative Agent.  

Section 11.05         Subagents.  The Administrative Agent may perform any and
all its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. 
The exculpatory provisions of the preceding Sections of this ARTICLE XI
shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Agent.

Section 11.06         Resignation
or Removal of Administrative Agent.  Subject to the appointment and acceptance of
a successor Administrative Agent as provided in this Section 11.06, the
Administrative Agent may resign at any time by notifying the Lenders, each
Issuing Bank and the Borrower, and the Administrative Agent may be removed at
any time with or without cause by the Majority Lenders.  Upon any such resignation or removal, the
Majority Lenders shall have the right, in consultation with the Borrower, to
appoint a successor.  If no successor
shall have been so appointed by the Majority Lenders and shall have accepted
such appointment within 30 days after the retiring Administrative Agent gives
notice of its resignation or removal of the retiring Administrative Agent, then
the retiring Administrative Agent may, on behalf of the Lenders and each
Issuing Bank, appoint a successor Administrative Agent.  Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder.  The fees payable by the Borrower to a
successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.  After the Administrative Agent’s resignation hereunder,
the provisions of this ARTICLE XI and Section 12.03 shall continue in effect
for the benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

Section 11.07         Administrative
Agent as Lender. 
BNP Paribas serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.

Section 11.08         No
Reliance. 
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent, any other Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and each other Loan
Document to which it is a party.  Each
Lender also acknowledges that it will, independently and without reliance upon
the Administrative Agent, any other Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in 

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taking or not
taking action under or based upon this Agreement, any other Loan Document, any
related agreement or any document furnished hereunder or thereunder.  The Administrative Agent shall not be
required to keep themselves informed as to the performance or observance by the
Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or
any other document referred to or provided for herein or to inspect the
Properties or books of the Borrower or its Subsidiaries.  Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder, the Administrative Agent shall have no duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Administrative
Agent or any of its Affiliates.  In this
regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in
this transaction as special counsel to the Administrative Agent only, except to
the extent otherwise expressly stated in any legal opinion or any Loan
Document.  Each other party hereto will
consult with its own legal counsel to the extent that it deems necessary in
connection with the Loan Documents and the matters contemplated therein.

Section 11.09         Administrative
Agent May File Proofs of Claim.  In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Borrower or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal
of any Loan shall then be due and payable as herein expressed or by declaration
or otherwise and irrespective of whether the Administrative Agent shall have made
any demand on the Borrower) shall be entitled and empowered, by intervention in
such proceeding or otherwise:

(a)           to file and prove a claim for the
whole amount of the principal and interest owing and unpaid in respect of the
Loans and all other Indebtedness that are owing and unpaid and to file such
other documents as may be necessary or advisable in order to have the claims of
the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders
and the Administrative Agent and their respective agents and counsel and all
other amounts due the Lenders and the Administrative Agent under Section 12.03)
allowed in such judicial proceeding; and

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

and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall
consent to the making of such payments directly to the Lenders, to pay to the
Administrative Agent any amount due for the reasonable compensation, expenses,
disbursements and advances of the Administrative Agent and its agents and
counsel, and any other amounts due the Administrative Agent under Section
12.03.

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

 80

 

to authorize
the Administrative Agent to vote in respect of the claim of any Lender in any
such proceeding.

Section 11.10         Authority of Administrative Agent to
Release Collateral and Liens.  Each
Lender and each Issuing Bank hereby authorizes the Administrative Agent to
release any collateral that is permitted to be sold or released pursuant to the
terms of the Loan Documents.  Each Lender
and each Issuing Bank hereby authorizes the Administrative Agent to execute and
deliver to the Borrower, at the Borrower’s sole cost and expense, any and all
releases of Liens, termination statements, assignments or other documents
reasonably requested by the Borrower in connection with any sale or other
disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.12 or is otherwise authorized by the terms
of the Loan Documents.

Section 11.11         The Arranger.  The Arranger shall have no duties,
responsibilities or liabilities under this Agreement and the other Loan
Documents other than its duties, responsibilities and liabilities in its
capacity as the Administrative Agent and as a Lender hereunder.

ARTICLE
XII

Miscellaneous

Section
12.01         Notices.

(a)           Except in the case of notices and
other communications expressly permitted to be given by telephone (and subject
to Section 12.01(b)), all notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:

	
  (i)

  	
   

  	
  if to the Borrower, to it at

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Whittier Energy Corporation

  
	
   

  	
   

  	
  333 Clay Street

  
	
   

  	
   

  	
  Suite 1100

  
	
   

  	
   

  	
  Houston, TX 
  77002

  
	
   

  	
   

  	
  Attention: 
  Michael Young, Chief Financial Officer

  
	
   

  	
   

  	
  Telecopy: 
  (713) 850-1879

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Whittier Energy Corporation

  
	
   

  	
   

  	
  333 Clay Street

  
	
   

  	
   

  	
  Suite 1100

  
	
   

  	
   

  	
  Houston, TX 
  77002

  
	
   

  	
   

  	
  Attention: 
  Daniel H. Silverman, Chief Operating Officer

  
	
   

  	
   

  	
  Telecopy: 
  (713) 850-1879

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  if to the Administrative Agent, to it at

  

 81
 

 

 

	
  

  	
   

  	
  919 Third Avenue

  
	
   

  	
   

  	
  New York, New York 10022

  
	
   

  	
   

  	
  Attention: Dina Wilson, Loan Assistant

  
	
   

  	
   

  	
  Telecopy: 
  212-841-2683

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to the Administrative Agent at:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1200 Smith Street, Suite 3100

  
	
   

  	
   

  	
  Houston, Texas 
  77002

  
	
   

  	
   

  	
  Attention: 
  David Dodd/Betsy Jocher

  
	
   

  	
   

  	
  Telecopy: 713-659-6915

  

 

(iii)          if to any other Lender, in its
capacity as such, or any other Lender in its capacity as an Issuing Bank, to it
at its address (or telecopy number) set forth in its Administrative
Questionnaire.

(b)           Notices and other communications to
the Lenders hereunder may be delivered or furnished by electronic
communications pursuant to procedures approved by the Administrative Agent;
provided that the foregoing shall not apply to notices pursuant to ARTICLE II,
ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise agreed by the
Administrative Agent and the applicable Lender. 
The Administrative Agent may, in its discretion, agree to accept notices
and other communications to it hereunder by electronic communications pursuant
to procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.

(c)           Any party hereto may change its
address or telecopy number for notices and other communications hereunder by
notice to the other parties hereto.  All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.

Section
12.02         Waivers; Amendments.

(a)           No failure on the part of the
Administrative Agent, any other Agent, any Issuing Bank or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege, or any abandonment or discontinuance of steps to
enforce such right, power or privilege, under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies of
the Administrative Agent, any other Agent, each Issuing Bank and the Lenders
hereunder and under the other Loan 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 Loan Document or consent to any departure by the Borrower therefrom
shall in any event be effective unless the same shall be permitted by Section
12.02(b), and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the foregoing,
the making of a Loan or issuance of a Letter of Credit shall not be construed
as a 

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waiver of any
Default, regardless of whether the Administrative Agent, any other Agent, any
Lender or any Issuing Bank may have had notice or knowledge of such Default at
the time.

(b)           Neither this Agreement nor any
provision hereof nor any Security Instrument nor any provision thereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Majority Lenders or by the
Borrower and the Administrative Agent with the consent of the Majority Lenders;
provided that no such agreement shall (i) increase the Revolving Commitment or
the Maximum Revolving Credit Amount of any Revolving Credit Lender without the
written consent of such Lender, (ii) increase the Borrowing Base without the
written consent of each Revolving Credit Lender, decrease or maintain the
Borrowing Base without the consent of the Majority Revolving Credit Lenders or
modify in any manner Section 2.07 without the consent of each Revolving Credit
Lender, (iii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder, or
reduce any other Indebtedness hereunder or under any other Loan Document,
without the written consent of each Lender affected thereby, (iv) postpone the
scheduled date of payment or prepayment of the principal amount of any Loan or
LC Disbursement, or any interest thereon, or any fees payable hereunder, or any
other Indebtedness hereunder or under any other Loan Document, or reduce the
amount of, waive or excuse any such payment, or postpone or extend the
Revolving Credit Termination Date without the written consent of each Revolving
Credit Lender affected thereby or the Maturity Date of Term Loan without the
written consent of each Term Loan Lender affected thereby, (v) change Section
4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender of each Class
affected thereby, (vi) waive or amend Section 6.01, Section 10.02(c) or Section
8.14 or change the definition of the terms “Domestic Subsidiary”, “Foreign
Subsidiary” or “Subsidiary”, without the written consent of each Lender, (vii)
release any Guarantor (except as set forth in the Guaranty Agreement), release
all or substantially all of the collateral (other than as provided in Section
11.10), or reduce the percentage set forth in Section 8.14(a) to less than 85%,
without the written consent of each Lender, or (viii) change any of the
provisions of this Section 12.02(b) or the definition of “Majority Lenders”, “Majority
Revolving Credit Lenders” or any other provision hereof specifying the number
or percentage of Lenders as a whole or of any Class required to waive, amend or
modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender affected thereby; provided further
that no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, any other Agent, or any Issuing Bank
hereunder or under any other Loan Document without the prior written consent of
the Administrative Agent, such other Agent or such Issuing Bank, as the case
may be.  Notwithstanding the foregoing,
any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply
by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly
deliver a copy thereof to the Lenders.

Section
12.03         Expenses, Indemnity;
Damage Waiver.

(a)           The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative Agent and its
Affiliates, including, without limitation, the reasonable fees, charges and
disbursements of counsel and other outside consultants for the Administrative 

 83
 

 

Agent, the
reasonable travel, photocopy, mailing, courier, telephone and other similar
expenses, and the cost of environmental audits and surveys and appraisals, in
connection with the syndication of the credit facilities provided for herein,
the preparation, negotiation, execution, delivery and administration (both
before and after the execution hereof and including advice of counsel to the
Administrative Agent as to the rights and duties of the Administrative Agent
and the Lenders with respect thereto) of this Agreement and the other Loan
Documents and any amendments, modifications or waivers of or consents related
to the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all costs, expenses,
Taxes, assessments and other charges incurred by the Administrative Agent or
any Lender in connection with any filing, registration, recording or perfection
of any security interest contemplated by this Agreement or any Security
Instrument or any other document referred to therein, (iii) all reasonable
out-of-pocket expenses incurred by each Issuing Bank in connection with the
issuance, amendment, renewal or extension of any Letter of Credit issued by
such Issuing Bank or any demand for payment thereunder, (iv) all out-of-pocket
expenses incurred by the Administrative Agent, any Issuing Bank or any Lender,
including the reasonable fees, charges and disbursements of any counsel for the
Administrative Agent, any Issuing Bank or any Lender, in connection with the
enforcement or protection of its rights in connection with this Agreement or
any other Loan Document, including its rights under this Section 12.03, or in
connection with the Loans made or Letters of Credit issued hereunder,
including, without limitation, all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.

(b)           THE BORROWER SHALL INDEMNIFY THE
ADMINISTRATIVE AGENT, EACH OTHER AGENT, THE ARRANGER, EACH ISSUING BANK AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE
HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED
EXPENSES, INCLUDING THE REASONABLE 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 (i) THE EXECUTION OR
DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES
HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE OF THE
BORROWER OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF ANY LOAN
DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (iii)
ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT
OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
(iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM,
INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY ANY ISSUING BANK TO HONOR A
DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT ISSUED BY SUCH ISSUING BANK IF THE
DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO 

 84
 

 

NOT STRICTLY
COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR
OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH,
(v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS
OF THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES,
(vii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ITS SUBSIDIARIES OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR
TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON
ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER
OR ANY OF ITS SUBSIDIARIES, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT
IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT,
DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT
OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR
HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE
BORROWER OR ANY OF ITS SUBSIDIARIES OR ANY ACTUAL OR ALLEGED PRESENCE OR
RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE
BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED
IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS,
OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR
PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO,
AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT
LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED
THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT
THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE
DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE
JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF
SUCH INDEMNITEE.

 85
 

 

(c)           To the extent that the Borrower fails
to pay any amount required to be paid by it to the Administrative Agent or any
Issuing Bank under Section 12.03(a) or (b), each Lender severally agrees to pay
to the Administrative Agent or such Issuing Bank, as the case may be, such
Lender’s Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent or such Issuing Bank in its capacity as such.

(d)           To the extent permitted by applicable
law, the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any other Loan Document or
any agreement or instrument contemplated hereby or thereby, the Transactions,
any Loan or Letter of Credit or the use of the proceeds thereof.

(e)           All amounts due under this Section
12.03 shall be payable within three (3) Business Days of written demand
therefor.

Section
12.04         Successors and Assigns.

(a)           The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
any Issuing Bank that issues any Letter of Credit), except that (i)  the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void) and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section 12.04.  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of any Issuing Bank that issues any Letter of Credit), Participants
(to the extent provided in Section 12.04(c)) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, each Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or by
reason of this Agreement.

(b)           (i) 
Subject to the conditions set forth in Section 12.04(b)(ii), any Lender
may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:

(A)          the Borrower, provided that no consent
of the Borrower shall be required for an assignment to a Lender, an Affiliate
of a Lender, an Approved Fund or, if an Event of Default has occurred and is
continuing, any other assignee; and

(B)           the Administrative Agent, provided
that no consent of the Administrative Agent shall be required for an assignment
to an assignee that is a Lender immediately prior to giving effect to such
assignment.

 86
 

 

(ii)           Assignments shall be subject to the
following additional conditions:

(A)          except in the case of an assignment to
a Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender’s Commitment, the amount of the Revolving
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Assumption with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000 and
amount of Term Loan Commitment shall not be less than $1,000,000 unless each of
the Borrower and the Administrative Agent otherwise consent, provided that no
such consent of the Borrower shall be required if an Event of Default has
occurred and is continuing;

(B)           each partial assignment shall be made
as an assignment of a proportionate part of all the assigning Lender’s rights
and obligations relating to a particular Class of Loan and Commitment under
this Agreement;

(C)           the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Assumption,
together with a processing and recordation fee of $3,500; and

(D)          the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire.

(iii)          Subject to Section 12.04(b)(iv) and
the acceptance and recording thereof, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender’s rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to
the benefits of Section 5.01, Section 5.02, Section 5.03 and Section
12.03).  Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance
with Section 12.04(c).

                (iv)          The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Maximum Revolving Credit Amount
or Term Loan Commitment of, and principal amount of the Loans and LC
Disbursements owing to, each Lender pursuant to the terms hereof from
time to time (the “Register”).  The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, each Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary.  The Register shall be
available for inspection by the Borrower, any Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.  In connection with any changes to the
Register, if 

 87

 

necessary,
the Administrative Agent will reflect the revisions on Annex I and forward a
copy of such revised Annex I to the Borrower, each Issuing Bank and each
Lender.

(v)           Upon its receipt of a duly completed
Assignment and Assumption executed by an assigning Lender and an assignee, the
assignee’s completed Administrative Questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in Section 12.04(b) and any written consent to such assignment required by
Section 12.04(b), the Administrative Agent shall accept such Assignment and
Assumption and record the information contained therein in the Register.  No assignment shall be effective for purposes
of this Agreement unless it has been recorded in the Register as provided in
this Section 12.04(b).

(c)           (i)            Any
Lender may, without the consent of the Borrower, the Administrative Agent or
any Issuing Bank, sell participations to one or more banks or other entities (a
“Participant”) in all or a portion of such Lender’s rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender’s obligations
under this Agreement shall remain unchanged, (B) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations and (C) the Borrower, the Administrative Agent, each Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this
Agreement.  Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described in the proviso to Section 12.02 that affects such
Participant.  In addition such agreement
must provide that the Participant be bound by the provisions of Section
12.03.  Subject to Section 12.04(c)(ii), the
Borrower agrees that each Participant shall be entitled to the benefits of
Section 5.01, Section 5.02 and Section 5.03 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to Section
12.04(b).  To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 12.08
as though it were a Lender, provided such Participant agrees to be subject to
Section 4.01(c) as though it were a Lender.

(ii)           A Participant shall not be entitled
to receive any greater payment under Section 5.01, Section 5.02 or Section 5.03
than the applicable Lender would have been entitled to receive with respect to
the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower’s prior written
consent.  A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 5.03 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 5.03(e) as though it were a Lender.

(d)           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, without limitation,
any pledge or assignment to secure obligations to a Federal Reserve Bank, and
this Section 12.04(d) shall not apply to any such pledge or assignment of a
security interest;

 88
 

 

provided that no such pledge or assignment of a
security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.

Section
12.05         Survival; Revival;
Reinstatement.

(a)           All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, any other
Agent, any Issuing Bank or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit
is outstanding and so long as the Revolving Credit Termination Date has not
occurred.  The provisions of Section
5.01, Section 5.02, Section 5.03 and Section 12.03 and ARTICLE XI shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Agreement, any other Loan Document or any provision hereof or thereof.

(b)           To the extent that any payments on
the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Indebtedness so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Administrative Agent’s and the Lenders’
Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect.  In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.

Section
12.06         Counterparts;
Integration; Effectiveness.

(a)           This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract.

(b)           This Agreement, the other Loan
Documents and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and thereof and supersede any and all
previous agreements and understandings, oral or written, relating to the subject
matter hereof and thereof.  THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR

 89
 

 

SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

(c)           Except as provided in Section 6.01,
this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received counterparts
hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of
a manually executed counterpart of this Agreement.

Section
12.07         Severability.  Any provision of this Agreement or any other
Loan Document 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 or thereof; and
the invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

Section
12.08         Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any of its Subsidiaries against any of and all the obligations
of the Borrower or any of its Subsidiaries owed to such Lender now or hereafter
existing under this Agreement or any other Loan Document, irrespective of
whether or not such Lender shall have made any demand under this Agreement or
any other Loan Document and although such obligations may be unmatured.  The rights of each Lender under this Section
12.08 are in addition to other rights and remedies (including other rights of
setoff) which such Lender or its Affiliates may have.

Section
12.09         GOVERNING LAW; JURISDICTION;
CONSENT TO SERVICE OF PROCESS.

(a)           THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER
TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED
BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.

(b)           ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF
TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS,
HOUSTON DIVISION, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY
HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF
ITS PROPERTY, GENERALLY AND

 90
 

 

UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. 
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS
NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER
ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

(c)           EACH PARTY IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER
ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND
ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.

(d)           EACH PARTY HEREBY (i) IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii)
CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 12.09.

Section
12.10         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 shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

Section
12.11         Confidentiality.  Each of the Administrative Agent, each
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such

 91
 

 

Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement or any other Loan Document, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any
suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to
an agreement containing provisions substantially the same as those of this
Section 12.11, to (i) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors) to
any Swap Agreement relating to the Borrower and their obligations, (g) with the
consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 12.11 or
(ii) becomes available to the Administrative Agent, any Issuing Bank or any
Lender on a nonconfidential basis from a source other than the Borrower.  For the purposes of this Section 12.11, “Information”
means all information received from the Borrower or any of its Subsidiaries
relating to the Borrower or any of its Subsidiaries and their businesses, other
than any such information that is available to the Administrative Agent, any
Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
the Borrower or any of its Subsidiaries; provided that, in the case of
information received from the Borrower, or any of its Subsidiaries after the
date hereof, such information is clearly identified at the time of delivery as
confidential.  Any Person required to
maintain the confidentiality of Information as provided in this Section 12.11
shall be considered to have complied with its obligation to do so if such
Person has exercised the same degree of care to maintain the confidentiality of
such Information as such Person would accord to its own confidential
information.

Section
12.12         Interest Rate Limitation.  It is the intention of the parties hereto
that each Lender shall conform strictly to usury laws applicable to it.  Accordingly, if the transactions contemplated
hereby would be usurious as to any Lender under laws applicable to it
(including the laws of the United States of America and the State of Texas or
any other jurisdiction whose laws may be mandatorily applicable to such Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in any of the Loan Documents or any
agreement entered into in connection with or as security for the Notes, it is
agreed as follows:  (i) the aggregate of
all consideration which constitutes interest under law applicable to any Lender
that is contracted for, taken, reserved, charged or received by such Lender
under any of the Loan Documents or agreements or otherwise in connection with
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes
is accelerated by reason of an election of the holder thereof resulting from
any Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the 

 92
 

 

Borrower).  All sums paid or agreed to be paid to any
Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by law applicable to such Lender, be amortized, prorated,
allocated and spread throughout the stated term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account
of any Loans hereunder does not exceed the maximum amount allowed by such applicable
law.  If at any time and from time to
time (i) the amount of interest payable to any Lender on any date shall be
computed at the Highest Lawful Rate applicable to such Lender pursuant to this
Section 12.12 and (ii) in respect of any subsequent interest computation period
the amount of interest otherwise payable to such Lender would be less than the
amount of interest payable to such Lender computed at the Highest Lawful Rate
applicable to such Lender, then the amount of interest payable to such Lender
in respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to such Lender until the total
amount of interest payable to such Lender shall equal the total amount of
interest which would have been payable to such Lender if the total amount of
interest had been computed without giving effect to this Section 12.12.  To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the Highest Lawful Rate
applicable to a Lender, such Lender elects to determine the applicable rate
ceiling under such Chapter by the weekly ceiling from time to time in
effect.  Chapter 346 of the Texas Finance
Code does not apply to the Borrower’s obligations hereunder.

Section
12.13         EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY
INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF
ITS RESPONSIBILITY FOR SUCH LIABILITY. 
EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

Section
12.14         Collateral Matters; Swap
Agreements.  The benefit of the
Security Instruments and of the provisions of this Agreement relating to any
collateral securing the Indebtedness shall also extend to and be available to
those Lenders or their Affiliates which are counterparties to any Swap Agreement
with the Borrower or any of its Subsidiaries on a pro rata basis in respect of any obligations of the Borrower
or any of its Subsidiaries which arise under any such Swap Agreement while such

 93
 

 

Person or its
Affiliate is a Lender, but only while such Person or its Affiliate is a Lender,
including any Swap Agreements between such Persons in existence prior to the
date hereof.  No Lender or any Affiliate
of a Lender shall have any voting rights under any Loan Document as a result of
the existence of obligations owed to it under any such Swap Agreements.

Section
12.15         No Third Party
Beneficiaries.  This Agreement, the
other Loan Documents, and the agreement of the Lenders to make Loans and the
Issuing Bank to issue, amend, renew or extend Letters of Credit hereunder are
solely for the benefit of the Borrower, and no other Person (including, without
limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims,
remedies or privileges hereunder or under any other Loan Document against the
Administrative Agent, any other Agent, the Issuing Bank or any Lender for any
reason whatsoever.  There are no third
party beneficiaries.

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

 94

 

The parties hereto have caused
this Agreement to be duly executed as of the day and year first above written.

	
  BORROWER:

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael B. Young

  	
   

  
	
   

  	
  Name: Michael B. Young

  	
   

  
	
   

  	
  Title: Vice President and Chief Financial Officer

  	
   

  
					

 

 

 

	
  ADMINISTRATIVE AGENT:

  	
  BNP PARIBAS, as
  Administrative Agent,

  
	
  AND LENDER

  	
  Revolving Credit Lender and Term Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gabe Ellisor

  	
   

  
	
   

  	
  Name: Gabe Ellisor

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Polly Schott

  	
   

  
	
   

  	
  Name: Polly Schott

  
	
   

  	
  Title: Vice President

  

 

 

ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS

Aggregate Maximum Revolving Credit Amounts

	
  Name of Lender

  	
   

  	
  Applicable Percentage

  	
   

  	
  Maximum Revolving Credit

  Amount

  	
   

  
	
  BNP Paribas

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  94,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  94,000,000.00

  	
   

  

 

Term Loan Commitments

	
  Name of Lender

  	
   

  	
  Applicable Percentage

  	
   

  	
  Term Loan Commitment

  	
   

  
	
  BNP Paribas

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  6,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  6,000,000.00

  	
   

  

 

 3

 

EXHIBIT A-1

FORM OF REVOLVING CREDIT NOTE

$[          ]                                                                                                                                                 [          ],
200[     ]

FOR VALUE RECEIVED, Whittier
Energy Corporation, a Nevada corporation (the “Borrower”), hereby
promises to pay to the order of
[          ] (the “Lender”),
at the principal office of BNP Paribas, as administrative agent (the “Administrative
Agent”), the principal sum of
[          ] Dollars
($[          ]) (or such
lesser amount as shall equal the aggregate unpaid principal amount of the
Revolving Credit Loans made by the Lender to the Borrower under the Credit
Agreement, as hereinafter defined), in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Revolving Credit Loan, at such office, in like
money and funds, for the period commencing on the date of such Revolving Credit
Loan until such Revolving Credit Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.

The date, amount, Type, interest
rate, Interest Period and maturity of each Revolving Credit Loan made by the
Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any
transfer of this Revolving Credit Note, may be endorsed by the Lender on the
schedules attached hereto or any continuation thereof or on any separate record
maintained by the Lender.  Failure to
make any such notation or to attach a schedule shall not affect any Lender’s or
the Borrower’s rights or obligations in respect of such Revolving Credit Loans
or affect the validity of such transfer by any Lender of this Revolving Credit
Note.

This Revolving Credit Note is
one of the Revolving Credit Notes referred to in the Amended and Restated
Credit Agreement dated as of August 9, 2006 among the Borrower, the
Administrative Agent, and the lenders signatory thereto (including the Lender),
and evidences the Revolving Credit Loan made by the Lender thereunder (such
Credit Agreement as the same may be amended, supplemented or restated from time
to time, the “Credit Agreement”). 
Capitalized terms used in this Revolving Credit Note have the respective
meanings assigned to them in the Credit Agreement.

This Revolving Credit Note is
issued pursuant to the Credit Agreement and is entitled to the benefits
provided for in the Credit Agreement and the other Loan Documents.  The Credit Agreement provides for the
acceleration of the maturity of this Revolving Credit Note upon the occurrence
of certain events, for prepayments of Revolving Credit Loans upon the terms and
conditions specified therein and other provisions relevant to this Revolving
Credit Note.

THIS REVOLVING CREDIT NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF TEXAS.

 1
 

 

 

	
   

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 2

 

EXHIBIT A-2

FORM OF TERM LOAN NOTE

$[],000,000.00                                                                                                                                        [          ],
200[    ]

FOR VALUE RECEIVED, Whittier
Energy Corporation, a Nevada corporation (the “Borrower”) hereby promise
to pay to the order of [              ]
(the “Lender”), at the principal office of BNP Paribas, as
Administrative Agent (the “Administrative Agent”), the principal sum of
[    ] Million and no/100 Dollars ($[    ],000,000.00),
in lawful money of the United States of America and in immediately available
funds, on the dates and in the principal amounts provided in the Credit
Agreement, and to pay interest on the unpaid principal amount of the Term Loan,
at such office, in like money and funds, for the period commencing on the date
of the Term Loan until it shall be paid in full, at the rates per annum and on
the dates provided in the Credit Agreement.

The date, amount, Type, interest
rate, Interest Period and maturity of the Term Loan made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be recorded
by the Lender on its books and, prior to any transfer of this Term Loan Note,
may be endorsed by the Lender on the schedules attached hereto or any
continuation thereof or on any separate record maintained by the Lender.  Failure to make any such notation or to
attach a schedule shall not affect any Lender’s or the Borrower’s rights or
obligations in respect of the Term Loans or affect the validity of such
transfer by any Lender of this Term Loan Note.

This Term Loan Note is one of
the Term Loan Notes referred to in the Amended and Restated Credit Agreement
dated as of, August 9, 2006 among the Borrower, the Administrative Agent, and
the lenders signatory thereto (including the Lender), and evidences the Term
Loan made by the Lender thereunder (such Credit Agreement as the same may be
amended, supplemented or restated from time to time, the “Credit Agreement”).  Capitalized terms used in this Term Loan Note
have the respective meanings assigned to them in the Credit Agreement.

This Term Loan Note is issued
pursuant to the Credit Agreement and is entitled to the benefits provided for
in the Credit Agreement and the other Loan Documents.  The Credit Agreement provides for the
acceleration of the maturity of this Term Loan Note upon the occurrence of certain
events, for prepayments of Term Loan upon the terms and conditions specified
therein and other provisions relevant to this Term Loan Note.

THIS TERM LOAN NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF TEXAS.

 1
 

 

 

	
   

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 2

 

EXHIBIT B

FORM OF BORROWING REQUEST

[                   ],
200[    ]

Whittier Energy Corporation, a
Nevada corporation (the “Borrower”), pursuant to Section 2.03 of the
Amended and Restated Credit Agreement dated as of August 9, 2006 (together with
all amendments, restatements, supplements or other modifications thereto, the “Credit
Agreement”) among the Borrower, BNP Paribas, as Administrative Agent, and
the lenders (the “Lenders”) which are or become parties thereto (unless
otherwise defined herein, each capitalized term used herein is defined in the
Credit Agreement), hereby requests a Borrowing as follows:

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

(ii)           Date of such Borrowing is
[                   ],
200[   ];

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

(iv)          Requested Class of Borrowing is to be [a Revolving Credit
Loan] [a Term Credit Loan]

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

(v)           Amount of Borrowing Base in effect on the date hereof is
$[                   ];(1)

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

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

(viii)        Location and number of the Borrower’s account to which funds
are to be disbursed, which shall comply with the requirements of Section 2.05
of the Credit Agreement, is as follows:

[                                                        ]

[                                                        ]

[                                                        ]

[                                                        ]

[                                                        ]

(1) In the case of a Term Credit Loan, (v) through (vii) are
inapplicable.

 1
 

 

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

	
   

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
					

 

 2

 

EXHIBIT C

FORM OF

COMPLIANCE CERTIFICATE

The undersigned hereby certifies
that he/she is the
[          ] of Whittier
Energy Corporation, a Nevada corporation (the “Borrower”), and that as
such he/she is authorized to execute this certificate on behalf of the
Borrower.  With reference to the Amended
and Restated Credit Agreement dated as of August 9, 2006 (together with all
amendments, supplements or restatements thereto being the “Agreement”)
among the Borrower, BNP Paribas, as Administrative Agent and lenders (the “Lenders”)
which are or become a party thereto, and such Lenders, the undersigned
represents and warrants as follows (each capitalized term used herein having
the same meaning given to it in the Agreement unless otherwise specified):

(a)           The representations and warranties of the Borrower
contained in Article VII of the Agreement and in the Loan Documents and
otherwise made in writing by or on behalf of the Borrower or any Guarantor
pursuant to the Agreement and the Loan Documents were true and correct when
made, and are repeated at and as of the time of delivery hereof and are true
and correct in all material respects at and as of the time of delivery hereof,
except to the extent such representations and warranties are expressly limited
to an earlier date or all of the Lenders have expressly consented in writing to
the contrary.

(b)           The Borrower has performed and complied with all
agreements and conditions contained in the Agreement and in the Loan Documents
required to be performed or complied with by it prior to or at the time of
delivery hereof [or specify default and describe].

(c)           Since December 31, 2005, no change has occurred, either in
any case or in the aggregate, in the condition, financial or otherwise, of the
Borrower or any of its Subsidiaries that could reasonably be expected to have a
Material Adverse Effect [or specify event].

(d)           There exists no Default or Event of Default [or specify
Default and describe].

(e)           Attached hereto are the detailed computations necessary to
determine whether the Borrower is in compliance with Section 9.01 and Section
8.14 as of the end of the [fiscal quarter][fiscal year] ending
[          ].

 1
 

 

EXECUTED AND DELIVERED this
[          ] day of
[          ].

	
  

  	
  WHITTIER ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 2

 

EXHIBIT D

SECURITY INSTRUMENTS

1)                                      Deed of Trust, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement (Mississippi and Texas) from Whittier Energy Company in favor of BNP
Paribas, as mortgagee and Administrative Agent.

2)                                      UCC-1s, with respect to item 1,
filed with the Nevada Secretary of State.

 1

 

EXHIBIT E

FORM OF ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and
Assumption”) is dated as of the Effective Date set forth below and is
entered into by and between [Insert name of Assignor]
(the “Assignor”) and [Insert name of Assignee]
(the “Assignee”).  Capitalized
terms used but not defined herein shall have the meanings given to them in the
Credit Agreement identified below (as amended, the “Credit Agreement”),
receipt of a copy of which is hereby acknowledged by the Assignee.  The Standard Terms and Conditions set forth
in Annex 1 attached hereto are hereby agreed to and incorporated herein by
reference and made a part of this Assignment and Assumption as if set forth
herein in full.

For an agreed consideration, the Assignor hereby
irrevocably sells and assigns to the Assignee, and the Assignee hereby
irrevocably purchases and assumes from the Assignor, subject to and in
accordance with the Standard Terms and Conditions and the Credit Agreement, as
of the Effective Date inserted by the Administrative Agent as contemplated
below (i) all of the Assignor’s rights and obligations in its capacity as a
[Revolving Credit] [Term Loan] Lender under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to
the amount and percentage interest identified below of all of such outstanding
rights and obligations of the Assignor under the respective facilities
identified below (including any letters of credit and guarantees included in such
facilities) and (ii) to the extent permitted to be assigned under applicable
law, all claims, suits, causes of action and any other right of the Assignor
(in its capacity as a [Revolving Credit] [Term Loan] Lender) against any
Person, whether known or unknown, arising under or in connection with the
Credit Agreement, any other documents or instruments delivered pursuant thereto
or the loan transactions governed thereby or in any way based on or related to
any of the foregoing, including contract claims, tort claims, malpractice
claims, statutory claims and all other claims at law or in equity related to
the rights and obligations sold and assigned pursuant to clause (i) above (the
rights and obligations sold and assigned pursuant to clauses (i) and (ii) above
being referred to herein collectively as the “Assigned Interest”).  Such sale and assignment is without recourse
to the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.

	
  1.

  	
  Assignor:

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee:

  	
   

  
	
   

  	
   

  	
  [and is an Affiliate/Approved Fund of [identify Lender](2)]

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Borrower:

  	
  Whittier Energy Corporation

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Administrative Agent:

  	
  BNP Paribas, as the administrative agent under the
  Credit Agreement

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Credit Agreement:

  	
  Amended and Restated Credit Agreement dated as of
  August 9, 2006 among Whittier Energy Corporation, the Lenders parties
  thereto, and BNP Paribas, as Administrative Agent

  

 

(2) Select as applicable.

 1
 

 

 

	
  6.

  	
  Assigned Interest:

  	
   

  

 

	
  [Revolving] [Term

  Loan] Commitment

  Assigned

  	
   

  	
  Aggregate Amount of

  [Revolving] [Term

  Loan]

  Commitment/Loans for

  all Lenders

  	
   

  	
  Amount of [Revolving]

  [Term Loan]

  Commitment/Loans

  Assigned

  	
   

  	
  Percentage Assigned of

  [Revolving] [Term

  Loan]

  Commitment/Loans(3)

  	
   

  
	
        

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
        

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
        

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  

 

Effective Date:  
                                 
      , 20     [TO BE
INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF
RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in
this Assignment and Assumption are hereby agreed to:

	
  

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  

 

(3)
Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of
all Lenders thereunder.

 2
 

 

[Consented
to and](4) Accepted:

	
  BNP PARIBAS, as

  
	
  Administrative Agent

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  
	
   

  
	
   

  
	
  [Consented to:](5)

  
	
   

  
	
  WHITTIER ENERGY CORPORATION

  
	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
  Title:

  

 

(4) To be added only if
the consent of the Administrative Agent is required by the terms of the Credit
Agreement.

(5)
To be added only if the consent of the Borrower and/or other parties is
required by the terms of the Credit Agreement.

 3
 

 

ANNEX 1

WHITTIER ENERGY CORPORATION $100 MILLION REVOLVING AND
TERM LOAN

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1.  Representations
and Warranties.

1.1   Assignor.  The Assignor (a) represents and warrants that
(i) it is the legal and beneficial owner of the Assigned Interest, (ii) the
Assigned Interest is free and clear of any lien, encumbrance or other adverse
claim and (iii) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby; and (b) assumes no
responsibility with respect to (i) any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document,
(ii) the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any collateral thereunder, (iii)
the financial condition of the Borrower, any of its Subsidiaries or Affiliates
or any other Person obligated in respect of any Loan Document or (iv) the
performance or observance by the Borrower, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under any
Loan Document.

1.2.  Assignee.  The Assignee (a) represents and warrants that
(i) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby and to become a Lender under the Credit
Agreement, (ii) it satisfies the requirements, if any, specified in the Credit
Agreement that are required to be satisfied by it in order to acquire the
Assigned Interest and become a Lender, (iii) from and after the Effective Date,
it shall be bound by the provisions of the Credit Agreement as a Lender
thereunder and, to the extent of the Assigned Interest, shall have the
obligations of a Lender thereunder, (iv) it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 8.01 thereof, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Assumption and to
purchase the Assigned Interest on the basis of which it has made such analysis
and decision independently and without reliance on the Administrative Agent or
any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment
and Assumption is any documentation required to be delivered by it pursuant to
the terms of the Credit Agreement, duly completed and executed by the Assignee;
and (b) agrees that (i) it will, independently and without reliance on the
Administrative Agent, the Assignor or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan Documents,
and (ii) it will perform in accordance with their terms all of the obligations
which by the terms of the Loan Documents are required to be performed by it as
a Lender.

2.  Payments.  From and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignor for amounts which have accrued to but excluding the Effective Date
and to the Assignee for amounts which have accrued from and after the Effective
Date.

3.  General
Provisions. This Assignment and Assumption shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
assigns.  This Assignment and Assumption
may be executed in any number of counterparts, which together shall constitute
one instrument.  Delivery of an executed
counterpart of a signature page of this

 4
 

 

Assignment
and Assumption by telecopy shall be effective as delivery of a manually
executed counterpart of this Assignment and Assumption.  This Assignment and Assumption shall be
governed by, and construed in accordance with, the law of the State of Texas.

 5Exhibit
10.16

THIRD
AMENDMENT TO CREDIT AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this
“Amendment”) is made and entered into
as of October 28, 2005, by and among BUCKEYE PARTNERS, L.P., a Delaware limited
partnership (the “Borrower”), the Lenders (as
defined below) party hereto and SUNTRUST BANK, in its capacity as
administrative agent for the Lenders (the “Administrative Agent”).

W
I  T  N  E  S  S  E  T  H:

WHEREAS,
the Borrower, the several banks and other financial institutions party thereto
(collectively, the “Lenders”) and the
Administrative Agent are parties to that certain Credit Agreement, dated as of
August 6, 2004, as amended by that First Amendment to Credit Agreement, dated
as of December 15, 2004 and by that Second Amendment to Credit Agreement, dated
as of July 29, 2005 (the “Credit Agreement”;
capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Credit Agreement as amended hereby) pursuant to
which the Lenders have made certain financial accommodations available to the
Borrower; and

WHEREAS,
the Borrower has requested that the Lenders and the Administrative Agent amend
certain provisions of the Credit Agreement, and subject to the terms and
conditions hereof, the Lenders are willing to do so;

NOW,
THEREFORE, for good and valuable consideration, the sufficiency and receipt of
all of which are acknowledged, the Borrower, the Lenders and the Administrative
Agent agree as follows:

1.             Amendments.

(a)           Section 1.01
of the Credit Agreement is hereby amended by deleting the definition of “GP
Incentive Compensation Payments” in its entirety and replacing the definition
of “EBITDA” in its entirety with the following definition:

“EBITDA” shall mean for any Person for any period, the sum
of Consolidated Net Income for such period
plus the following expenses or charges to the extent deducted from Consolidated
Net Income for such period: interest, taxes, depreciation, depletion and
amortization; provided, however, with respect
to the Borrower, if during any period the Borrower or any Restricted Subsidiary
acquires any Person and such acquired Person becomes a Restricted Subsidiary,
or the Borrower or a Restricted Subsidiary acquires all or substantially all of
the assets of any Person, the EBITDA attributable to such Person or assets for
such period determined on a pro forma basis 
(as reasonably diligenced by the Borrower) may be included in EBITDA for
the calculation of the Funded Debt Ratio.

 

(b)           Schedule 9.03 of the Credit Agreement
is hereby amended by (i) increasing the amount of Project Loans permitted for
WesPac Pipelines - Memphis LLC from $800,000 to $30,000,000 and (ii) increasing
the amount of Investments permitted for Wespac Piplines - Memphis LLC from
$150,000 to $5,625,000.

2.             Consent.  At your request, we hereby consent to the
Borrower Partnership Agreement being amended substantially in the form attached
hereto as Exhibit A (the “Amended Partnership
Agreement”), with no further changes that would be adverse to the
Lenders, and to the Borrower entering into the Fifth Amended and Restated
Incentive Compensation Agreement in substantially the form attached as Exhibit
B (the “Amended Incentive Compensation Agreement”),
with no further changes that would be adverse to the Lenders, in each case notwithstanding
anything to the contrary set forth in Section 9.16 or Section 9.17 of the
Credit Agreement.

3.             Conditions to Effectiveness of this Amendment.
Notwithstanding any other provision of this Amendment and without affecting
in any manner the rights of the Lenders hereunder, it is understood and agreed
that this Amendment shall not become effective, and the Borrower shall have no
rights under this Amendment, until the Administrative Agent shall have received
(i) reimbursement or payment of its costs and expenses incurred in connection
with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable
fees and out-of-pocket expenses of outside counsel for the Administrative Agent
with respect thereto and (ii) executed counterparts to this Amendment
from the Borrower, the Guarantors and the Required Lenders.  When the foregoing conditions are met, (i)
the amendments set forth in Section 1(a) above shall be effective upon the
execution and delivery of the Amended Partnership Agreement and the Amended
Incentive Compensation Agreement and (ii) the amendment set forth in Section
1(b) shall be effective as of the date of this Amendment.

4.             Representations and Warranties.  To induce the Lenders and the Administrative
Agent to enter into this Amendment, each of the Borrower, the General Partner
and the Guarantors (collectively, the “Loan Parties”) hereby represents
and warrants to the Lenders and the Administrative Agent that:

(a)           The execution and delivery by such
Loan Party of this Amendment and the performance of this Amendment and the
Credit Agreement as amended hereby (i) are within such Loan Party’s power
and authority; (ii) have been duly authorized by all necessary
partnership, limited liability company, partner and/or member action;
(iii) are not in contravention of any provision of such Loan Party’s
certificate of formation, certificate of partnership, partnership agreement,
operating agreement or other organizational documents; (iv) do not violate
any law or regulation, or any order or decree of any Governmental Authority;
(v) do not conflict with or result in the breach or termination of,
constitute a default under or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which such Loan Party or any of its Subsidiaries is a party or by which such
Loan Party or any such Subsidiary or any of their respective property is bound;
(vi) do not result in the creation or imposition of any Lien upon any of the
property of such Loan Party or any of its Subsidiaries; and (vii) do not
require the consent or approval of any Governmental Authority or any other
Person;

 2
 

 

(b)           This Amendment has been duly executed
and delivered for the benefit of or on behalf of each Loan Party and
constitutes a legal, valid and binding obligation of each Loan Party,
enforceable against such Loan Party in accordance with its terms except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors’ rights and remedies in general;
and

(c)           After giving effect to this
Amendment, the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct in all material respects, and
no Default or Event of Default has occurred and is continuing as of the date
hereof.

5.             Reaffirmations and Acknowledgments.

Each
Guarantor consents to the execution and delivery by the Borrower of this
Amendment and jointly and severally ratifies and confirms the terms of its
Guaranty with respect to the indebtedness now or hereafter outstanding under
the Credit Agreement as amended hereby and all promissory notes issued
thereunder. Each Guarantor acknowledges that, notwithstanding anything to the contrary
contained herein or in any other document evidencing any indebtedness of the
Borrower to the Lenders or any other obligation of the Borrower, or any actions
now or hereafter taken by the Lenders with respect to any obligation of the
Borrower, its Guaranty (i) is and shall continue to be a primary obligation of
such Guarantor, (ii) is and shall continue to be an absolute, unconditional,
joint and several, continuing and irrevocable guaranty of payment, and (iii) is
and shall continue to be in full force and effect in accordance with its
terms.  Nothing contained herein to the
contrary shall release, discharge, modify, change or affect the original
liability of the Guarantors under the Guaranties.

6.             Effect of Amendment.  Except as set forth expressly herein,
all terms of the Credit Agreement, as amended hereby, and the other Loan
Documents shall be and remain in full force and effect and shall constitute the
legal, valid, binding and enforceable obligations of the Borrower to the
Lenders and the Administrative Agent.  The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lenders under the Credit Agreement,
nor constitute a waiver of any provision of the Credit Agreement.  This Amendment shall constitute a Loan
Document for all purposes of the Credit Agreement.

7.             Governing Law.   This Amendment shall be governed by, and
construed in accordance with, the internal laws of the State of New York and all
applicable federal laws of the United States of America.

8.             No Novation.  This Amendment is not intended by the parties
to be, and shall not be construed to be, a novation of the Credit Agreement or
an accord and satisfaction in regard thereto.

9.             Counterparts.  This Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, each of which
shall be deemed an original and all 

 3
 

 

of
which, taken together, shall be deemed to constitute one and the same
instrument.  Delivery of an executed
counterpart of this Amendment by facsimile transmission or by electronic mail
in pdf form shall be as effective as delivery of a manually executed
counterpart hereof.

10.           Costs and Expenses.  The
Borrower agrees to pay on demand all costs and expenses of the Administrative
Agent in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, the reasonable fees and out-of-pocket
expenses of outside counsel for the Administrative Agent with respect thereto.

11.           Binding Nature.  This Amendment shall be binding upon and
inure to the benefit of the parties hereto, their respective successors,
successors-in-titles, and assigns.

12.           Entire Understanding.  This Amendment sets forth the entire understanding
of the parties with respect to the matters set forth herein, and shall
supersede any prior negotia­tions or agreements, whether written or oral, with
respect thereto.

[Signature Pages To Follow]

 4

 

IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed,
under seal in the case of the Borrower and the Guarantor, by their respective
authorized officers as of the day and year first above written.

	
  BORROWER:

  	
  BUCKEYE PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye GP LLC,
  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President - Finance

  	
   

  
						

 

	
   

  	
   

  
	
  GUARANTORS:

  	
  WOOD RIVER PIPE LINES LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President - Finance

  	
   

  
						

 

	
   

  	
   

  
	
  

  	
  BUCKEYE PIPE LINE COMPANY, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

	
   

  	
   

  
	
  

  	
  BUCKEYE PIPE LINE HOLDINGS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

[SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT
AGREEMENT]

 

 

	
  

  	
  BUCKEYE GULF COAST HOLDINGS I, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye Pipe Line Holdings, L.P.,

  
	
   

  	
   

  	
  its Sole Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

	
   

  	
   

  
	
  

  	
  BUCKEYE GULF COAST HOLDINGS II, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye Pipe Line Holdings, L.P.,

  
	
   

  	
   

  	
  its Sole Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

	
   

  	
   

  
	
  

  	
  BUCKEYE GULF COAST PIPE LINES, L.P.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Buckeye Gulf Coast Holdings I, LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye Pipe Line Holdings, L.P.,

  
	
   

  	
   

  	
  its Sole Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  BUCKEYE TERMINALS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
						

 

	
   

  	
   

  
	
  

  	
  NORCO PIPE LINE COMPANY, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
						

 

	
   

  	
   

  
	
  

  	
  EVERGLADES PIPE LINE COMPANY, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye GP LLC,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

	
   

  	
   

  
	
  

  	
  BUCKEYE PIPE LINE TRANSPORTATION,

  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
						

 

	
   

  	
   

  
	
  

  	
  WESPAC PIPELINES - RENO, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Buckeye Pipe Line Holdings, L.P.,

  
	
   

  	
   

  	
  its sole member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: Buckeye GP LLC,

  
	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  BUCKEYE TEXAS PIPE LINE COMPANY, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BUCKEYE GULF COAST HOLDINGS I,

  
	
   

  	
   

  	
  LLC, its General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President - Finance

  	
   

  
							

 

	
   

  	
   

  
	
  

  	
  LAUREL PIPE LINE COMPANY, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BUCKEYE GP LLC,

  
	
   

  	
   

  	
  its General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT B. WALLACE

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Wallace

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President -
  Finance

  	
   

  
							

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  LENDER, ISSUING BANK

  	
   

  
	
  AND AGENT:

  	
  SUNTRUST BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID EDGE

  	
   

  
	
   

  	
  Name:

  	
  David Edge

  	
   

  
	
   

  	
  Title:

  	
  Managing Director

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  BANK OF AMERICA, N.A., successor by merger

  
	
   

  	
  to FLEET
  NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GREGORY B. HANSON

  	
   

  
	
   

  	
  Name:

  	
  Gregory B. Hanson

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  CITIBANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TODD MOGIL

  	
   

  
	
   

  	
  Name:

  	
  Todd Mogil

  	
   

  
	
   

  	
  Title:

  	
  Attorney-in-Fact

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  BNP PARIBAS

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. ONISCHUK

  	
   

  
	
   

  	
  Name:

  	
  J. Onischuk

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
						

 

	
  

  	
  By:

  	
  /s/ RUSSELL OTTS

  	
   

  
	
   

  	
  Name:

  	
  Russell Otts

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  JPMORGAN CHASE BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JEANIE GONZALEZ

  	
   

  
	
   

  	
  Name:

  	
  Jeanie Gonzalez

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  WACHOVIA BANK, NATIONAL
  ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ KRISTEN L. RUTH

  	
   

  
	
   

  	
  Name:

  	
  Kristen L. Ruth

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  UNION BANK OF CALIFORNIA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SEAN MURPHY

  	
   

  
	
   

  	
  Name:

  	
  Sean Murphy

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  THE ROYAL BANK OF SCOTLAND
  plc

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MATTHEW MAIN

  	
   

  
	
   

  	
  Name:

  	
  Matthew Main

  	
   

  
	
   

  	
  Title:

  	
  Managing Director

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  ROYAL BANK OF CANADA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JASON YORK

  	
   

  
	
   

  	
  Name:

  	
  Jason York

  	
   

  
	
   

  	
  Title:

  	
  Attorney-in-Fact

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  KEYBANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  UFJ BANK LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  MIZUHO CORPORATE BANK, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  WELLS FARGO BANK, N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ TIM GREEN

  	
   

  
	
   

  	
  Name:

  	
  Tim Green

  	
   

  
	
   

  	
  Title:

  	
  Portfolio Manager

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  UBS LOAN FINANCE LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARC SILEO

  	
   

  
	
   

  	
  Name:

  	
  Marc Sileo

  	
   

  
	
   

  	
  Title:

  	
  Associate Director

  	
   

  
						

 

	
  

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARIE A. HADDAD

  	
   

  
	
   

  	
  Name:

  	
  Marie A. Haddad

  	
   

  
	
   

  	
  Title:

  	
  Associate Director

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  MERRILL LYNCH BANK USA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ LOUIS ALDER

  	
   

  
	
   

  	
  Name:

  	
  Louis Alder

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  WILLIAM STREET CREDIT
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK WALTON

  	
   

  
	
   

  	
  Name:

  	
  Mark Walton

  	
   

  
	
   

  	
  Title:

  	
  Assistant Vice President

  	
   

  
						

 

[SIGNATURE PAGE TO THIRD
AMENDMENT TO CREDIT AGREEMENT]

 

 

	
  

  	
  LEHMAN BROTHERS BANK, FSB

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JANINE M. SHUGAN

  	
   

  
	
   

  	
  Name:

  	
  Janine M. Shugan

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
						

 

[SIGNATURE PAGE TO
THIRD AMENDMENT TO CREDIT AGREEMENT]

 

EXHIBIT A

FORM OF

AMENDED AND RESTATED AGREEMENT

OF

LIMITED PARTNERSHIP

OF

BUCKEYE PARTNERS, L.P.

(As Amended and Restated as of
[                                 ],
2005)

 

BUCKEYE PARTNERS, L.P.

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

ARTICLE II

ORGANIZATIONAL MATTERS

	
  Section 2.1

  	
  Formation

  	
  7

  
	
  Section 2.2

  	
  Name

  	
  7

  
	
  Section 2.3

  	
  Principal Office; Registered Office

  	
  8

  
	
  Section 2.4

  	
  Power of Attorney

  	
  8

  
	
  Section 2.5

  	
  Term

  	
  9

  
	
  Section 2.6

  	
  Organizational Limited Partner

  	
  9

  
	
  Section 2.7

  	
  Organizational Certificate

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURPOSE

  	
   

  
	
   

  
	
  Section 3.1

  	
  Purpose

  	
  10

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  
	
   

  	
  CAPITAL
  CONTRIBUTIONS; PURCHASES PURSUANT

  	
   

  
	
   

  	
  TO PURCHASE
  AGREEMENTS; ADDITIONAL ISSUANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  General Partner Contributions

  	
  10

  
	
  Section 4.2

  	
  Limited Partner Contributions

  	
  10

  
	
  Section 4.3

  	
  Issuances of Additional LP Units and Other
  Securities

  	
  10

  
	
  Section 4.4

  	
  No Preemptive Rights

  	
  11

  
	
  Section 4.5

  	
  No Interest

  	
  11

  
	
  Section 4.6

  	
  Loans from Partners

  	
  11

  
	
  Section 4.7

  	
  No Withdrawal

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAPITAL
  ACCOUNTS; DISTRIBUTIONS

  	
   

  
	
   

  
	
  Section 5.1

  	
  Capital Accounts

  	
  12

  
	
  Section 5.2

  	
  Distributions in Respect of Units

  	
  14

  

 

 i
 

 

 

	
  

  	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INCOME TAX
  MATTERS

  	
   

  
	
   

  
	
  Section 6.1

  	
  Tax Allocations

  	
  15

  
	
  Section 6.2

  	
  Preparation of Tax Returns

  	
  16

  
	
  Section 6.3

  	
  Tax Elections

  	
  16

  
	
  Section 6.4

  	
  Tax Controversies

  	
  16

  
	
  Section 6.5

  	
  Withholding

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MANAGEMENT AND
  OPERATION OF BUSINESS; INDEMNIFICATION

  	
   

  
	
   

  
	
  Section 7.1

  	
  Powers of General Partner

  	
  16

  
	
  Section 7.2

  	
  Duties of General Partner

  	
  18

  
	
  Section 7.3

  	
  Reliance by Third Parties

  	
  18

  
	
  Section 7.4

  	
  Compensation and Reimbursement of the General
  Partner

  	
  19

  
	
  Section 7.5

  	
  Purchase or Sale of LP Units and Other Partnership
  Securities

  	
  19

  
	
  Section 7.6

  	
  Certain Undertakings Relating to the Separateness of
  the Partnership

  	
  19

  
	
  Section 7.7

  	
  Outside Activities; Contracts with Affiliates; Loans
  to or from Affiliates

  	
  20

  
	
  Section 7.8

  	
  Tax Basis and Value Determinations

  	
  22

  
	
  Section 7.9

  	
  Resolution of Conflicts of Interest; Standard of
  Care

  	
  22

  
	
  Section 7.10

  	
  Treatment of Incentive Compensation Agreement

  	
  24

  
	
  Section 7.11

  	
  Other Matters Concerning the General Partner

  	
  24

  
	
  Section 7.12

  	
  Limited Liability; Indemnification

  	
  25

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RIGHTS AND
  OBLIGATIONS OF LIMITED PARTNERS

  	
   

  
	
   

  
	
  Section 8.1

  	
  Limitation of Liability

  	
  26

  
	
  Section 8.2

  	
  Management of Business

  	
  26

  
	
  Section 8.3

  	
  Outside Activities

  	
  27

  
	
  Section 8.4

  	
  Return of Capital

  	
  27

  
	
  Section 8.5

  	
  Rights of Limited Partners Relating to the
  Partnership

  	
  27

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BOOKS, RECORDS,
  ACCOUNTING AND REPORTS

  	
   

  
	
   

  
	
  Section 9.1

  	
  Books, Records and Accounting

  	
  28

  
	
  Section 9.2

  	
  Fiscal Year

  	
  28

  
	
  Section 9.3

  	
  Reports

  	
  28

  

 

 ii
 

 

 

	
  ARTICLE X

  
	
   

  	
   

  	
   

  
	
  ISSUANCE OF LP
  CERTIFICATES; TRANSFER AND EXCHANGE OF LP UNITS

  
	
   

  
	
  Section 10.1

  	
  Initial Issuance of LP Certificates

  	
  29

  
	
  Section 10.2

  	
  Registration, Registration of Transfer and Exchange

  	
  29

  
	
  Section 10.3

  	
  Mutilated, Destroyed, Lost or Stolen LP Certificates

  	
  29

  
	
  Section 10.4

  	
  Persons Deemed Owners

  	
  30

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XI

  	
   

  
	
   

  
	
   

  	
  TRANSFER OF GP
  UNITS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.1

  	
  Transfer of GP Units

  	
  30

  
	
  Section 11.2

  	
  Successor General Partner

  	
  31

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ADMISSION OF
  INITIAL, SUBSTITUTED AND ADDITIONAL

  	
   

  
	
   

  	
  LIMITED PARTNERS
  AND SUCCESSOR GENERAL PARTNER

  	
   

  
	
   

  
	
  Section 12.1

  	
  Admission of Initial Limited Partners

  	
  31

  
	
  Section 12.2

  	
  Admission of Substituted Limited Partners

  	
  31

  
	
  Section 12.3

  	
  Admission of Successor General Partner

  	
  31

  
	
  Section 12.4

  	
  Admission of Additional Limited Partners

  	
  31

  
	
  Section 12.5

  	
  Amendment of Agreement and Certificate of Limited
  Partnership

  	
  32

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XIII

  	
   

  
	
   

  
	
   

  	
  WITHDRAWAL OR
  REMOVAL OF THE GENERAL PARTNER

  	
   

  
	
   

  
	
  Section 13.1

  	
  Withdrawal or Removal of the General Partner

  	
  32

  
	
  Section 13.2

  	
  Sale of Former General Partner’s Interest

  	
  33

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XIV

  	
   

  
	
   

  
	
   

  	
  DISSOLUTION AND
  LIQUIDATION

  	
   

  
	
   

  
	
  Section 14.1

  	
  Dissolution

  	
  33

  
	
  Section 14.2

  	
  Reconstitution

  	
  34

  
	
  Section 14.3

  	
  Liquidation

  	
  35

  
	
  Section 14.4

  	
  Distribution in Kind

  	
  35

  
	
  Section 14.5

  	
  Cancellation of Certificate of Limited Partnership

  	
  36

  
	
  Section 14.6

  	
  Return of Capital

  	
  36

  
	
  Section 14.7

  	
  Waiver of Partition

  	
  36

  
	
  Section 14.8

  	
  Certain Prohibited Acts

  	
  36

  

 

 iii
 

 

 

	
  

  	
  ARTICLE XV

  	
   

  
	
   

  
	
   

  	
  AMENDMENT OF
  PARTNERSHIP AGREEMENT

  	
   

  
	
   

  
	
  Section 15.1

  	
  Amendments Which May be Adopted Solely by the General
  Partner

  	
  37

  
	
  Section 15.2

  	
  Other Amendments

  	
  38

  
	
  Section 15.3

  	
  Amendment Requirements

  	
  38

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XVI

  	
   

  
	
   

  
	
   

  	
  MEETINGS

  	
   

  
	
   

  
	
  Section 16.1

  	
  Meetings

  	
  38

  
	
  Section 16.2

  	
  Record Date

  	
  38

  
	
  Section 16.3

  	
  Conduct of Meeting

  	
  39

  
	
  Section 16.4

  	
  Action Without a Meeting

  	
  39

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XVII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CERTAIN
  RESTRICTIONS

  	
   

  
	
   

  
	
  Section 17.1

  	
  Additional Units

  	
  39

  
	
  Section 17.2

  	
  Certain Amendments

  	
  40

  
	
  Section 17.3

  	
  Sale of Assets

  	
  40

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XVIII

  	
   

  
	
   

  
	
   

  	
  RIGHT TO
  PURCHASE UNITS

  	
   

  
	
   

  
	
  Section 18.1

  	
  Right to Purchase Units

  	
  40

  
	
  Section 18.2

  	
  Notice of Election to Purchase

  	
  40

  
	
  Section 18.3

  	
  Purchase and Transfer of Units

  	
  41

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XIX

  	
   

  
	
   

  
	
   

  	
  GENERAL
  PROVISIONS

  	
   

  
	
   

  
	
  Section 19.1

  	
  Opinions Regarding Taxation as a Partnership

  	
  41

  
	
  Section 19.2

  	
  Personal Property

  	
  41

  
	
  Section 19.3

  	
  Addresses and Notices

  	
  41

  
	
  Section 19.4

  	
  Headings

  	
  42

  
	
  Section 19.5

  	
  Binding Effect

  	
  42

  
	
  Section 19.6

  	
  Integration

  	
  42

  
	
  Section 19.7

  	
  Waiver

  	
  42

  
	
  Section 19.8

  	
  Counterparts

  	
  42

  
	
  Section 19.9

  	
  Severability

  	
  42

  
	
  Section 19.10

  	
  Applicable Law

  	
  42

  

 

 iv

 

AMENDED AND RESTATED AGREEMENT

OF

LIMITED PARTNERSHIP

OF

BUCKEYE PARTNERS, L.P.

THIS AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP, dated as of
[                    ],
2005 (the “Agreement”), is entered into by and among Buckeye GP LLC, a Delaware
limited liability company (together with any successor in its capacity as
general partner of the Partnership, the “General Partner”), and the additional
Persons that are or become Partners of the Partnership as provided herein.

BACKGROUND

On December 31, 1998, Buckeye Management Company
assigned and transferred certain assets and liabilities, including all of its
GP Units (as defined in Article I below), to Buckeye Pipe Line Company. Buckeye
Pipe Line Company accepted the transfer of those certain assets and liabilities
and the GP Units, became the general partner of Buckeye Partners, L.P., and
entered into the Amended and Restated Agreement of Limited Partnership, dated
as of December 31, 1998, which was further amended and restated as of
April 24, 2002 (as so amended, the “Prior Partnership Agreement”).

On May 4, 2004, Buckeye Management Company and Buckeye
Pipe Line Company converted from Delaware corporations to Delaware limited
liability companies. In connection with such conversion, Buckeye Management Company
changed its name to Buckeye Management Company LLC, and Buckeye Pipe Line
Company changed its name to Buckeye Pipe Line Company LLC (the “Former GP”).

In accordance with Section 11.1 of the Prior
Partnership Agreement, the Former GP assigned and transferred certain assets
and liabilities, including all of its GP Units, to the General Partner pursuant
to a Contribution, Assignment and Assumption Agreement dated December 15, 2004.
The General Partner accepted the transfer of those certain assets and liabilities
and the GP Units, and became the general partner of Buckeye Partners, L.P.  The Partners continued Buckeye Partners, L.P.
without dissolution and amended and restated the Prior Partnership Agreement
(as amended and restated, the “2004 Agreement”).

This Agreement modifies the 2004 Agreement to provide
that a Partnership Interest includes the general partner interest in the
Partnership evidenced by the Incentive Compensation Agreement and that any
incentive compensation payments pursuant to the Incentive Compensation
Agreement will be deemed to be distributions in respect of a Partnership
Interest.

 1
 

 

ARTICLE I

DEFINITIONS

The following definitions shall for all purposes,
unless otherwise clearly indicated to the contrary, apply to the terms used in
this Agreement:

“Affiliate” means, with respect to any Person, any
other Person that directly or indirectly controls, is controlled by, or is
under common control with the Person in question; provided, however, that, for
purposes of the restrictive provisions of Sections 7.6, 7.7 and 7.9, neither
the Partnership nor any of the Operating Partnerships nor any of their
respective subsidiaries shall be deemed to be Affiliates of the General
Partner.  As used herein, the term
control means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.  For purposes of this Agreement, Services
Company, which provides services to the General Partner, shall be deemed an
Affiliate of the General Partner.

“Agent” has the meaning specified in Section 2.4

“Agreed Value” of any Contributed Property means the
fair market value of such property as of the time of contribution (or, in the case
of cash, the amount thereof), as determined by the General Partner using such
reasonable method of valuation as it may adopt.

“Agreement” means this amended and restated agreement
of limited partnership, as amended or amended and restated from time to time,
and, as the context requires, as supplemented by the Incentive Compensation
Agreement.

“Audit Committee” means a committee of the Board of
Directors of the General Partner composed entirely of three or more directors
who meet the independence, qualification and experience requirements of the New
York Stock Exchange, and two of whom are also S&P Independent Directors.

“BMC” means Buckeye Management Company LLC, a Delaware
limited liability company.

“Business Day” means any day other than a Saturday, a
Sunday, or a legal holiday recognized as such by the Government of the United
States or the State of New York.

“Capital Accounts” mean the capital accounts
maintained with respect to Partnership Interests pursuant to Section 5.1(a).

“Capital Contribution” means any Contributed Property
which a Partner contributes to the Partnership.

“Carrying Value” means (a) with respect to Contributed
Property, the Agreed Value of such property reduced as of the time of
determination (but not below zero) by (i) all depreciation, cost recovery and
amortization deductions charged to the Capital Accounts pursuant to Section
5.1(a) with respect to such property and (ii) an appropriate amount to reflect
any sales,

 2
 

 

retirements and other dispositions of assets included
in such property, and (b) with respect to any other property, the adjusted
basis of such property for federal income tax purposes as of the time of
determination, in any case as may be adjusted from time to time pursuant to
Section 5.1(e).

“Certificate of Limited Partnership” means the Amended
and Restated Certificate of Limited Partnership filed with the Secretary of
State of the State of Delaware as described in the first sentence of Section
2.7, as amended or restated from time to time.

“Code” means the Internal Revenue Code of 1986, as
amended from time to time.

“Contributed Property” means any cash, property or
other consideration (in such form as may be permitted under the Delaware Act)
contributed to the Partnership.

“Contributing Partner” means any Partner contributing
Contributed Property to the Partnership in exchange for Units (or any
transferee of such Units).

“Delaware Act” means the Delaware Revised Uniform
Limited Partnership Act, as amended from time to time, and any successor to
such Act.

“Designated Expenses” mean all costs and expenses
(direct or indirect) incurred by the General Partner which are directly or
indirectly related to the formation, capitalization, business or activities of
the Partnership Group (including, without limitation, expenses, direct or
indirect, reasonably allocated to the General Partner by its Affiliates);
provided, however, that Designated Expenses shall not include (a) any cost or
expense for which the General Partner is not entitled to be reimbursed by
reason of the proviso at the end of Section 7.12(b), (b) severance costs not
permitted to be reimbursed pursuant to the Management Agreements in connection
with the withdrawal of the General Partner, or (c) any cost or expense for
which the General Partner and its Affiliates are not entitled to be reimbursed
pursuant to the terms of the Exchange Agreement.

“Effective Date” means the date of this Agreement.

“Eighty Percent Interest” means Limited Partners
holding an aggregate of at least 80% of the outstanding LP Units.

“ESOP” means the Buckeye Pipe Line Services Company
Employee Stock Ownership Plan Trust, as amended.

“ESOP Loan” means the loan to the ESOP due March 28,
2011 in the original principal amount of $44,133,600, and shall include any
loans refinancing such loan.

“Exchange Act” means the Securities Exchange Act of
1934, as amended from time to time, and any successor to such statute.

“Exchange Agreement” means the Third Amended and
Restated Exchange Agreement, dated as of December 15, 2004, among Holdco, the
General Partner, the Partnership and each of the Operating Partnerships, as
amended or restated from time to time.

“General Partner” has the meaning specified in the
first paragraph.

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“GP Unit” means a Partnership Interest issued pursuant
to Section 4.1 and representing a general partner’s interest in the
Partnership.

“Group Member” means a member of the Partnership
Group.

“Holdco” means, collectively MainLine Sub LLC and any
entities which control MainLine Sub LLC or are under common control with
MainLine Sub LLC, but excluding Buckeye GP LLC and the Partnership Group.

“Incentive Compensation Agreement” means the Fifth
Amended and Restated Incentive Compensation Agreement, dated as of
[                        ],
2005 between the Partnership and the General Partner.  The Incentive Compensation Agreement
supplements this Agreement.

“Indemnitee” means the General Partner, any Affiliate
of the General Partner, any Person who is or was a director, officer, manager,
member, employee or agent of the General Partner or any such Affiliate, or any
Person who is or was serving at the request of the General Partner or any such
Affiliate as a director, officer, manager, member, partner, trustee, employee
or agent of another Person.

“Issue Price” means the price at which a Unit is purchased
from the Partnership.

“Limited Partner” means any limited partner of the
Partnership.

“Liquidator” has the meaning specified in Section
14.3.

“LP Certificate” means a certificate issued by the
Partnership, substantially in the form of Annex A to this Agreement, evidencing
ownership of one or more LP Units.

“LP Unit” means a Partnership Interest issued pursuant
to Sections 4.2 or 4.3 and representing a limited partner’s interest in the
Partnership.

“Majority Interest” means Limited Partners holding an
aggregate of more than 50% of the outstanding LP Units.

“Management Agreements” mean the management
agreements, dated as of October 4, 2001, pursuant to which the General Partner
manages the Operating Partnerships, in each case as amended or restated from
time to time.

“NASDAQ” means the National Association of Securities
Dealers Automated Quotation System.

“National Securities Exchange” means an exchange
registered with the Securities and Exchange Commission under Section 6(a) of
the Exchange Act.

“Net Agreed Value” means (a) in the case of any
Contributed Property, the Agreed Value of such Contributed Property reduced by
any indebtedness either assumed by the Partnership upon contribution of such
Contributed Property or to which such Contributed Property is subject when
contributed, (b) in the case of any property distributed to a Partner pursuant
to

 4
 

 

Sections 5.2, 14.3 or 14.4, the fair market value of
such property at the time of such distribution reduced by any indebtedness
either assumed by such Partner upon such distribution or to which such property
is subject at the time of distribution.

“Operating Partnership Agreements” mean the amended
and restated agreements of limited partnership, dated as of December 15, 2004,
governing the rights and obligations of the partners of the Operating
Partnerships and certain related matters, as amended or restated from time to
time.

“Operating Partnerships” means, collectively, Buckeye
Pipe Line Company, L.P., Buckeye Pipe Line Holdings, L.P., Everglades Pipe Line
Company, L.P. and Laurel Pipe Line Company, L.P., each a Delaware limited
partnership, and each other current or future subsidiary of the Partnership
which is managed by the General Partner pursuant to its organizational
documents or any other contractual arrangement with the General Partner.

“Opinion of Counsel” means a written opinion of
counsel (who may be regular counsel of the General Partner or any of its
Affiliates) acceptable to the General Partner.

“Organizational Limited Partner” means Pennsylvania
Company, a Delaware corporation, acting as the organizational limited partner
pursuant to this Agreement.

“Partner” means the General Partner or a Limited
Partner.

“Partnership” means Buckeye Partners, L.P., a Delaware
limited partnership.

“Partnership Group” means the Partnership, the
Operating Partnerships and any subsidiary of any such entity, treated as a
single consolidated entity.

“Partnership Interest” means a general partner’s or
limited partner’s interest in the Partnership, including the general partner
interest in the Partnership evidenced by the Incentive Compensation Agreement.

“Partnership Securities” has the meaning specified in
Section 4.3.

“Percentage Interest” means, with respect to any
Partner, the number of Units held by such Partner divided by the number of
Units outstanding.

“Person” means an individual, a corporation, a limited
liability company, a partnership, a trust, an unincorporated organization, an
association or any other entity.

“Prior Partnership Agreement” has the meaning specified
in the second paragraph.

“Recapture Income” means any gain recognized by the
Partnership upon the disposition of  any
asset of the Partnership that is not a capital gain due to the recapture of
certain deductions previously taken with respect to such asset.

“Record Date” means the date established by the
General Partner for determining the identity of Limited Partners entitled (a)
to notice of or to vote at any meeting of Limited Partners,

 5
 

 

to vote by ballot or approve Partnership action in
writing without a meeting or to exercise rights in respect of any other lawful
action of Limited Partners, or (b) to receive any report or distribution.

“Record Holder” or “Holder” of (a) any LP Unit means
the Person in whose name such Unit is registered in the Units Register or (b)
any GP Unit means the General Partner.

“S&P Independent Director” means a duly appointed
member of the Audit Committee who was not at the time of such appointment or at
any time in the preceding five years, (a) a direct or indirect legal or
beneficial owner of interests in the Partnership or any of its Affiliates
(excluding de minimis ownership interests), (b) a creditor, supplier, employee,
officer, director, family member, manager, member or contractor of the
Partnership or its Affiliates, or (c) a person who controls (whether directly,
indirectly or otherwise) the Partnership or its Affiliates or any creditor,
supplier, employee, officer, director, manager, member or contractor of the
Partnership or its Affiliates; provided, however,
that service by a director as a director of Buckeye Pipe Line Company LLC at or
prior to December 15,2004, shall not prevent a member of the Board of Directors
from being a S&P Independent Director.

“Securities Act” means the Securities Act of 1933, as
amended from time to time, and any successor to such statute.

“Services Agreement” means the Services Agreement,
dated as of December 15, 2004, between the Partnership, the Operating
Partnerships, Wood River Pipe Lines LLC, Buckeye Terminals, LLC and Services
Company.

“Services Company” means Buckeye Pipe Line Services
Company, a Pennsylvania corporation.

“Special Approval” means approval by a majority of the
members of the Audit Committee.

“Time of Delivery” means December 23, 1986.

“Transfer Agent” means the  bank, trust company or other Person appointed
from time to time by the Partnership to act as successor transfer agent and
registrar for LP Units.

“Two-Thirds Interest” means Limited Partners holding
an aggregate of at least two-thirds of the outstanding LP Units.

“Unit” means a GP Unit or an LP Unit.

“Unit Price” of a Unit means, as of any date of
determination, (a) if such Unit is one of a class of Units listed or admitted
to trading on a National Securities Exchange, the average of the last reported
sales prices per Unit regular way or, in case no such reported sale takes place
on any such day, the average of the last reported bid and asked prices per Unit
regular way, in either case on the principal National Securities Exchange on
which such class of Units is listed or admitted to trading (or, if such class
of Units is listed or admitted to trading on the New York Stock Exchange, on
the New York Stock Exchange Composite Tape), for the five trading days

 6
 

 

immediately preceding the date of determination; (b)
if such Unit is not of a class of Units listed or admitted to trading on a
National Securities Exchange but is of a class quoted by NASDAQ, the average of
the last reported sales prices per Unit or, in case no such reported sale takes
place on any such day or in case last reported sales prices are not quoted by
NASDAQ, the average of the last bid and asked prices per Unit, for the five
trading days immediately preceding such date of determination, as furnished by
the National Quotation Bureau Incorporated or such other nationally recognized
quotation service as may be selected by the General Partner for such purpose,
if said Bureau is not at the time furnishing quotations; or (c) if such Unit is
not of a class of Units listed for trading on a National Securities Exchange or
quoted by NASDAQ, an amount equal to the fair market value of such Unit as of
such date of determination, as determined by the General Partner using any
reasonable method of valuation it may select.

“Units Register” has the meaning specified in Section
10.2.

“Unrealized Gain” attributable to a Partnership
property means, as of any date of determination, the excess, if any, of the
fair market value of such property as of such date of determination over the
Carrying Value of such property as of such date of determination (prior to any
adjustment to be made pursuant to Section 5.1(e) as of such date).

“Unrealized Loss” attributable to a Partnership
property means, as of any date of determination, the excess, if any, of the
Carrying Value of such property as of such date of determination (prior to any
adjustment to be made pursuant to Section 5.1(e) as of such date) over the fair
market value of such property as of such date of determination.

ARTICLE
II

ORGANIZATIONAL
MATTERS

Section 2.1                                      Formation

BMC and the Organizational Limited Partner originally
formed the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act.  The General Partner,
pursuant to the authority contained in Article XV of this Agreement, does
hereby amend and restate this Agreement in its entirety to continue the
Partnership as a limited partnership pursuant to the provisions of the Delaware
Act and to set forth the rights and obligations of the Partners and certain
matters related thereto.  Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration, dissolution and termination of the Partnership
shall be governed by the Delaware Act.

Section 2.2                                      Name

The name of the Partnership shall be, and the business
of the Partnership shall be conducted under the name of, “Buckeye Partners,
L.P.”; provided, however, that (a) the Partnership’s business may be conducted
under any other name or names deemed advisable by the General Partner, (b) the
General Partner in its sole discretion may change the name of the Partnership
at any time and from time to time and (c) the name under which the Partnership
conducts business shall include “Ltd.” or “Limited Partnership” (or similar
words or letters)

 7
 

 

where necessary for purposes of maintaining the
limited liability status of each Limited Partner or otherwise complying with
the laws of any jurisdiction that so requires.

Section 2.3                                      Principal
Office; Registered Office

(a)           The
principal office of the Partnership shall be 5002 Buckeye Road, Emmaus,
Pennsylvania 18049, or such other place as the General Partner may from time to
time designate.  The Partnership may
maintain offices at such other places as the General Partner deems advisable.

(b)           The
address of the Partnership’s registered office in the State of Delaware shall
be Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, Delaware 19801, and the name of the Partnership’s
registered agent for service of process at such address shall be The
Corporation Trust Company.

Section 2.4                                      Power
of Attorney

(a)           Each
Limited Partner hereby constitutes and appoints the General Partner or, if a
Liquidator shall have been selected pursuant to Section 14.3, the Liquidator,
with full power of substitution, as such Limited Partner’s true and lawful
agent and attorney-in-fact (“Agent”), with full power and authority in such
Limited Partner’s name, place and stead to:

(i)            execute,
swear to, acknowledge, deliver, file and record in the appropriate public
offices (A) all certificates, documents and other instruments (including,
without limitation, this Agreement and the Certificate of Limited Partnership
and any amendments or restatements thereof) which the Agent deems appropriate
or necessary to form or qualify, or continue the existence or qualification of,
the Partnership as a limited partnership (or a partnership in which the Limited
Partners have limited liability) under the laws of any state or jurisdiction;
(B) all certificates, documents and other instruments which the Agent deems
appropriate or necessary to reflect any amendments, changes or modifications of
this Agreement in accordance with its terms; (C) all conveyances and other
documents or instruments which the Agent deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership pursuant to the
terms of this Agreement; (D) all certificates, documents and other instruments
relating to the admission, substitution, withdrawal or removal of any Partner
pursuant to Articles XII,  XIII or XIV
and other events described in Articles XII, XIII or XIV; and (E) all
certificates, documents and other instruments (including, without limitation,
this Agreement and the Certificate of Limited Partnership and any amendments or
restatements thereof) relating to the determination of the rights, preferences
and privileges of any class or series of Units issued pursuant to Section 4.4;
and

(ii)           execute,
swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates,
documents and other instruments which the Agent deems appropriate or necessary
in order to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder, is deemed to be made or given by the Partners hereunder, is
consistent with the terms of this Agreement or is deemed by the Agent to be
appropriate or necessary to

 8
 

 

effectuate the terms or intent of this Agreement or the purposes of the
Partnership; provided, however, that, if any vote or approval of Limited
Partners is specifically required for an action by any provision of this
Agreement, the Agent may exercise the power of attorney made in this subsection
(ii) to take such action only after such vote or approval is obtained.

(b)           The
foregoing power of attorney is hereby declared to be irrevocable and a power
coupled with an interest, and it shall survive and not be affected by the
subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy
or termination of any Limited Partner and the transfer of all or any portion of
such Limited Partner’s Units and shall extend to such Limited Partner’s heirs,
transferees, successors, assigns and personal representatives.  Each Limited Partner hereby agrees to be
bound by any representations made by the Agent acting in good faith pursuant to
such power of attorney; and each Limited Partner hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the Agent taken in good faith pursuant to such power of attorney.  Each Limited Partner shall execute and
deliver to the Agent, within 15 days after receipt of the Agent’s request
therefor, such further designations, powers of attorney and other instruments
as the Agent deems appropriate or necessary to effectuate the terms or intent
of this Agreement or the purposes of the Partnership.

Section 2.5                                      Term

The Partnership shall continue in existence until the
close of Partnership business on December 31, 2086 or until the earlier termination
of the Partnership in accordance with the provisions of Article XIV.

Section 2.6                                      Organizational
Limited Partner

At and as of the Time of Delivery, the Partnership
interest of the Organizational Limited Partner was terminated and the
Partnership Interest of BMC was as described in Section 4.1.

Section 2.7                                      Organizational
Certificate

The General Partner shall cause to be filed such
certificates or documents as may be required for the formation, operation and
qualification of a limited partnership in Delaware and any other state in which
the Partnership may elect to do business. 
The General Partner shall thereafter file any necessary amendments to
the Certificate of Limited Partnership and any such other certificates and
documents and do all things requisite to the maintenance of the Partnership as
a limited partnership (or as a partnership in which the Limited Partners have
limited liability) under the laws of Delaware and any other state in which the
Partnership may elect to do business. 
Subject to applicable law, the General Partner may omit from the
Certificate of Limited Partnership and any such other certificates and
documents, and from all amendments thereto, the names and addresses of the
Limited Partners and information relating to the Capital Contributions and
shares of profits and compensation of the Limited Partners, or state such
information in the aggregate rather than with respect to each individual
Limited Partner.

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ARTICLE
III

PURPOSE

Section 3.1                                      Purpose

The  purpose and
business of the Partnership shall be to engage in  any lawful activity for which limited
partnerships may be organized under the Delaware Act.

ARTICLE
IV

CAPITAL
CONTRIBUTIONS; PURCHASES PURSUANT

TO PURCHASE AGREEMENTS; ADDITIONAL ISSUANCES

Section 4.1                                      General
Partner Contributions

(a)           At
and as of the Time of Delivery, BMC contributed to the Partnership, in exchange
for 121,212 GP Units (i.e., a 1% Percentage Interest), an amount equal to
$2,424,240.

(b)           Following
the Time of Delivery, whenever a Limited Partner makes a Capital Contribution
to the Partnership pursuant to Section 4.3, the General Partner shall
contribute to the Partnership, in exchange for a number of GP Units equal to
1/99th of the total number of LP Units then being purchased, Contributed
Property (which may include LP Units) having a Net Agreed Value equal to 1/99th
of the aggregate Net Agreed Value of all Capital Contributions to the
Partnership then being made pursuant to Section 4.3, unless the General Partner
receives an Opinion of Counsel that the failure to make such additional Capital
Contribution would not result in the Partnership or any of the Operating
Partnerships being treated as an association taxable as a corporation for
federal income tax purposes.

Section 4.2                                      Limited
Partner Contributions

At and as of the Time of Delivery, each underwriting
firm which entered into an underwriting agreement with the Partnership
contributed to the Partnership, in exchange for the number of LP Units
specified therein an amount in cash equal to the Issue Price for such LP Units
(as specified in such underwriting agreement) multiplied by the number of LP
Units being so purchased.

Section 4.3                                      Issuances
of Additional LP Units and Other Securities

(a)           The
General Partner is hereby authorized to cause the Partnership to issue, in
addition to the LP Units issued pursuant to Section 4.2, additional LP Units,
or classes or series thereof, or options, rights, warrants or appreciation
rights relating thereto or any other type of equity security that the
Partnership may lawfully issue, any secured or unsecured debt obligations of
the Partnership, or debt obligations of the Partnership convertible into any
class or series of equity securities of the Partnership (collectively, “Partnership
Securities”), for any Partnership purpose, at any time or from time to time, to
Partners or to other Persons (including, without limitation, to employee
benefit plans sponsored by the General Partner, the Partnership, any of the
Operating Partnerships or any of their respective Affiliates), for such
consideration

 10
 

 

and on such terms and conditions, and entitling the
holders thereof to such relative rights and powers, as shall be established by
the General Partner in its sole discretion, all without the approval of any
Limited Partners, except as provided in Section 17.1.

(b)           Without
limiting the generality of the foregoing (but subject to the provisions of
Section 17.1), the additional Partnership Securities to be issued by the
Partnership under this Section 4.3 may contain provisions with respect to (i)
the allocation of items of Partnership income, gain, loss, deduction and
credit; (ii) the right to share in Partnership distributions; (iii) rights upon
dissolution and liquidation of the Partnership; (iv) whether any such issue of
Partnership Securities may be acquired by the Partnership, by purchase,
redemption or otherwise,  and if so, the
price at which, and the terms and conditions upon which, such Partnership
Securities may be purchased, redeemed or otherwise acquired by the Partnership;
(v) the conversion rights applicable to any such issue of Partnership
Securities, and if so, the rate at which, and the terms and conditions upon
which, such Partnership Securities may be converted into any other class or
series of Partnership Securities; (vi) the terms and conditions upon which any
such Partnership Securities will be issued, assigned, or transferred; and (vii)
the right, if any, of the holders of any such issue of Partnership Securities
to vote on Partnership matters.

(c)           The
General Partner is hereby authorized and directed to do all acts which it deems
appropriate or necessary in connection with each issuance of Units or other
securities by the Partnership and to amend this Agreement in any manner which
it deems appropriate or necessary to provide for each such issuance, to admit
additional limited partners in connection therewith and to specify the relative
rights, powers and duties of the holders of the Units or other securities being
so issued, all without the approval of any Limited Partners, except as provided
in Section 17.1.

Section 4.4                                      No
Preemptive Rights

No Partner shall have any preemptive right with
respect to the issuance or sale of Units or other securities that may be issued
by the Partnership.

Section 4.5                                      No
Interest

No interest shall be paid by the Partnership on
Capital Contributions.

Section 4.6                                      Loans
from Partners

Loans or other advances by a Partner to or for the
account of the Partnership shall not be considered Capital Contributions.

Section 4.7                                      No
Withdrawal

No Partner shall be entitled to withdraw any part of
its Capital Contributions or its Capital Account or to receive any
distributions from the Partnership except as provided in this Agreement as
supplemented by the Incentive Compensation Agreement.

 11

 

ARTICLE V

CAPITAL
ACCOUNTS; DISTRIBUTIONS

Section 5.1                                      Capital Accounts

(a)           The
Partnership shall maintain for each Partner a separate Capital Account with
respect to its Partnership Interests in accordance with the regulations issued
pursuant to Section 704 of the Code.  The
Capital Account of any Partner shall be increased by (i) the Net Agreed Value
of all Capital Contributions made by such Partner in exchange for its
Partnership Interest and (ii) all items of income and gain computed in
accordance with Section 5.1(b) and allocated to such Partner pursuant to
Section 5.1(c) and reduced by (iii) the Net Agreed Value of all distributions
of cash or property made to such Partner with respect to its Partnership
Interest and (iv) all items of deduction and loss computed in accordance with
Section 5.1(b) and allocated to such Partner pursuant to Section 5.1(c).  Notwithstanding any other provision in this
Agreement, the Capital Account associated with the Partnership Interest
evidenced by the Incentive Compensation Agreement, as of the Effective Date,
shall be zero.

(b)           For
purposes of computing the amount of each item of income, gain, loss or
deduction to be reflected in the Capital Accounts, the determination,
recognition and classification of such item shall be the same as its
determination, recognition and classification for federal income tax purposes,
provided that:

(i)            Any
deductions for depreciation, cost recovery or amortization attributable to any
Partnership property shall be determined as if the adjusted basis of such
property was equal to the Carrying Value of such property.  Upon an adjustment to the Carrying Value of
any Partnership property subject to depreciation, cost recovery or amortization
pursuant to Sections 5.1(e) or 7.8, any further deductions for such
depreciation, cost recovery or amortization attributable to such property shall
be determined as if the adjusted basis of such property was equal to the
Carrying Value of such property immediately following such adjustment.

(ii)           If
the Partnership’s adjusted basis in property subject to depreciation, cost
recovery or amortization is reduced for federal income tax purposes pursuant to
Section 48(q)(1) of the Code, the amount of such reduction shall be deemed to
be an additional item of deduction in the year such property is placed in
service.  Any restoration of such basis
pursuant to Section 48(q)(2) of the Code shall be deemed to be an additional
item of income in the year of restoration.

(iii)          Any
income, gain or loss attributable to the taxable disposition of any Partnership
property shall be determined by the Partnership as if the adjusted basis of
such property as of such date of disposition was equal in amount to the
Carrying Value of such property as of such date.

(iv)          All
fees and other expenses incurred by the Partnership to promote the sale of (or
to sell) a Partnership Interest that can neither be deducted nor amortized
under Section 709 of the Code shall be treated as items of deduction.

 12
 

 

(v)           The
computation of all items of income, gain, loss and deduction shall be made
without regard to any election under Section 754 of the Code which may be made
by the Partnership and, as to those items described in Section 705(a)(1)(B) or
Section 705(a)(2)(B) of the Code, without regard to the fact that such items
are not includible in gross income or are neither currently deductible nor
capitalizable for federal income tax purposes.

(c)           (i)            After giving effect to the special
allocations set forth in Section 5.1(c)(ii)-(vi) for purposes of
maintaining the Capital Accounts, each item of income, gain, loss and deduction
(computed in accordance with Section 5.1(b)) shall be allocated to the Partners
in accordance with their respective Percentage Interests.

(ii)           If
any Partner unexpectedly receives any adjustment allocation or distribution
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1
(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate a deficit in its Capital Account created by such
adjustment,  allocation or distribution
as quickly as possible.

(iii)          To
preserve uniformity of Units, the General Partner shall have sole discretion
pursuant to Section 6.1(c) to make special allocations of income or deduction
that do not have a material adverse effect on the Limited Partners and are
consistent with the principles of Section 704 of the Code.

(iv)          If
there is a net decrease in Partnership minimum gain, within the meaning of
Treasury Regulation Section 1.704-1(b) (4) (iv), during a Partnership taxable
year, all Partners with deficit balances in their Capital Accounts, computed as
described in Treasury Regulation Section 1.704­-1(b)(4)(iv)(c) at the end of
such year, will be allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in the amounts and in the proportions
needed to eliminate such deficits as quickly as possible, before any other
allocations are made under Section 704(b) of the Code.

(v)           For
the taxable period beginning on the Effective Date and for all taxable periods
thereafter, except with respect to the taxable period in which a liquidation of
the Partnership occurs pursuant to Section 14.3, items of income and gain shall
be allocated to the holders of the Partnership Interest evidenced by the
Incentive Compensation Agreement until the aggregate amount of such items
allocated to the holders of the Partnership Interest evidenced by the Incentive
Compensation Agreement pursuant to this Section 5.1(c)(v) for the current
taxable year and all previous taxable years (since the Effective Date) is equal
to the cumulative amount of all distributions made pursuant to the Incentive
Compensation Agreement under Section 5.2(c).

(vi)          For
the period in which a liquidation of the Partnership occurs pursuant to Section
14.3, items of income and gain shall be allocated to the holders of the
Partnership Interest evidenced by the Incentive Compensation Agreement until
the amount of such items allocated to the holders of the Partnership Interest
evidenced by the Incentive

 13
 

 

Compensation Agreement pursuant to this Section 5.1(c)(vi) for the
current taxable period is equal to the amount of payments that would have been
made to Holdco with respect to such taxable period in accordance with the
Fourth Amended and Restated Incentive Compensation Agreement, dated as of
December 15, 2004, as if that agreement had not been superseded by the Fifth
Amended and Restated Incentive Compensation Agreement.

(d)           (i)            Except as otherwise provided in this
Section 5.1(d), a transferee of LP Units shall, upon becoming a Limited
Partner, succeed to the portion of the transferor’s Capital Account maintained
with respect to the Units transferred.

(ii)           If
a transfer of Units causes a termination of the Partnership under Section
708(b)(1)(B) of the Code, the Partnership properties shall be deemed to have
been distributed in liquidation of the Partnership to the Partners (including
the transferee of the Units) pursuant to Sections 14.4 and 14.5 and
recontributed by such Partners and transferees in reconstitution of the
Partnership.  The Capital Accounts of
such reconstituted Partnership shall be maintained in accordance with this
Article V.

(e)           If
any additional LP Units are to be issued pursuant to Section 4.3, or if any
Partnership Property is to be distributed, the Capital Accounts of the Partners
(and the Carrying Values of all Partnership properties) shall, immediately
prior to such issuance or distribution, be adjusted (consistent with the
provisions hereof and of Section 704(b) of the Code) upwards or downwards to
reflect any Unrealized Gain or Unrealized Loss attributable to all Partnership
properties (as if such Unrealized Gain or Unrealized Loss had been recognized
upon an actual sale of such properties immediately prior to such
issuance).  In determining such
Unrealized Gain or Unrealized Loss, the fair market value of Partnership
properties, as of any date of determination, (i) shall, in the case of the
issuance of additional LP Units, be deemed to be equal to (A) the number of
Units outstanding, as of the date of determination, times the Issue Price for
which such additional LP Units are so issued, plus (B) the amount of any
Partnership indebtedness outstanding as of the date of determination, and (ii)
shall, in the case of the distribution of Partnership property, be determined
in the manner provided in Section 14.3.

Section 5.2                                      Distributions in Respect of Units

(a)           From
time to time, not less often than quarterly, the General Partner shall review
the Partnership’s accounts to determine whether distributions are
appropriate.  The General Partner may
make such cash distributions as it, in its sole discretion, may determine,
without being limited to current or accumulated income or gains, from any
Partnership funds, including, without limitation, Partnership revenues, Capital
Contributions or borrowed funds.  In its
sole discretion, the General Partner may also distribute to the Partners other
Partnership property, additional Units or other securities of the Partnership
or other entities.

All distributions in respect of Units shall be made
concurrently to all Record Holders on the Record Date set for purposes of such
distribution and shall be prorated in accordance with such Record Holders’
respective Percentage Interests as of such Record Date.

 14
 

 

(b)           Amounts
paid pursuant to Section 7.4, any Management Agreement or any Operating
Partnership Agreement shall not be deemed to be distributions with respect to a
Partnership Interest for purposes of this Agreement.

(c)           Amounts
paid pursuant to the Incentive Compensation Agreement are distributions with
respect to a Partnership Interest for purposes of this Agreement.

ARTICLE
VI

INCOME
TAX MATTERS

Section 6.1                                      Tax Allocations

(a)           Except
as otherwise provided herein, for federal income tax purposes, each item of
income, gain, loss, deduction and credit of the Partnership shall be allocated
among the Partners in the manner in which the correlative item of “book”
income, gain, loss or deduction is computed in accordance with Section 5.1(b)
and allocated pursuant to Section 5.1(c), except that the General Partner shall
have the authority to make such other allocations as are necessary and
appropriate to comply with Section 704 of the Code and the regulations issued
pursuant thereto.

(b)           Gain
resulting from the sale or other taxable disposition of Partnership assets and
allocated to (or recognized by) a Partner (or its successor in interest) for
federal income tax purposes shall be deemed to be Recapture Income to the
extent such Partner has been allocated or has claimed any deduction directly or
indirectly giving rise to the treatment of such gain as Recapture Income.

(c)           To
preserve uniformity of LP Units, the General Partner shall have sole discretion
to (i) adopt such conventions as it deems appropriate or necessary in
determining the amount of depreciation and cost recovery deductions; (ii) make
special allocations of income or deduction and (iii) amend the provisions of
this Agreement as appropriate (x) to reflect the proposal or promulgation of
regulations under Section 704(c) of the Code or (y) otherwise to preserve the
uniformity of Units issued or sold from time to time.  The General Partner may adopt such
conventions and make such allocations and amendments only if they would not
have a material adverse effect on the Limited Partners and are consistent with
the principles of Section 704 of the Code.

(d)           Items
of Partnership income, gain, loss, deduction and credit shall, for federal
income tax purposes, be determined on a monthly basis (or other basis, as
required or permitted by Section 706 of the Code) and shall be allocated to the
Persons who are Record Holders of Units as of the close of business on the
first day of such month; provided, however, that gain or loss on a sale or
other disposition of all or a substantial portion of the assets of the
Partnership shall be allocated to the Persons who are Record Holders of Units
as of the close of business on the date of sale.

(e)           Pursuant
to Section 704(c) of the Code, items of income, gain, loss, deduction and
credit attributable to Contributed Property shall be allocated in such a manner
as to take into account the variation between the basis of such property to the
Partnership and its Carrying Value.

 15
 

 

Section 6.2                                      Preparation of Tax Returns

The General Partner shall arrange for the preparation
and timely filing of all returns of Partnership income, gains, losses,
deductions, credits and other items necessary for federal and state income tax
purposes and shall use all reasonable efforts to furnish to the Limited
Partners within 90 days after the close of the taxable year the tax information
reasonably required for federal and state income tax reporting purposes. The
classification, realization and recognition of income, gains, losses,
deductions, credits and other items shall be on the accrual method of
accounting for federal income tax purposes, unless the General Partner shall
determine otherwise in its sole discretion.

Section 6.3                                      Tax Elections

Except as otherwise provided herein, the General
Partner shall, in its sole discretion, determine whether to make any available
election.  The General Partner shall
elect under Section 754 of the Code to cause the basis of Partnership property
to be adjusted for federal income tax purposes as provided by Sections 734 and
743 of the Code, but the General Partner may seek to revoke this election if
the General Partner determines that such revocation is in the best interests of
the Limited Partners.

Section 6.4                                      Tax Controversies

Subject to the provisions hereof, the General Partner
is designated as the Tax Matters Partner (as defined in Section 6231 of the
Code) and is authorized and required to represent the Partnership (at the
Partnership’s expense) in connection with all examinations of the Partnership’s
affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional services and
costs associated therewith.  Each Limited
Partner agrees to cooperate with the General Partner and to do or refrain from
doing any and all things reasonably required by the General Partner to conduct
such proceedings.

Section 6.5                                      Withholding

The General Partner is authorized to take any action necessary
to comply with any withholding requirements established by applicable law,
including, without limitation, with regard to (a) the sale of United States
real property interests, (b) the distributions of cash or property to any
Partner which is a foreign Person, and (c) the transfer of Units.

ARTICLE
VII

MANAGEMENT
AND OPERATION OF BUSINESS; INDEMNIFICATION

Section 7.1                                      Powers of General Partner

Except as otherwise expressly provided in this
Agreement, all powers to control and manage the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner shall have any power to control or manage the business and affairs of
the Partnership.

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In addition to the powers now or hereafter granted a
general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provisions of this Agreement,
the General Partner is hereby authorized and empowered, in the name of and on
behalf of the Partnership, to do and perform any and all acts and things which
it deems appropriate or necessary in the conduct of the business and affairs of
the Partnership, including, without limitation, the following:

(a)           to
lend or borrow money, to assume, guarantee or otherwise become liable for
indebtedness and other liabilities and to issue evidences of indebtedness;

(b)           to
buy, lease (as lessor or lessee), sell, mortgage, encumber or otherwise acquire
or dispose of any or all of the assets of the Partnership;

(c)           to
own, use and invest the assets of the Partnership;

(d)           to
purchase or sell products, services and supplies;

(e)           to
make tax, regulatory and other filings, and to render periodic and other  reports, to governmental agencies or bodies
having jurisdiction over the assets or business of the Partnership;

(f)            to
open, maintain and close bank accounts and to draw checks and other orders for
the payment of money;

(g)           to
negotiate, execute and perform any contracts, conveyances or other instruments;

(h)           to
distribute Partnership cash;

(i)            to
utilize the services of officers and employees of the General Partner or of any
other Persons and to select and dismiss employees (if any) and outside
attorneys, accountants, consultants and contractors;

(j)            to
maintain insurance for the benefit of the Partnership and the Partners;

(k)           to
form, participate in or contribute or loan cash or property to limited or
general partnerships, joint ventures, limited liability companies, corporations
or similar arrangements;

(l)            to
expand the business activities in which the Partnership is engaged or engage in
new business activities by acquisition or internal development;

(m)          to
conduct litigation and incur legal expenses and otherwise deal with or settle
claims or disputes; and

(n)           to
purchase, sell or otherwise acquire or dispose of Units;

 17
 

 

in each case at such times and upon such terms and
conditions as the General Partner deems appropriate or necessary, and subject
to any express restrictions contained elsewhere in this Agreement.

Section 7.2                                      Duties of General Partner

The General Partner shall manage the business and
affairs of the Partnership in the manner the General Partner deems appropriate
or necessary.  Without limiting the
generality of the foregoing, the General Partner’s duties shall include the
following:

(a)           to
take possession of the assets of the Partnership;

(b)           to
staff and operate the business of the Partnership with the officers and  employees 
of the General Partner or of other Persons;

(c)           to
render or cause to be rendered engineering, environmental and other   technical services and perform or cause to
be performed financial, accounting, logistical and other administrative
functions for the Partnership;

(d)           to
render such reports and make such periodic and other filings as may be required
under applicable federal, state and local laws, rules and regulations;

(e)           to
provide or cause to be provided purchasing, procurement, repair and other
services for the Partnership; and

(f)            to
conduct the business of the Partnership in accordance with this Agreement and
all applicable laws, rules and regulations;

in each case in such a manner as the General Partner
deems appropriate or necessary.

Section 7.3                                      Reliance by Third Parties

Notwithstanding anything to the contrary in this
Agreement, any Person dealing with the Partnership shall be entitled to assume
that the General Partner has full power and authority to encumber, sell or
otherwise use in any manner any and all assets of the Partnership and to enter
into any contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner as if it were the Partnership’s sole
party in interest, both legally and beneficially.  Each Limited Partner hereby waives any and
all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing.  In no event shall
any Person dealing with the General Partner or its representatives be obligated
to ascertain that the terms of this Agreement have been complied with or to
inquire into the necessity or expedience of any act or action of the General
Partner or its representatives.  Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and

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(c) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.

Section 7.4                                      Compensation and Reimbursement of the General Partner

(a)           Except
as provided in this Section 7.4 or elsewhere in this Agreement, the Management
Agreements, the Incentive Compensation Agreement or any other agreement
contemplated or permitted hereby or thereby, the General Partner shall not be
compensated for its services as General Partner to the Partnership.

(b)           The
General Partner shall be promptly reimbursed for all Designated Expenses, in
addition to any reimbursement as a result of indemnification in accordance with
Section 7.12. The General Partner shall determine such Designated Expenses in
any reasonable manner determined by it.

(c)           The
General Partner may propose and adopt without the approval of the Limited
Partners fringe benefit plans, including, without limitation, plans comparable
to those that covered employees employed by the predecessors to the Operating
Partnerships and plans involving the issuance of Units, for the benefit of
employees of  the General Partner,
Partnership,  any of the Operating
Partnerships or any of their respective Affiliates in respect of  services performed, or obligated to be
performed, directly or indirectly, for the benefit of the Partnership or any of
the Operating Partnerships.

Section 7.5                                      Purchase or Sale of LP Units and Other Partnership
Securities

The General Partner may, on behalf of the Partnership,
purchase or otherwise acquire or sell or otherwise dispose of LP Units and
other Partnership Securities.  As long as
LP Units are held by any member of the Partnership Group, such LP Units or
other Partnership Securities shall not be considered outstanding for any purpose.  The General Partner or any of its Affiliates
may also purchase or otherwise acquire or sell or otherwise dispose of LP Units
and other Partnership Securities for its own account.

Section 7.6                                      Certain Undertakings Relating to the Separateness of
the Partnership

(a)           The
Partnership shall conduct its business and operations separate and apart from
those of any other Person (including Holdco), except the General Partner and
other Group Members, in accordance with this Section 7.6.

(b)           The
Partnership shall (i) maintain its books and records and its accounts separate
from those of any other Person, (ii) maintain its financial statements separate
from those of any other Person, except its consolidated subsidiaries, and (iii)
file its own tax returns separate from those of any other Person, except to the
extent that the Partnership is treated as a “disregarded entity” for tax
purposes or is not otherwise required to file tax returns under applicable law.

(c)           The
Partnership shall not commingle or pool its assets with those of any other
Person, except its consolidated subsidiaries, and shall maintain its assets in
a manner that is not costly or difficult to segregate, ascertain or otherwise
identify as separate from those of any other Person. The funds of the
Partnership shall be deposited in such account or accounts as shall be

 19
 

 

designated by the General Partner, and shall not be
commingled with the funds of the General Partner or any of its Affiliates.  All withdrawals from or charges against such
accounts shall be made by the General Partner or by its agents on behalf of the
Partnership.  Funds of the Partnership
may be invested as determined by the General Partner.

(d)           The
Partnership shall (i) conduct its business in its own name or in the names of
other Group Members, (ii) use separate stationery, invoices, and checks, (iii)
correct any known misunderstanding regarding its separate identity, and (iv)
generally hold itself out as an entity separate from any other Person (other
than other Group Members).

(e)           The
Partnership (i) shall pay its own liabilities from its own funds, (ii) shall
maintain adequate capital in light of its contemplated business operations,
(iii) shall not guarantee or become obligated for the debts of any other
Person, except Group Members and except for the Partnership’s obligations under
the Services Agreement, (iv) shall not hold out its credit as being available
to satisfy the obligations of any other Person, except Group Members and except
for the Partnership’s obligations under the Services Agreement, (v) shall not
acquire obligations or debt securities of Holdco and (vi) shall not pledge its
assets to secure the obligations of any other Person or make loans or advances
to any Person, except Group Members or the General Partner pursuant to Section
7.7(j); provided that the Partnership may engage in any transaction described
in clauses (iii)-(vi) of this Section 7.6(e) if Special Approval has been
obtained for such transaction and either (A) the Audit Committee has
determined, or has obtained reasonable written assurance from a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking or valuation firm, that the borrower or recipient of the
credit extension is not then insolvent and will not be rendered insolvent as a
result of such transaction or (B) in the case of transactions described in
clause (v), such transaction is completed through a public auction or a
National Securities Exchange.

(f)            The
Partnership shall (i) observe all partnership formalities and other formalities
required by its organizational documents, the laws of the jurisdiction of its
formation, or other laws, rules, regulations and orders of governmental
authorities exercising jurisdiction over it, (ii) only enter into transactions
with Holdco which are consistent with an arms-length relationship, and (iii)
subject to the terms of the Exchange Agreement, promptly pay, from its own
funds, and on a current basis, its allocable share of general and
administrative expenses, capital expenditures, and costs for shared services
performed by Holdco.  Each material
contract between the Partnership or another Group Member, on the one hand, and
Holdco, on the other hand, shall be in writing.

(g)           Failure
by the Partnership to comply with any of the obligations set forth above shall
not affect the status of the Partnership as a legal entity, with its separate
assets and separate liabilities.

Section 7.7                                      Outside Activities; Contracts with Affiliates; Loans
to or from Affiliates

(a)           The
General Partner shall not have any business interests or engage in any business
activities except for those relating to the Partnership and the Operating
Partnerships.

 20
 

 

(b)           Any
Affiliate of the General Partner and any director, officer, manager, member,
partner or employee of the General Partner or any of its Affiliates shall be
entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct competition with the Partnership Group, for their own
account and for the account of others, without having or incurring any
obligation to offer any interest in such businesses or activities to the
Partnership Group or any Partner.  No
member of the Partnership Group nor any of the Partners shall have any rights
by virtue of this Agreement or the partnership relationship governed hereby in
any such business interests.

(c)           Each
of the Limited Partners hereby approves, ratifies and confirms the execution,
delivery and performance of the Operating Partnership Agreements, the Incentive
Compensation Agreement, the Management Agreements, and the Exchange Agreement
and agrees that the General Partner is authorized to execute, deliver and
perform the other agreements, acts, transactions and matters described therein
on behalf of the Partnership without the approval or vote of any Limited
Partners, notwithstanding any other provision of this Agreement or the
Operating Partnership Agreements.

(d)           Subject
to the provisions of Section 7.4(a), the General Partner and its Affiliates may
enter into contracts with, or render services to, any member of the Partnership
Group, provided that such contracts or services are on terms that are fair and
reasonable to the Partnership.

(e)           Neither
the General Partner nor any of its Affiliates shall sell, transfer or convey
property to, or purchase property from, the Partnership, directly or
indirectly, except pursuant to transactions that are fair and reasonable to the
Partnership.

(f)            The
General Partner or its Affiliates may, but shall be under no obligation to,
lend to any Group Member, upon the written request of any Group Member to the
General Partner or any of its Affiliates, funds needed or desired by the Group
Member for such periods of time and in such amounts as the Audit Committee of
the General Partner may determine; provided, however, that in any such case the
Audit Committee shall have first determined that the interest rate charged the
borrowing party and the terms imposed on the borrowing party are substantially
similar to those that would be charged or imposed, as applicable, on the
borrowing party by unrelated lenders on comparable loans made on an arm’s-length
basis (without reference to the lending party’s financial abilities or
guarantees).  The borrowing party shall
reimburse the lending party for any costs (other than any additional interest
costs) incurred by the lending party in connection with the borrowing of such
funds.

(g)           The
Partnership may lend or contribute to any Group Member, and any Group Member
may borrow from the Partnership, funds on terms and conditions established in
the sole discretion of the General Partner; provided, however, that the
Partnership may not charge the Group Member interest at a rate less than the
rate that would be charged to the Group Member (without reference to the Group
Member’s financial abilities or guarantees) by unrelated lenders on comparable
loans.  The foregoing authority shall be
exercised by the General Partner in its sole discretion and shall not create
any right or benefit in favor of any Group Member or any other Person.

 21

 

(h)           The
General Partner may itself, or may enter into an agreement with any of its
Affiliates to, render services to a Group Member or to the General Partner in
the discharge of its duties as general partner of the Partnership.  Any services rendered to a Group Member by
the General Partner or any of its Affiliates shall be on terms that are fair
and reasonable to the Partnership; provided, however, that the requirements of
this Section 7.7(h) shall be deemed satisfied as to (i) any transaction
approved by Special Approval, or (ii) any transaction, the terms of which are
objectively demonstrable to be no less favorable to the Partnership Group than
those generally being provided to or available from unrelated third
parties.  The provisions of Section 7.4
shall apply to the rendering of services described in this Section 7.7(h).

(i)            The
General Partner and its Affiliates will have no obligation to permit any Group
Member to use any facilities or assets of the General Partner and its
Affiliates, except as may be provided in written contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.

(j)            Subject
to the provisions of Section 7.6(e) and Section 7.9, the Partnership may lend
funds to the General Partner or any of its Affiliates for such periods of time
and in such amounts as the Audit Committee of the General Partner may
determine; provided, however, that (i) in any such case the Audit Committee
shall have first determined that the interest rate charged the borrowing party
and the terms imposed on the borrowing party are substantially similar to those
that would be charged or imposed, as applicable, on the borrowing party by unrelated
lenders on comparable loans made on an arm’s-length basis (without reference to
the lending party’s financial abilities or guarantees) and (ii) the Partnership
may not lend funds to the General Partner or any of its Affiliates unless such
funds consist of funds available after provision for working capital and such
reserves as the General Partner deems appropriate.

Section 7.8                                      Tax Basis and Value Determinations

To the extent that the General Partner is required
pursuant to the provisions of this Agreement to establish fair market values or
allocate amounts realized, tax basis, Agreed Values or Net Agreed Values, the
General Partner shall establish such values and make such allocations in a
manner that is reasonable and fair to the Limited Partners, taking into account
all applicable laws, governmental regulations, rulings and decisions.  The General Partner may, in its sole
discretion, modify or revise such allocations in order to comply with such
laws, governmental regulations, rulings or decisions or to the extent it
otherwise deems such modification or revision appropriate or necessary.  The General Partner is authorized, to the
extent deemed by it to be appropriate or necessary, to utilize the services of
an independent appraiser in establishing such values or allocations and the
General Partner shall in such cases be entitled to rely on the values or
allocations established by such independent appraiser.

Section 7.9                                      Resolution of Conflicts of Interest; Standard of Care

(a)           Unless
otherwise expressly provided in this Agreement or any other agreement
contemplated hereby, whenever a conflict of interest exists or arises between
the General Partner or any of its Affiliates, on the one hand, and the
Partnership or any Limited Partner, on the other hand, any resolution or course
of action by the General Partner or such Affiliate in respect of

 22
 

 

such conflict of interest shall be permitted and
deemed approved by all Partners, and shall not constitute a breach of this
Agreement or of any agreement contemplated hereby, or of a duty stated or
implied by law or equity, if the resolution or course of action is, or by
operation of this Agreement is deemed to be, fair and reasonable to the
Partnership; provided that any conflict of interest and any resolution of such
conflict of interest shall be conclusively deemed fair and reasonable to the
Partnership if such conflict of interest or resolution is (i) approved by
Special Approval (as long as the material facts known to the officers and
directors of the General Partner or such Affiliate regarding any proposed
transaction were disclosed to the Audit Committee at the time of its approval),
(ii) on terms objectively demonstrable to be no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties, or (iii) fair to the Partnership, taking into account the
totality of the relationships among the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership).  For the avoidance of
doubt, in connection with its resolution of a conflict of interest the General
Partner is authorized but not required to seek Special Approval and may adopt a
resolution or course of action that has not received Special Approval.  In connection with the determination by the
General Partner (or the Audit Committee in connection with Special Approval, as
applicable) of what is fair and reasonable to the Partnership in connection
with its resolution of a conflict of interest, the General Partner (or the
Audit Committee) shall be authorized to consider (A) the relative interests of
each party to such conflict, agreement, transaction or situation, and the
benefits and burdens relating to such interests; (B) any customary or accepted
industry practices, and any customary or historical dealings with a particular
Person; (C) any applicable generally accepted accounting or engineering
practices or principles; and (D) such additional factors as the Audit Committee
determines in its sole discretion to be relevant, reasonable or appropriate
under the circumstances.  Nothing
contained in this Agreement, however, is intended to, nor shall it be construed
to require the General Partner (or the Audit Committee) to consider the
interests of any Person other than the Partnership.  In the absence of bad faith by the General
Partner, the resolution, action or terms so made, taken or provided by the
General Partner in compliance with this Section 7.9 shall not constitute a breach
of this Agreement or any other agreement contemplated hereby or a breach of any
standard of care or duty imposed hereby or under the Delaware Act or any other
applicable law, rule or regulation.

(b)           Whenever
a particular transaction, arrangement or resolution of a conflict of interest
is required under this Agreement or any agreement contemplated hereby to be
fair and/or reasonable to any Person, the fair and/or reasonable nature of such
transaction, arrangement or resolution shall be considered in the context of
similar or related transactions.

(c)           Whenever
this Agreement or any other agreement contemplated hereby provides that the
General Partner or any of its Affiliates is permitted or required to make a
decision (i) in its “discretion” or under a grant of similar authority or
latitude, the General Partner or such Affiliate shall be entitled, to the
extent permitted by applicable law, to consider only such interests and factors
as it desires and shall have no duty or obligation to give any consideration to
any interest of or factors affecting the Partnership or the Limited Partners,
or (ii) in its “good faith” or under another express standard, the General
Partner or such Affiliate shall act under such express standard and, except as
required by applicable law, shall not be subject to any other or different
standards imposed by this Agreement, any other agreement contemplated hereby or
applicable law.

 23
 

 

Section 7.10                                Treatment of Incentive Compensation Agreement

The economic effect of
recharacterizing payments pursuant to the terms of the Incentive Compensation
Agreement as distributions pursuant to Section 5.2(c) (as implemented by the
changes to the 2004 Agreement made by this Agreement as well as the adoption of
the fifth amendment and restatement of the Incentive Compensation Agreement)
are intended to provide that (i) holders of the Partnership Interest evidenced
by the Incentive Compensation Agreement are in no greater economic position as
a substantive matter with respect to such Partnership Interest as the position
that Holdco enjoyed prior to the Effective Date of this Agreement pursuant to
the terms and conditions of the Fourth Amended and Restated Incentive
Compensation Agreement, dated as of December 15, 2004 and (ii) holders of the
Partnership Interests evidenced by the LP Units are in no lesser economic
position as a substantive matter as the position that such holders of the
Partnership Interests evidenced by the LP Units enjoyed prior to the Effective
Date.  The changes effected by the
adoption of this Agreement and the Incentive Compensation Agreement are
intended solely to recharacterize the payment under the Incentive Compensation
Agreement as distributions pursuant to Section 5.2(c).  The Partnership Interests evidenced by the
Incentive Compensation Agreement constitute a portion of the general partner’s
rights and interests in the Partnership separate from the GP Units, and such
Partnership Interests shall only provide the economic and contractual rights
set forth in the Incentive Compensation Agreement and, to the fullest extent permitted
by law, shall provide no voting or other rights to the holders thereof (in
their capacity as holders of such Partnership Interests) (whether such rights
would otherwise be granted under the Delaware Act or other applicable law).  For the avoidance of doubt, to the fullest
extent permitted by law, there shall be no fiduciary duties associated with
such Partnership Interest or owing to the holders thereof (in their capacity as
holders of such Partnership Interests). 
In connection with the conditions imposed by this Section 7.10, the
General Partner shall take whatever appropriate or necessary steps required to
provide that such conditions are satisfied, including the application of
Sections 5.1(c)(v) and (vi).

Section 7.11                                Other Matters Concerning the General Partner

(a)           The
General Partner (including the Audit Committee) may rely and shall be protected
in acting or refraining from acting upon any certificate, document or other
instrument believed by it to be genuine and to have been signed or presented by
the proper party or parties.

(b)           The
General Partner (including the Audit Committee) may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors selected by it and shall be fully protected in relying
on any opinion or advice of any such Person as to matters which the General
Partner (including the Audit Committee) believes to be within such Person’s
professional or expert competence in connection with any action taken or suffered
or omitted by the General Partner (including the Audit Committee) hereunder in
good faith and in accordance with such opinion or advice.

(c)           The
General Partner (including the Audit Committee) may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents, and the General Partner
(including the Audit

 24
 

 

Committee) shall not be responsible for any misconduct
or negligence on the part of any such agent appointed by the General Partner in
good faith.

Section 7.12                                Limited Liability; Indemnification

(a)           Notwithstanding
anything to the contrary in this Agreement, and except to the extent required
by applicable law, no Indemnitee shall be liable to the Partnership or any
Partner for any action taken or omitted to be taken by such Indemnitee in its
capacity as a person of the type described in the definition of the term, “Indemnitee,”
provided that such Indemnitee acted in good faith and such action or omission
does not involve the gross negligence or willful misconduct of such
Indemnitee.  The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption
that an Indemnitee did not act in good faith or that an action or omission
involves gross negligence or willful misconduct.

(b)           The
Partnership shall, to the extent permitted by applicable law, indemnify each
Indemnitee against expenses (including legal fees and expenses), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by such
Indemnitee, in connection with any threatened, pending or completed claim,
demand, action, suit or proceeding to which such Indemnitee was or is a party
or is threatened to be made a party, by reason of (i) such Indemnitee’s status
as a General Partner, any Affiliate of the General Partner, any Person who is
or was a director, officer, manager, member, employee or agent of the General
Partner or any such Affiliate, or any Person who is or was serving at the
request of the General Partner or any such Affiliate as a director, officer,
manager, member, partner, trustee, employee or agent of another Person or (ii)
any action taken or omitted to be taken by such Indemnitee in any capacity
referred to in clause (i) of this Section 7.12(b), relating to this Agreement
or the property, business, affairs or management of the Partnership Group
(provided that the Indemnitee acted in good faith and the act or omission which
is the basis of such claim, demand, action, suit or proceeding does not involve
the gross negligence or willful misconduct of such Indemnitee).

(c)           Expenses
(including legal fees and expenses) incurred in defending any claim, demand,
action, suit or proceeding subject to Section 7.12(b) shall be paid by the
Partnership in advance of the final disposition of such claim, demand, action,
suit or proceeding upon receipt of an undertaking (which need not be secured)
by or on behalf of the Indemnitee to repay such amount if it shall ultimately
be determined, by a court of competent jurisdiction, that the Indemnitee is not
entitled to be indemnified by the Partnership as authorized hereunder.

(d)           The
indemnification provided by Section 7.12(b) shall be in addition to any other
rights to which an Indemnitee may be entitled, and shall continue as to an
Indemnitee who has ceased to serve in a capacity for which the Indemnitee is
entitled to indemnification and shall inure to the benefit of the heirs, successors,
assigns, administrators and personal representatives of the Indemnitee.

(e)           To
the extent commercially reasonable, the Partnership shall purchase and  maintain insurance on behalf of the
Indemnitees against any liability which may be asserted against or expense
which may be incurred by an Indemnitee in connection with the Partnership’s

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activities, whether or not the Partnership would have
the power to indemnify an Indemnitee against such liability under the
provisions of this Agreement.

(f)            An
Indemnitee shall not be denied indemnification in whole or in part under
Section 7.12(b) because the Indemnitee had an interest in the transaction with
respect to which the indemnification applies if the transaction was otherwise
permitted by the terms of this Agreement.

(g)           The
provisions of this Section 7.12 are for the benefit of the Indemnitees and the
heirs, successors, assigns, administrators and personal representatives of the
Indemnitees and shall not be deemed to create any rights for the benefit of any
other Persons.

(h)           For
purposes of this Section 7.12, the Partnership shall be deemed to have
requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance of duties by such Indemnitee for the Partnership also
imposes duties on, or otherwise involves services by, such Indemnitee to the
plan or participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute “fines” within the meaning of Section 7.12(b); and action
taken or omitted by an Indemnitee with respect to any employee benefit plan in
the performance of duties by such Indemnitee for a purpose reasonably believed
by such Indemnitee to be in the interest of the participants and beneficiaries
of the plan shall be deemed to be for a purpose which does not involve gross
negligence or willful misconduct.

(i)            In
no event may an Indemnitee subject the Limited Partners to personal liability
by reason of the indemnification provisions set forth in this Agreement.

(j)            No
amendment, modification or repeal of this Section 7.12 or any provision hereof
shall in any manner terminate, reduce or impair the right of any past, present
or future Indemnitee to be indemnified by the Partnership, nor the obligations
of the Partnership to indemnify any such Indemnitee under and in accordance
with the provisions of this Section 7.12 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted
and provided that such Person became an Indemnitee hereunder prior to such
amendment, modification or repeal.

ARTICLE
VIII

RIGHTS
AND OBLIGATIONS OF LIMITED PARTNERS

Section 8.1                                      Limitation of Liability

The Limited Partners shall have no liability under
this Agreement (including, without limitation, liability under Section 7.12).

Section 8.2                                      Management of Business

No Limited Partner shall, in its capacity as a Limited
Partner, take part in the operation, management or control (within the meaning
of the Delaware Act) of the Partnership’s business,

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transact any business in the Partnership’s name or have
the power to sign documents for or otherwise bind the Partnership.  The transaction of any such business by a
director, officer, manager, member, employee or agent of the General Partner or
an Affiliate of the General Partner in such Person’s capacity as such (whether
or not such Person is also a Limited Partner) shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners under this
Agreement.

Section 8.3                                      Outside Activities

Limited Partners shall be entitled to and may have
business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities in
direct competition with the Partnership Group. 
No member of the Partnership Group nor any of the other Partners shall
have any rights by virtue of this Agreement or the partnership relationship
created hereby in any business ventures of any Limited Partner.

Section 8.4                                      Return of Capital

No Limited Partner shall be entitled to the withdrawal
or return of its Capital Contribution, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement.

Section 8.5                                      Rights of Limited Partners Relating to the
Partnership

In addition to other rights provided by this Agreement
or by applicable law, each Limited Partner shall have the right for a proper
purpose reasonably related to such Limited Partner’s interest in the Partnership,
upon reasonable demand and at such Limited Partner’s own expense:

(a)           to
obtain true and full information regarding the status of the business and
financial condition of the Partnership;

(b)           promptly
after becoming available, to obtain a copy of the Partnership’s federal and
state income tax returns for each year;

(c)           to
obtain a current list of the name and address of each Partner as set forth in
the Units Register;

(d)           to
obtain a description and statement of the Net Agreed Value of any Capital Contribution
made or agreed to be made by each Partner, and the date on which such Partner
became a Partner;

(e)           to
obtain a copy of this Agreement and the Certificate of Limited Partnership and
all amendments thereto, together with executed copies of any powers of attorney
pursuant to which this Agreement, the Certificate of Limited Partnership and
all amendments thereto have been executed; and

(f)            to
obtain such other information regarding the affairs of the Partnership as may
be just and reasonable;

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provided, however, that the General Partner may keep
confidential from the Limited Partners, for such period of time as the General
Partner deems reasonable, any information which the General Partner reasonably
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes could damage the
Partnership or its business or be in violation of applicable law, including,
without limitation, federal securities law, or which the Partnership is required
by agreements with third parties to keep confidential.

ARTICLE
IX

BOOKS,
RECORDS, ACCOUNTING AND REPORTS

Section 9.1                                      Books, Records and Accounting

The General Partner shall keep or cause to be kept
books and records with respect to the Partnership’s business, which books and
records shall at all times be kept at the principal office of the
Partnership.  Any books and records
maintained by the Partnership in the regular course of its business, including
the Units Register, books of account and records of Partnership proceedings,
may be kept on, or be in the form of, punch cards, disks, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so kept are convertible into clearly legible written form within
a reasonable period of time.  The books
of the Partnership shall be maintained, for financial reporting purposes, on
the accrual basis, or on a cash basis adjusted periodically to an accrual
basis, as the General Partner shall determine in its sole discretion, in
accordance with generally accepted accounting principles and applicable law.

Section 9.2                                      Fiscal Year

The fiscal year of the Partnership for financial
reporting purposes shall be the calendar year, unless the General Partner shall
determine otherwise in its sole discretion.

Section 9.3                                      Reports

(a)           As
soon as practicable, but in no event later than 90 days after the close of each
fiscal year, the General Partner shall cause to be mailed to each Record Holder
of LP Units as of the last day of that fiscal year reports containing financial
statements of the Partnership for the fiscal year, presented in accordance with
generally accepted accounting principles, including a balance sheet, statement
of income, statement of Partners’ capital and statement of changes in financial
position, such statements to be audited by a nationally recognized firm of
independent public accountants selected by the General Partner.

(b)           As
soon as practicable, but in no event later than 45 days after the close of each
calendar quarter, except the last calendar quarter of each fiscal year, the
General Partner shall cause the Partnership to electronically file with the
Securities and Exchange Commission a quarterly report for the calendar quarter
containing such financial and other information as the General Partner deems
appropriate.

(c)           Such
reports shall present the consolidated financial position of the Partnership
Group, but shall not consolidate the assets or liabilities of any other
Affiliates of the General

 28
 

 

Partner.  Such
reports shall contain notes indicating that the assets and liabilities of the
Partnership Group are separate from the assets and liabilities of the other
Affiliates of the General Partner.

ARTICLE X

ISSUANCE
OF LP CERTIFICATES; TRANSFER AND EXCHANGE OF LP UNITS

Section 10.1                                Initial Issuance of LP Certificates

Upon the issuance of LP Units to any Person, the
Partnership will issue one or more LP Certificates in the name of such Person
evidencing the number of such LP Units being so issued.  LP Certificates shall be executed on behalf
of the Partnership by the General Partner. 
No LP Certificate shall be valid for any purpose until manually
countersigned by the Transfer Agent.

Section 10.2                                Registration, Registration of Transfer and Exchange

(a)           The
Partnership will cause to be kept a register (the “Units Register”) in which,
subject to such reasonable regulations as it may prescribe and subject to the
provisions of Section 10.2(b), the Partnership will provide for the
registration of LP Units and of transfers of such LP Units.  The Transfer Agent is hereby appointed
registrar for the purpose of registering LP Units and transfers of such LP
Units as herein provided.

Upon surrender for registration of transfer or
exchange of any LP Certificate, and subject to the provisions of Section
10.2(b), the General Partner on behalf of the Partnership will execute, and the
Transfer Agent will countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder’s instructions,
one or more new LP Certificates evidencing the same aggregate number of LP
Units as did the LP Certificate so surrendered.

(b)           Every
LP Certificate surrendered for registration of transfer or exchange shall be
duly endorsed on the reverse side thereof, or be accompanied by a written
instrument of transfer in form satisfactory to the General Partner or the
Transfer Agent, as the case may be, duly executed, in either case by the holder
thereof or such holder’s attorney duly authorized in writing.  Every LP Certificate surrendered for
registration of transfer shall be duly accepted on the reverse side thereof, or
be accompanied by a written instrument of acceptance to the same effect in form
satisfactory to the General Partner or the Transfer Agent, as the case may be,
duly executed, in either case by the transferee or such transferee’s attorney
duly authorized in writing.  As a
condition to the issuance of any new LP Certificate under this Section 10.2,
the General Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto.

Section 10.3                                Mutilated, Destroyed, Lost or Stolen LP Certificates

(a)           If
any mutilated LP Certificate is surrendered to the Transfer Agent, the General
Partner on behalf of the Partnership shall execute and the Transfer Agent shall
countersign and deliver in exchange therefor a new LP Certificate evidencing
the same number of LP Units as did the LP Certificate so surrendered.

 29
 

 

(b)           If
there shall be delivered to the General Partner and the Transfer Agent (i)
evidence to their satisfaction of the destruction, loss or theft of any LP
Certificate and (ii) such security or indemnity as may be required by them to
save each of them and any of their agents harmless, then, in the absence of
notice to the General Partner or the Transfer Agent that such LP Certificate
has been acquired by a bona fide purchaser, the General Partner on behalf of
the Partnership shall execute and upon its request the Transfer Agent shall
countersign and deliver, in lieu of any such destroyed, lost or stolen
Certificate, a new LP Certificate evidencing the same number of LP Units as did
the LP Certificate so destroyed, lost or stolen.

(c)           As
a condition to the issuance of  any new
LP Certificate under this Section 10.3, 
the General Partner may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the Transfer Agent)
connected therewith.

(d)           Every
new LP Certificate issued pursuant to this Section 10.3 in lieu of any
destroyed, lost or stolen LP Certificate shall evidence an original additional
Partnership Interest in the Partnership, whether or not the destroyed, lost or
stolen LP Certificate shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Agreement equally and proportionately with
any and all other LP Units duly issued hereunder.

Section 10.4                                Persons Deemed Owners

Prior to due presentment of an LP Certificate for
registration of transfer and satisfaction of the requirements of Section
10.2(b) with respect thereto, (a) the Partnership, the General Partner, the
Transfer Agent and any agent of any of the foregoing may deem and treat the
Record Holder as the absolute owner thereof and of the LP Units evidenced
thereby for all purposes whatsoever and (b) a transferee shall not be entitled
to distributions or allocations or any other rights in respect of the LP Units
evidenced thereby other than the right to further transfer such LP Units.

ARTICLE
XI

TRANSFER
OF GP UNITS

Section 11.1                                Transfer of GP Units

The General Partner may not transfer any GP Units
unless (a) all of its GP Units are being transferred and the transferee or
transferees assume all of the rights and obligations of the General Partner
hereunder, (b) the transfer is to an Affiliate or Affiliates of the General
Partner or is in connection with the General Partner’s merger or consolidation
with, or a transfer of all or substantially all of the General Partner’s assets
to, another Person, or the transfer is approved by a Majority Interest, and (c)
the Partnership receives an Opinion of Counsel that such transfer would not
result in the loss of limited liability of any Limited Partner or cause the
Partnership or any of the Operating Partnerships to be treated as an
association taxable as a corporation for federal income tax purposes.

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Section 11.2                                Successor General Partner

Any transferee of GP Units pursuant to Section 11.1
shall automatically be admitted to the Partnership as the successor General
Partner, and the transferor of such GP Units shall, if it has also transferred
all Partnership Interests evidenced by the Incentive Compensation Agreement,
automatically cease to be the General Partner, effective at the time provided
in Section 12.3.  No such transfer shall
be deemed a withdrawal pursuant to Article XIII.

ARTICLE
XII

ADMISSION
OF INITIAL, SUBSTITUTED AND ADDITIONAL

LIMITED PARTNERS AND SUCCESSOR GENERAL PARTNER

Section 12.1                                Admission of Initial Limited Partners

At and as of the Time of Delivery, the initial Record
Holders of LP Units purchased pursuant to Section 4.2 shall automatically
become Limited Partners and the Organizational Limited Partner shall automatically
cease to be a Limited Partner.

Section 12.2                                Admission of Substituted Limited Partners

A transferee of LP Units shall automatically be
admitted to the Partnership as a Limited Partner (and the transferor of such LP
Units shall, if such transferor is assigning all of such transferor’s LP Units,
automatically cease to be a Limited Partner) at and as of the time the transfer
is registered on the Units Register pursuant to Section 10.2.

Section 12.3                                Admission of Successor General Partner

A successor General Partner approved pursuant to
Section 13.1 or the proviso to Section 14.1 or the transferee of all of the GP
Units pursuant to Section 11.1 shall be admitted to the Partnership as the
successor General Partner, effective as of the date an amendment or restatement
of the Certificate of Limited Partnership is filed with the Secretary of State
of the State of Delaware effecting such substitution; provided, however, that
no such successor shall be so admitted to the Partnership until it has agreed
in writing to assume the former General Partner’s obligations hereunder.  This Agreement and the Certificate of Limited
Partnership shall be amended as appropriate to reflect the termination of the
former General Partner as a general partner, if applicable, and the admission
of the successor General Partner.

Section 12.4                                Admission of 
Additional Limited Partners

(a)           A
Person (other than the initial Record Holders of LP Units pursuant to Section
4.2 or a transferee of LP Units) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an additional Limited Partner only upon furnishing to the
General Partner (i) a written instrument of acceptance in a form satisfactory
to the General Partner of all of the terms and conditions of this Agreement,
including, without limitation, the power of attorney granted in Section 2.4
hereof, and (ii) such other documents and instruments as may be required in the
discretion of the General Partner to affect such Person’s admission as an
additional Limited Partner.

 31

 

(b)           Notwithstanding
anything to the contrary in this Section 12.4, no Person shall be admitted as
an additional Limited Partner without the consent of the General Partner, which
consent may be given or withheld in the General Partner’s sole discretion.  The admission of any Person as an additional
Limited Partner shall become effective at and as of the time the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.

Section 12.5                                Amendment of Agreement and Certificate of Limited
Partnership

The General Partner shall take all steps necessary and
appropriate under the Delaware Act to amend the records of the Partnership and,
if necessary, this Agreement and the Certificate of Limited Partnership to
reflect the admission of any Partner.

ARTICLE
XIII

WITHDRAWAL
OR REMOVAL OF THE GENERAL PARTNER

Section 13.1                                Withdrawal or Removal of the General Partner

(a)           Buckeye
GP LLC agrees to act as General Partner of the Partnership until the later of
(i) the date which is twenty-five years after the Time of Delivery or (ii) the
date the ESOP Loan is paid in full, subject to its right to transfer all of its
GP Units pursuant to Section 11.1.  At
any time after the later of (i) the date which is twenty-five years after the
Time of Delivery or (ii) the date the ESOP Loan is paid in full, the General
Partner may withdraw from the Partnership effective upon at least 90 days’
advance written notice to the Limited Partners, such withdrawal to take effect
on the date specified in such notice, provided that such withdrawal is approved
by an Eighty Percent Interest or the Partnership has received an Opinion of
Counsel that such withdrawal would not result in the loss of limited liability
of any Limited Partner or result in the Partnership or any Operating
Partnership being treated as an association taxable as a corporation for
federal income tax purposes.  Any such
withdrawal shall also constitute the withdrawal of the General Partner from the
Operating Partnerships, as provided in the Operating Partnership
Agreements.  If the General Partner gives
a notice of withdrawal, a Majority Interest may, prior to the effective date of
such withdrawal, approve a successor General Partner.  The Person so approved (or its designated
Affiliates) shall become the successor general partner or partners of the
Operating Partnerships, as provided in the Operating Partnership
Agreements.  If no successor General
Partner is so approved, the Partnership shall be dissolved pursuant to Section
14.1.  Buckeye GP LLC further agrees that
it shall not withdraw as general partner of any Operating Partnership, except
in connection with its withdrawal as General Partner.

(b)           The
General Partner may be removed only by an Eighty Percent Interest, and only if
(i) in connection therewith, a successor General Partner is approved by a
Majority Interest, (ii) the Partnership shall have received an Opinion of
Counsel that the removal of the General Partner and the approval of a successor
General Partner will not result in the loss of limited liability of any Limited
Partner or cause the Partnership or any of the Operating Partnerships to be
treated as an association taxable as a corporation for federal income tax
purposes, (iii) the successor General Partner or an Affiliate thereof assumes
the liabilities and obligations of the General Partner and its Affiliates under
the Exchange Agreement and agrees to indemnify and

 32
 

 

hold harmless the General Partner and its Affiliates
from any liability or obligation arising out of, or causes the General Partner
and its Affiliates to be released from, any and all liabilities and obligations
(including loan guarantees) under fringe benefit plans sponsored by the General
Partner or any of its Affiliates in connection with the business of the
Partnership Group, except as otherwise prohibited by this Agreement, and (iv)
all required regulatory approvals for removal of the General Partner shall have
been obtained.  Such removal shall be
effective upon the admission of the successor General Partner pursuant to
Section 12.3.  The Person so approved (or
its designated Affiliates) shall become the successor general partner or
partners of the Operating Partnerships, as provided in the Operating
Partnership Agreements.

Section 13.2                                Sale of Former General Partner’s Interest

If a successor General Partner is approved pursuant to
Sections 13.1 or 14.2 or the proviso to Section 14.1, such successor shall
purchase the GP Units of the former General Partner and the Partnership Interests
evidenced by the Incentive Compensation Agreement (whether such Partnership
Interests are held by the General Partner or an Affiliate of the General
Partner) for an amount in cash equal to the fair market value thereof,
determined as of the date the successor General Partner is admitted pursuant to
Section 12.3.  The fair market value of
the GP Units shall include the value of all rights associated with being the
General Partner, including, without limitation, the right to receive
distributions with respect to the GP Units and compensation under any agreement
between the Partnership and the General Partner in effect on the date the
successor General Partner is so admitted. 
The fair market value of the Partnership Interests evidenced by the
Incentive Compensation Agreement shall include the value of the rights to
receive distributions in respect thereof (whether such right to receive
distributions pursuant to the Incentive Compensation Agreement is held by the
General Partner or an Affiliate of the General Partner).  The sum of the value of the GP Units and the
Partnership Interests evidenced by the Incentive Compensation Agreement shall
be reduced by the value of the assumption by the successor General Partner or its
Affiliate of the obligations of the General Partner and its Affiliates pursuant
to Section 13.1(b)(iii).  Such fair
market value shall be determined by agreement between the former General
Partner and its successor or, failing agreement within 30 days after the date
the successor General Partner is so admitted, by a firm of independent
appraisers jointly selected by the former General Partner and its successor
(or, if the former General Partner and its successor cannot agree on the
selection of such a firm within 45 days after the date the successor General
Partner is so admitted, by a firm of independent appraisers selected by two
firms, one of which will be selected by the former General Partner and the
other of which will be selected by the successor).

ARTICLE
XIV

DISSOLUTION
AND LIQUIDATION

Section 14.1                                Dissolution

The Partnership shall be dissolved, and its affairs
shall be wound up, upon:

(a)           expiration
of the term as provided in Section 2.5;

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(b)           withdrawal
of the General Partner pursuant to Section 13.1 (unless a Person becomes a
successor General Partner prior to or on the effective date of such
withdrawal);

(c)           bankruptcy
or dissolution of the General Partner, or any other event that results in the
General Partner ceasing to be a general partner in the Partnership (other than
by reason of a withdrawal or removal pursuant to Section 13.1 or a transfer
pursuant to Section 11.1); or

(d)           an
election by the General Partner to dissolve the Partnership which is approved
by a Two-Thirds Interest;

provided, however, that the Partnership shall not be
dissolved upon an event described in 
Sections 14.1(b) or 14.1(c) if, within 90 days of such event, all
Partners agree in writing to continue the business of the Partnership and to
the appointment of a successor General Partner.

For purposes of this Section 14.1, bankruptcy of the
General Partner shall be deemed to have occurred when (i) it commences a
voluntary proceeding seeking liquidation, reorganization or other relief under
any bankruptcy, insolvency or other similar law now or hereafter in effect,
(ii) it seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for it or for all or any substantial part of its
properties, (iii) it is adjudged a bankrupt or insolvent, or has entered
against it a final and nonappealable order for relief, under any bankruptcy,
insolvency or similar law now or hereafter in effect, (iv) it executes and
delivers a general assignment for the benefit of its creditors, (v) it files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in any involuntary proceeding of the
nature described in clause (i) above, or (vi) (1) any involuntary proceeding of
the nature described in clause (i) above has not been dismissed 120 days after
the commencement thereof, (2) the appointment without its consent or
acquiescence of a trustee, receiver or liquidator for it or for all or any
substantial part of its properties has not been vacated or stayed within 90
days of such appointment, or (3) such appointment has been stayed but is not
vacated within 90 days after the expiration of any such stay.

Section 14.2                                Reconstitution

Upon dissolution of the Partnership in accordance with
Sections 14.1(b) or 14.1(c), and a failure of all Partners to agree to continue
the business of the Partnership and to the appointment of a successor General
Partner as provided in the proviso to Section 14.1, then within 180 days after
the event described in Sections 14.1(b) or 14.1(c), a Majority Interest may
elect to reconstitute the Partnership and continue its business by forming a
new partnership on terms identical to those set forth in this Agreement and
having as a general partner a Person approved by a Majority Interest.  Upon any such election by a Majority
Interest, all Partners shall be bound thereby and shall be deemed to have
consented thereto.  Unless such an
election is made within such 180-day period, the Partnership shall conduct only
activities necessary to wind up its affairs. 
If such an election is made within such 180-day period, then (a) the
reconstituted partnership shall continue until the end of the term set forth in
Section 2.5 unless earlier dissolved in accordance with this Article XIV and
(b) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into a new partnership
agreement and certificate of limited partnership, and the successor general
partner may for this purpose exercise the powers of attorney granted the
General Partner pursuant to this Agreement;

 34
 

 

provided that the right of a Majority Interest to
reconstitute and to continue the business of 
the Partnership shall not exist and may not be exercised unless the
Partnership has received an Opinion of Counsel that (i) the exercise of the
right would not result in the loss of limited liability of any Limited Partner
and (ii) neither the Partnership nor the reconstituted partnership would be
treated as an association taxable as a corporation for federal income tax
purposes.

Section 14.3                                Liquidation

Upon dissolution of the  Partnership, unless the Partnership is
reconstituted pursuant to Section 14.2, the General Partner, or in the event
the General Partner has withdrawn from the Partnership, been removed or dissolved
or become bankrupt (as defined in Section 14.1), a liquidator or liquidating
committee approved by a Majority Interest shall be the liquidator of the
Partnership (the “Liquidator”).  The
Liquidator (if other than the General Partner) shall be entitled to receive
such compensation for its services as may be approved by a Majority
Interest.  The Liquidator shall agree not
to resign at any time without 15 days’ prior written notice and (if other than
the General Partner) may be removed at any time, with or without cause, by
notice of removal approved by a Majority Interest.  Upon dissolution, resignation or removal of
the Liquidator, a successor and substitute Liquidator (who shall have and
succeed to all rights, powers and obligations of the original Liquidator)
shall, within 30 days thereafter, be approved by a Majority Interest.  Except as expressly provided in this Article
XIV, the Liquidator approved in the manner provided herein shall have and may
exercise, without further authorization or approval of any of the parties
hereto, all of the powers conferred upon the General Partner under the terms of
this Agreement (but subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, other than the restrictions
set forth in Article XVII) to the extent appropriate or necessary in the good
faith judgment of the Liquidator to carry out the duties and functions of the
Liquidator hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to complete the
winding-up and liquidation of the Partnership as provided for herein.  The Liquidator shall liquidate the assets of
the Partnership and apply and distribute the proceeds of such liquidation in
the following order of priority, unless otherwise required by mandatory
provisions of applicable law:

(a)           to
creditors of the Partnership (including Partners); and

(b)           to
the Partners, in proportion to and to the extent of the positive balances  in their respective Capital Accounts;

provided, however, that the Liquidator may place in
escrow a reserve of cash or other assets of 
the Partnership for contingent liabilities in an amount determined by
the Liquidator to be appropriate for such purposes.

Section 14.4                                Distribution in Kind

Notwithstanding the provisions of Section 14.3
requiring the liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if on dissolution of the Partnership the
Liquidator determines that an immediate sale of part or all of the Partnership’s
assets would be impractical or would cause undue loss to the Partners, the
Liquidator may, in its

 35
 

 

sole discretion, defer for a reasonable time the
liquidation of any assets except those necessary to satisfy liabilities of the
Partnership and may, in its sole discretion, distribute to the Partners, or to
specific classes of Partners, as tenants in common, in lieu of cash, and as
their interests may appear in accordance with the provisions of Section
14.3(b), undivided interests in such Partnership assets as the Liquidator deems
not suitable for liquidation.  Any
distributions in kind shall be subject to such conditions relating to the
disposition and management thereof as the Liquidator deems reasonable and
equitable and to any joint ownership agreements or other agreements governing
the ownership and operation of such properties at such time.  The Liquidator shall determine the fair
market value of any property distributed in kind using such reasonable method
of valuation as it may adopt.

Section 14.5                                Cancellation of Certificate of Limited Partnership

Upon the completion of the distribution of Partnership
property pursuant to Sections 14.3 and 14.4, the Partnership shall be
terminated, and the Liquidator (or the Limited Partners if necessary) shall
cause the cancellation of the Certificate of Limited Partnership and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware and shall take such other
actions as may be necessary to terminate the Partnership.

Section 14.6                                Return of Capital

The General Partner shall not be personally liable for
the return of the Capital Contributions of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made
solely from Partnership assets.

Section 14.7                                Waiver of Partition

Each Partner hereby waives any rights to partition of
the Partnership property.

Section 14.8                                Certain Prohibited Acts

Without obtaining Special Approval, the General
Partner shall not take any action to cause the Partnership to (i) make or
consent to a general assignment for the benefit of the Partnership’s creditors;
(ii) file or consent to the filing of any bankruptcy, insolvency or
reorganization petition for relief under the United States Bankruptcy Code
naming the Partnership or otherwise seek, with respect to the Partnership,
relief from debts or protection from creditors generally; (iii) file or consent
to the filing of a petition or answer seeking for the Partnership a
liquidation, dissolution, arrangement, or similar relief under any law; (iv)
file an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partnership in a proceeding of the
type described in clauses (i) — (iii) of this Section 14.8; (v) seek, consent
to or acquiesce in the appointment of a receiver, liquidator, conservator,
assignee, trustee, sequestrator, custodian or any similar official for the
Partnership or for all or any substantial portion of its properties; (vi) sell
all or substantially all of its assets, except in accordance with Section 17.3;
(vii) dissolve or liquidate, except in accordance with this Article XIV; or
(viii) merge or consolidate, except in accordance with Section 11.1.

 36
 

 

ARTICLE
XV

AMENDMENT
OF PARTNERSHIP AGREEMENT

Section 15.1                                Amendments Which May be Adopted Solely by the General
Partner

Subject to Section 15.3, the General Partner may amend
any provision of this Agreement without the consent of any Limited Partner, and
may execute, swear to, acknowledge, deliver, file and record whatever documents
may be required in connection therewith, to reflect:

(a)           a
change in the name of the Partnership, in the location of the principal place
of business of the Partnership or in the registered office or registered agent
of the Partnership;

(b)           a
change that the General Partner deems appropriate or necessary to (i) qualify,
or continue the qualification of, the Partnership as a limited partnership (or
a partnership in which the Limited Partners have limited liability) under the
laws of any state or jurisdiction or (ii) ensure that neither the Partnership
nor any of the Operating Partnerships will be treated as an association taxable
as a corporation for federal income tax purposes;

(c)           a
change to divide outstanding Units into a greater number of Units, to combine
outstanding Units into a smaller number of Units or to reclassify Units in a
manner that in the good faith opinion of the General Partner, does not
adversely affect any class of Limited Partners in any material respect;

(d)           a
change that the General Partner in its sole discretion deems appropriate or
necessary to (i) satisfy any requirements, conditions or guidelines contained
in any order, rule or regulation of any federal or state agency or contained in
any federal or state statute or (ii) facilitate the trading of any Units or
comply with any rule, regulation, requirement, condition or guideline of any
National Securities Exchange on which any Units are or will be listed or
admitted to trading, or NASDAQ if any Units are or will be quoted on NASDAQ;

(e)           a
change that is appropriate or necessary, as stated in an Opinion of Counsel, to
prevent the Partnership, the Operating Partnerships, the General Partner, its
Affiliates and their respective directors and officers from in any manner being
subjected to the provisions of the Investment Company Act of 1940, as amended,
the Investment Advisers Act of 1940, as amended, or “plan asset” regulations
adopted under the Employee Retirement Income Security Act of 1974, as amended,
whether or not substantially similar to plan asset regulations currently
applied or proposed by the United States Department of Labor;

(f)            a
change that is required or contemplated by any provision of this Agreement,
including, without limitation, Sections 4.3, 12.3 and 12.5;

(g)           a
change that in the good faith opinion of the General Partner does not adversely
affect the Limited Partners in any material respect; or

(h)           any
changes or events similar to the foregoing.

 37
 

 

Section 15.2                                Other Amendments

Amendments to this Agreement may be proposed only by
the General Partner.  Subject to Section
15.3, a proposed  amendment (other than
amendments  adopted pursuant to Section
15.1) shall be effective only when approved by a Majority Interest.  Notwithstanding the provisions of Sections
15.1 and 15.3, no amendment of (i) the definitions of “Audit Committee,” or “Special
Approval,” (ii) Section 7.6, (iii) Section 11.1, (iv) Section 17.3, (v) Section
7.9(a), (vi) Section 14.8, or (vii) any other provision of this Agreement
requiring that Special Approval be obtained as a condition to any action, shall
be effective without first obtaining Special Approval.

Section 15.3                                Amendment Requirements

Notwithstanding the provisions of Sections 15.1 and 15.2,
(i) the approval of an Eighty Percent Interest shall be required for any
amendment unless the Partnership has received an Opinion of Counsel that such
amendment would not result in the loss of limited liability of any Limited
Partner or result in the Partnership or any Operating Partnership being treated
as an association taxable as a corporation for federal income tax purposes,
(ii) no provision of this Agreement which establishes a percentage of the
Limited Partners required to take or approve any action shall be amended in any
respect which would have the affect of reducing the voting requirement, unless
such amendment is approved by at least such percentage of Limited Partners, and
(iii) this Section 15.3 shall be amended only with the approval of an Eighty
Percent Interest.

ARTICLE
XVI

MEETINGS

Section 16.1                                Meetings

Meetings of Limited Partners may be called by the
General Partner or by Limited Partners holding an aggregate of at least 20% of
the outstanding LP Units.  Within 60 days
after receipt by the General Partner of a written proposal to call a meeting
signed by Limited Partners holding the requisite number of LP Units and
indicating the purpose for which the meeting is to be called (or such longer
period as shall be reasonably required by the General Partner in order to
prepare documents required therefor), the General Partner shall cause a notice
of the meeting to be given to each Limited Partner.  A meeting shall be held at a time and place
determined by the General Partner within 60 days after the giving of notice of
the meeting.  A Majority Interest
represented in person or by proxy shall constitute a quorum at a meeting of the
Partners.

Section 16.2                                Record Date

For purposes of determining the Limited Partners
entitled to notice of or to vote at any meeting or to give approvals without a
meeting as provided in Section 16.4, the General Partner may set a Record Date,
which date for purposes of notice of a meeting shall not be less than 10 days
nor more than 60 days before the date of the meeting.

 38
 

 

Section 16.3                                Conduct of Meeting

(a)           The
General Partner shall have full power and authority concerning the manner of
conducting any meeting of Limited Partners or the solicitation of proxies or
consents in writing, including, without limitation, the determination of
Persons entitled to vote, the existence of a quorum, the conduct of voting, the
validity and effect of any proxies, and the determination of any controversies,
votes or challenges arising in connection with or during the meeting or voting.  The General Partner shall designate an
individual to serve as chairman of any meeting and shall further designate an
individual to take the minutes of any meeting, which individuals may be
directors or officers of the General Partner. 
All minutes shall be kept with the records of the Partnership maintained
by the General Partner.

(b)           The
General Partner may vote its LP Units in such manner as it in its sole
discretion may determine.

Section 16.4                                Action Without a Meeting

Any action that may be taken at a meeting of the
Limited Partners may be taken without a meeting if approvals in writing setting
forth the action so taken are signed by Limited Partners holding in the
aggregate at least the minimum number of LP Units that would be necessary to
authorize or take such action at a meeting at which all the Limited Partners
were present and voted.  Prompt notice of
the taking of action without a meeting shall be given to the Limited Partners
who have not approved in writing.  If
approvals to the taking of any action by the Limited Partners is solicited by
any Person other than by or on behalf of the General Partner, the approvals
shall have no force and effect unless and until (a) they are deposited with the
Partnership in care of the General Partner, (b) approvals sufficient to take
the action proposed are dated as of a date not more than 90 days prior to the
date sufficient consents are deposited with the Partnership, and (c) the
Partnership receives an Opinion of Counsel that giving effect to such approvals
would not result in the loss of limited liability of any Limited Partner or
cause the Partnership or any of the Operating Partnerships to be treated as an
association taxable as a corporation for federal income tax purposes.

ARTICLE
XVII

CERTAIN
RESTRICTIONS

Section 17.1                                Additional Units

(a)           Without
the prior approval of a Two-Thirds Interest, the General Partner shall not
cause the Partnership to issue any class or series of LP Units having
preferences or other special or senior rights over the LP Units issued pursuant
to Section 4.2.

(b)           The
General Partner shall not cause the Partnership to issue Units to the General
Partner or any of its Affiliates (other than pursuant to Section 4.1) unless
(i) the Units are of a class which is, prior to such issuance, listed or
admitted to trading on a National Securities Exchange or quoted by NASDAQ and
the Net Agreed Value of the Contributed Property being contributed in exchange
for such Units is at least equal to the number of Units being so issued times
the Unit Price of such Units or (ii) such issuance is approved by a Majority
Interest.

 39
 

 

Section 17.2                                Certain Amendments

(a)           Without
the prior approval of a Two-Thirds Interest, the Partnership shall not amend
the Incentive Compensation Agreement and the General Partner shall not permit
the Partnership or any Operating Partnership to amend any compensation
arrangement for the General Partner, unless, in any case, such amendment does
not, in the good faith opinion of the General Partner, in its capacity as
general partner of the Partnership or Operating Partnerships, as applicable,
adversely affect the Limited Partners in any material respect.

(b)           The
General Partner shall not cause the Partnership to approve any amendment to an
Operating Partnership Agreement pursuant to Section 13.2 thereof unless such
amendment is approved by a Majority Interest.

Section 17.3                                Sale of Assets

Without the prior approval of a Two-Thirds Interest,
the General Partner may not sell, exchange or otherwise dispose of all or
substantially all of the consolidated assets owned by the Partnership and the
Operating Partnerships; provided, however, that in the event that less than 80%
of the LP Units are held by the General Partner and its Affiliates, prior
Special Approval shall also be required.

ARTICLE
XVIII

RIGHT TO
PURCHASE UNITS

Section 18.1                                Right to Purchase Units

If fewer than 10% of the outstanding LP Units are held
by Persons other than the General Partner and its Affiliates, the General
Partner shall have the right, which it may assign to the Partnership or any
Affiliate, to purchase all, but not less than all, of the LP Units that remain
outstanding and are held by Persons other than the General Partner and its
Affiliates.  Any such purchase shall be
at a price per LP Unit in cash (the “Purchase Price”) equal to the greater of
the Unit Price on the date of purchase (the “Purchase Date”) or the Issue Price
for such LP Units, in either case multiplied by (a) 1.2, if the Purchase Date
is after December 31, 1996 and on or prior to December 31, 2001, (b) 1.1, if
the Purchase Date is after December 31, 2001 and on or prior to December 31,
2006, or (c) 1.0, if the Purchase Date is after December 31, 2006.

Section 18.2                                Notice of Election to Purchase

In the event the General Partner, any Affiliate
of  the General Partner or the
Partnership elects to exercise such right to purchase LP Units pursuant to
Section 18.1, the General Partner shall cause the Transfer Agent to give
written notice of such election to purchase (the “Notice of Election to
Purchase”) to the Record Holders at least 10, but not more than 60, days prior
to the Purchase Date.  Such Notice of
Election to Purchase shall also be published in daily newspapers of general
circulation printed in the English language and published in the Borough of
Manhattan, New York.  The Notice of
Election to Purchase shall specify the Purchase Date and the Purchase Price and
state that the General Partner, its Affiliate or the Partnership, as the case
may be, has elected to purchase such LP Units, upon surrender thereof in
exchange for payment,

 40
 

 

and at such place as specified.  Any such Notice of Election to Purchase
mailed to a Record Holder of LP Units at his address as reflected in the Units
Register shall be conclusively presumed to have been given whether or not the
owner receives such notice.

Section 18.3                                Purchase and Transfer of Units

On or prior to the Purchase Date, the General Partner,
its Affiliate or the Partnership, as the case may be, shall deposit with the
Transfer Agent cash in an amount equal to the amount required to purchase all
outstanding LP Units held by Persons other than the General Partner or its
Affiliates.  If the Notice of Election to
Purchase shall have been duly given as aforesaid and if on or prior to the
Purchase Date the cash shall have been deposited with the Transfer Agent in
trust for the benefit of the holders of LP Units subject to purchase as
provided herein, then from and after the Purchase Date, whether or not any LP
Units shall have been surrendered for purchase, all rights of the holders of
such LP Units (including, without limitation, any rights pursuant to Articles
V, VI and XIV) shall thereupon cease, except the right to receive the Purchase
Price therefor, without interest, upon surrender to the Transfer Agent of the LP
Certificates representing such LP Units, and such LP Units shall thereupon be
transferred to the General Partner, its Affiliate or the Partnership, as the
case may be, on the Units Register, and the General Partner, its Affiliate or
the Partnership, as the case may be, shall be deemed to be the owner of all
such LP Units from and after the Purchase Date and shall have all rights as the
owner of such LP Units.

ARTICLE
XIX

GENERAL
PROVISIONS

Section 19.1                                Opinions Regarding Taxation as a Partnership

Notwithstanding any other provisions of this
Agreement, the requirement, as a condition to any action proposed to be taken
under this Agreement, that the Partnership receive an Opinion of Counsel that
the proposed action would not result in the Partnership or any of the Operating
Partnerships being treated as an association taxable as a corporation for
federal income tax purposes (a) shall not be applicable to the extent that the
Partnership or any of the Operating Partnerships is at such time treated in all
material respects as an association taxable as a corporation for federal income
tax purposes and (b) shall be deemed satisfied by an Opinion of Counsel
containing conditions, limitations and qualifications which are acceptable to
the General Partner in its sole discretion.

Section 19.2                                Personal Property

The Partnership Interest of any Partner shall be
personal property for all purposes.

Section 19.3                                Addresses and Notices

Any notice, demand, request, payment or report
required or permitted to be given or made to a Limited Partner under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class mail or by other means of written
communication to the Limited Partner at such Limited Partner’s address as shown
on the Units

 41
 

 

Register.  Any
notice to the Partnership or the General Partner shall be deemed given if
received in writing by the General Partner at the principal office of the
Partnership designated pursuant to Section 2.3.

Section 19.4                                Headings

All article or section headings in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning
or construction of any of the provisions hereof.

Section 19.5                                Binding Effect

This Agreement shall be binding upon and inure to the
benefit of the parties hereto (including the additional Persons that become
Limited Partners as provided herein) and their heirs, executors,
administrators, successors, legal representatives and assigns.

Section 19.6                                Integration

This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.

Section 19.7                                Waiver

No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or of any other covenant, duty,
agreement or condition.

Section 19.8                                Counterparts

This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto (including the additional Persons that become Limited
Partners as provided herein).

Section 19.9                                Severability

If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof, or of such provision in
other respects, shall not be affected thereby.

Section 19.10                          Applicable Law

This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.

 42

 

In Witness Whereof, this Agreement has been duly
executed by the General Partner on behalf of itself and as agent and
attorney-in-fact for the Limited Partners, as of the date first above written.

	
   

  	
  Buckeye GP LLC,

  
	
   

  	
  as General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: William H. Shea, Jr.

  
	
   

  	
  Title: Chairman and Chief Executive Officer

  
					

 

[Amended and Restated Agreement of Limited Partnership
of Buckeye Partners, L.P.]

 

Annex A

Specimen LP
Certificate

[Amended and Restated Agreement of Limited Partnership of Buckeye
Partners, L.P.]

 

EXHBIT B

FORM
OF

FIFTH
AMENDED AND RESTATED INCENTIVE COMPENSATION AGREEMENT

This Fifth Amended and Restated Incentive Compensation
Agreement, dated as of
[                           ],
2005 (this “Agreement”), is entered into between BUCKEYE GP LLC, a Delaware
limited liability company (“General Partner”), and BUCKEYE PARTNERS, L.P., a
Delaware limited partnership (the “Partnership”).

WHEREAS, the Partnership and MainLine Sub LLC (“Holdco”)
entered into a Fourth Amended and Restated Incentive Compensation Agreement
dated December 15, 2004 (the “Prior Agreement”);

WHEREAS, pursuant to an agreement between Holdco and
the General Partner, dated the date hereof, Holdco assigned the Prior Agreement
to the General Partner;

WHEREAS, the parties hereto desire to amend and
restate the Prior Agreement in its entirety to supplement the Partnership
Agreement (defined below) as the context requires and recharacterize payments
pursuant to this Agreement as distributions pursuant to Section 5.2(c) of the
Partnership Agreement and to adopt the law of the State of Delaware as the
governing law of this Agreement;

WHEREAS, Section 3.6 of the Prior Agreement provides
that the Prior Agreement may be amended only after complying with Section
17.2(a) of the Amended and Restated Agreement of Limited Partnership dated as
of December 15, 1986, as amended as of the date hereof (the “Partnership
Agreement”), which provides that, without the prior approval of a two-thirds
interest of the limited partners of the Partnership, the General Partner shall
not amend the Prior Agreement unless such amendment does not, in the good faith
opinion of the General Partner, adversely affect the limited partners of the
Partnership (the “Limited Partners”) in any material respect; and

WHEREAS, the Board of Directors of the General Partner
has approved the amendment and restatement of the Prior Agreement in the form
set out in this Agreement and has further determined that, in its good faith
opinion, this amendment and restatement of the Prior Agreement does not
adversely affect the Limited Partners in any material respect.

NOW THEREFORE, the parties hereto, intending to be
legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Set forth below are definitions of certain capitalized
terms used in this Agreement.  All
capitalized terms used herein and not otherwise defined herein shall have the
meanings provided therefor in the Partnership Agreement.

Section 1.1             “Aggregate
Target Quarterly Amount” means the Target Quarterly Amount per LP Unit
times the number of Units, other than ESOP LP Units, outstanding.

 

Section 1.2             “Aggregate
Target Special Distribution Amount” means the Target Special Distribution
Amount times the number of Units outstanding.

Section 1.3             “Available
Cash” for any quarter means the Partnership’s consolidated cash receipts
during such quarter (including, for this purpose, amounts retained as described
in clause (b) below during prior quarters and determined by the General
Partner, in its sole discretion, to no longer be required to be so retained)
less (a) its consolidated cash expenditures during such quarter (other than
distributions of Available Cash for the prior quarter and expenditures of
amounts received in prior quarters) and (b) such retentions for working
capital, anticipated cash expenditures (including capital expenditures and debt
service) and contingencies as the General Partner, in its sole discretion,
deems appropriate.

Section 1.4             “ESOP
LP Units” means the 2,573,146 LP Units issued to Buckeye Pipe Line Services
Company in connection with the transactions contemplated by the Exchange
Agreement, regardless of whether such LP Units continue to be held by Buckeye
Pipe Line Services Company.

Section 1.5             “IPO
Price” is $10.00 per LP Unit.

Section 1.6             “Pipeline
Partnership” means the limited partnership subsidiaries and the other
subsidiaries of the Partnership, collectively.

Section 1.7             “Quarterly
Cash To Be Distributed” for any quarter means the Available Cash for such
quarter (excluding cash to be distributed in a Special Distribution) less
retentions of Available Cash necessary to make distributions pursuant to this
Agreement and less cash distributed by the Partnership to the holders of the
ESOP LP Units or the GP Units with respect to their ESOP LP Units and GP Units.

Section 1.8             “Special
Cash To Be Distributed” means the cash or fair market value of securities
to be distributed in a Special Distribution, less the cash or fair market value
of securities distributed by the Partnership to the holders of ESOP LP Units or
the GP Units with respect to their ESOP LP Units and GP Units.

Section 1.9             “Special
Distribution” means any special cash distribution to Unitholders in excess
of $10 million from the proceeds of a financing, sale of assets or disposition
(or a series of related financings, sales of assets or dispositions) or a
special distribution of marketable securities with a fair market value in
excess of $10 million; provided, however, that no special distribution from the
proceeds of a financing shall be made without the approval of the disinterested
directors of the Board of Directors of the General Partner or a committee
thereof.

Section 1.10           “Target
Quarterly Amount” is $.325 per quarter.

Section 1.11           “Target
Special Distribution Amount” means the amount which, together with all
amounts distributed per LP Unit prior to the Special Distribution compounded
quarterly from the respective dates of distribution to the date of such Special
Distribution at the Target Rate, would equal the IPO Price compounded quarterly
at the Target Rate from December 23, 1986 to the date of such Special
Distribution.

 2
 

 

Section 1.12           “Target
Rate” is 13% per annum.

Section 1.13           “Unitholders”
means the holders of record collectively of the LP Units and the GP Units.

ARTICLE
II

INCENTIVE COMPENSATION AGREEMENT

Section 2.1             Quarterly
Incentive Distribution.  If Quarterly
Cash To Be Distributed for any calendar quarter exceeds the Aggregate Target
Quarterly Amount and such Quarterly Cash To Be Distributed is distributed to
the Limited Partners as provided in the Partnership Agreement, the Partnership
shall, subject to Section 2.3 and Section 2.5, distribute to the General
Partner an amount equal to the sum of (a) 15% of the portion of the Quarterly
Cash To Be Distributed which (i) exceeds $.325 per LP Unit and (ii) does not
exceed $.35 per LP Unit; (b) 25% of the portion of the Quarterly Cash To Be
Distributed which (i) exceeds $.35 per LP Unit and (ii) does not exceed $.375
per LP Unit; (c) 30% of the portion of the Quarterly Cash To Be Distributed
which (i) exceeds $.375 per LP Unit and (ii) does not exceed $.40 per LP Unit;
(d) 35% of the portion of the Quarterly Cash To Be Distributed which (i)
exceeds $.40 per LP Unit and (ii) does not exceed $.425 per LP Unit; (e) 40% of
the portion of the Quarterly Cash To Be Distributed which (i) exceeds $.425 per
LP Unit and (ii) does not exceed $.525 per LP Unit; and (f) 45% of the portion
of the Quarterly Cash To Be Distributed which exceeds $.525 per LP Unit. For
purposes of this Section 2.1, “LP Units” shall not include ESOP LP Units.

Section 2.2             Special
Incentive Distribution.  If the
Special Cash To Be Distributed in a Special Distribution exceeds the Aggregate
Target Special Distribution Amount for such Special Distribution and such
Special Cash To Be Distributed is distributed to the Limited Partners as
provided in the Partnership Agreement, the Partnership shall, subject to
Section 2.3 and Section 2.5, distribute to the General Partner, out of Special
Cash To Be Distributed, an amount equal to (a) 15% of the portion of the
Special Cash To Be Distributed which (i) exceeds 100% of the Aggregate Target
Special Distribution Amount and (ii) is not more than 115% of the Aggregate
Target Special Distribution Amount, plus (b) 25% of the amount (if any) by
which the Special Cash To Be Distributed exceeds 115% of the Aggregate Target
Special Distribution Amount.

Section 2.3             Termination
Upon Removal of General Partner.  The
agreement contained in this Article II shall terminate if the General Partner
is removed as general partner of the Partnership pursuant to the Partnership
Agreement, effective upon the date of such removal.  However, the value of the right to receive
distributions as provided in this Article II shall be included in determining
the fair market value of the GP Units and other Partnership Interests pursuant
to Section 13.2 of the Partnership Agreement.

Section 2.4             Certain
Events.  If there is a change in the
LP Units to divide the outstanding LP Units into a greater number of LP Units
or to combine outstanding LP Units into a smaller number of LP Units, in each
case in accordance with the terms and conditions of the Partnership Agreement,
the amounts reflected in Sections 1.5, 1.10 and 2.1 hereof shall be adjusted
automatically to reflect such division or combination and shall apply to all
subsequent calculations of distributions to the General Partner hereunder.

 3
 

 

Section 2.5             Distribution
Upon Liquidation.  Any distribution
to the General Partner pursuant to Sections 2.1 and 2.2 during the period in
which a liquidation of the Partnership occurs pursuant to Section 14.3 of the
Partnership Agreement shall equal the amounts allocated pursuant to Section
5.1(c)(vi) of the Partnership Agreement.

ARTICLE
III

MISCELLANEOUS

Section 3.1             Headings.  All article or section headings in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any of the provisions hereof.

Section 3.2             Binding
Effect; Benefit of Agreement; Assignment. 
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.  Absent the written consent of each party
hereto and, this Agreement may not be assigned by either party.  Notwithstanding the foregoing, the General
Partner may assign this Agreement, and the Partnership Interests represented
hereby, to (i) an entity which, directly or indirectly, wholly owns or is
wholly owned by the General Partner, (ii) any entity wholly owned by any entity
which wholly owns the General Partner or (iii) a transferee of the GP Units
under Section 11.1 of the Partnership Agreement; provided that, any such
transferee must be admitted to the Partnership as an additional or successor
general partner of the Partnership.  For
so long as the Executive Employment Agreement, dated as of December 15, 2004,
between the General Partner, Holdco and Buckeye Pipe Line Services Company is
in effect, the General Partner may not assign this Agreement without the prior
written consent of the Trustee of the ESOP, which consent will not be
unreasonably withheld.

Section 3.3             Integration.  This Agreement, together with the Partnership
Agreement, constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings
pertaining thereto.  This Agreement shall
constitute a supplement to the Partnership Agreement.

Section 3.4             Counterparts.  This Agreement may be executed in any number
of counterparts, all of which together shall constitute one agreement binding
on the parties hereto.

Section 3.5             Applicable
Law.  This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.

Section 3.6             Amendment.  This Agreement may be amended only after
complying with Section 17.2(a) of the Partnership Agreement.

 4

 

IN WITNESS WHEREOF, this Fifth Amended and Restated
Incentive Compensation Agreement has been duly executed by the parties hereto
as of the date first above written.

	
   

  	
  BUCKEYE GP LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BUCKEYE PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BUCKEYE GP LLC,

  
	
   

  	
   

  	
  as General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
					

 

[Fifth Amended and
Restated Incentive Compensation Agreement]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}]]