Document:

STOCK
        PURCHASE AGREEMENT 

       

      This
        STOCK PURCHASE AGREEMENT (“Agreement”)
        dated
        as of August 17, 2007, is entered into by and among Shumate Industries, Inc.,
        a
        Delaware corporation (the “Buyer”),
        Sunbelt Machine Works Corporation, a Texas corporation (the “Company”),
        and
        each of the stockholders set forth on Schedule
        1
        hereto
        (collectively, the “Stockholders”).
        Capitalized terms used in this Agreement shall have the meanings set forth
        or
        referenced in Exhibit
        A.

       

      W
        I T N E S S E T H : 

       

      WHEREAS,
        the Stockholders own all of the issued and outstanding shares of common stock,
        par value $1.00 per share, of the Company (the “Shares”),
        with
        each Stockholder owning the number of Shares set forth, opposite each
        Stockholder’s name on Schedule
        1;
        

       

      WHEREAS,
        the Buyer is willing to buy from the Stockholders, and the Stockholders are
        willing to sell to the Buyers, the Shares at Closing on the terms and conditions
        and in reliance on the representations and warranties and mutual covenants
        herein set forth; 

       

      NOW,
        THEREFORE, in consideration of the premises and the mutual agreements and
        covenants hereinafter set forth, the parties hereto hereby agree as follows:
        

       

      ARTICLE
        1 

       

      PURCHASE
        AND SALE OF THE SHARES 

       

      Section
        1.1 Purchase
        and Sale.  Upon
        the basis of the representations and warranties herein contained and on the
        terms and subject to the conditions of this Agreement, on the Closing Date
        and
        effective as of the Closing each Stockholder shall sell, convey, assign,
        transfer and deliver to the Buyer, and the Buyer shall purchase from each
        Stockholder, that number of Shares, each as set forth opposite the name of
        such
        Stockholder on Schedule
        1
        hereto,
        free and clear of all Encumbrances, in exchange for the Purchase Price (as
        defined below)(the “Stock
        Purchase”).
        

       

      Section
        1.2 Purchase
        Price.  The
        aggregate purchase price for the Shares shall be $14,500,000 (the “Purchase
        Price”),
        payable as follows: 

       

      (a) Cash
        in
        the amount of $9,000,000 (which amount may be adjusted pursuant to the Working
        Capital Adjustment set forth under Section 7.8(b) hereof), payable in
        immediately available funds by wire transfer at the Closing to the Stockholders
        (to each, per their respective Pro Rata Portion), to be notified in writing
        or
        email to Buyer reasonably in advance (the “Cash
        Consideration”);
        

       

      (b) To
        each
        Stockholder a Pro Rata Portion of a promissory note, in the form attached
        hereto
        as Exhibit
        B,
        such
        promissory notes (each, a “Note”
and
        collectively, the “Notes”)
        having
        a aggregate value of $2,500,000 (the “Note
        Consideration”);

       

      (c) To
        each
        Stockholders a Pro Rata Portion of shares of Buyer’s common stock, $0.001 par
        value per share (“Buyer
        Common Stock”)
        having
        an aggregate value of Two Million Five Hundred Thousand Dollars ($2,500,000),
        such number of shares to be determined by taking the average of the closing
        prices of the Buyer Common Stock on the Over the Counter Bulletin Board (the
        “Average
        Price”)
        during
        the thirty (30) trading days immediately preceding the earlier of (i) the
        filing
        of a current report on Form 8-K with the Securities and Exchange Commission
        announcing the execution of this Agreement (the “Announcing
        8-K”)
        or
        (ii) Closing Date and dividing such Average Price into $2,500,000 (the
“Stock
        Consideration”);
        and

      

      (d) the
        assumption of approximately $500,000 of Liabilities of the Company (the
“Liability
        Assumption”),
        The
        Cash Consideration, the Note Consideration, the Stock Consideration and the
        Liability Assumption are hereinafter sometimes referred to as the “Total
        Consideration”.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

      Section
        1.3 Surrender
        of Certificates.
        

       

      (a) The
        Corporate Secretary of Buyer, or an institution selected by Buyer, shall
        serve
        as the exchange agent (the “Exchange
        Agent”)
        for
        the Stock Purchase. 

       

      (b) Prior
        to
        the Closing Date, Buyer shall make available to the Exchange Agent for exchange
        in accordance with this Article 1, all of the Cash Consideration, Note
        Consideration and Stock Consideration (other than additional cash, if any,
        due
        to the Working Capital Adjustment) payable pursuant to Section 1.2 hereof
        in
        exchange for the Shares; provided,
        however,
        that,
        on behalf of the Stockholders, Buyer shall deposit into the Escrow Fund (as
        defined in Section 7. hereof) the Stock Consideration, otherwise payable
        to the
        Stockholders pursuant to Section 1.2 hereof. Each Stockholder shall be deemed
        to
        have contributed his or her Pro Rata Portion of the Escrow Amount to the
        Escrow
        Fund. 

       

      (c) On
        or
        after the date hereof, Buyer shall or shall cause the Exchange Agent to,
        mail a
        letter of transmittal, in the form attached hereto as Exhibit
        C
        (the
“Letter
        of Transmittal”),
        to
        each Stockholder at the address set forth below each Stockholders’ name in
Schedule
        1.
        After
        receipt of such Letter of Transmittal, the Stockholders will deliver the
        certificates representing their Shares to the Exchange Agent for assignment
        to
        Buyer together with a duly completed and validly executed Letter of Transmittal.
        Upon delivery of a stock certificate representing Shares for assignment to
        Buyer
        to the Exchange Agent pending Closing, or such other agent or agents as may
        be
        appointed by Buyer, together with such Letter of Transmittal, duly completed
        and
        validly executed in accordance with the instructions thereto, the holder
        of such
        stock certificate shall be entitled to receive from the Exchange Agent in
        exchange therefor, all of the Cash Consideration, Note Consideration and
        Stock
        Consideration (less the Stock Consideration to be deposited in the Escrow
        Fund
        on such Stockholder’s behalf pursuant to Section 1.3(b) and Article 7 hereof) to
        which such holder is entitled pursuant to Section 1.2 hereof, and all stock
        certificates so delivered shall be assigned to Buyer. Until so delivered,
        each
        stock certificate representing Shares outstanding after the Closing Date
        will be
        deemed from and for all corporate purposes thereafter, to evidence only the
        right to receive the portion of the Total Consideration for which such shares
        of
        Company Stock shall have been so exchanged. Should the Agreement fail to
        close,
        Exchange Agent will deliver the Shares back to each of the Stockholders,
        and the
        preceding sentence shall no longer apply. No payments of any portion of the
        Total Consideration will be made until the holder of such Shares surrenders
        his,
        her or its stock certificate(s) pursuant hereto.

       

      (d) Notwithstanding
        anything to the contrary in this Section 1.3,
        neither
        the Exchange Agent, the Buyer, nor any party hereto shall be liable to a
        holder
        of shares of Company Stock for any amount properly paid to a public official
        pursuant to any applicable abandoned property, escheat or similar law.

       

      Section
        1.4 Lost,
        Stolen or Destroyed Certificates.
        In the
        event any certificates evidencing Shares shall have been lost, stolen or
        destroyed, the Exchange Agent shall issue in exchange for such lost, stolen
        or
        destroyed certificates, upon the making of an affidavit of that fact by the
        holder thereof, such amount, if any, as may be required pursuant to Section
        1.1
        hereof; provided,
        however,
        that
        Buyer may, in its discretion and as a condition precedent to the issuance
        thereof, require the Stockholder who is the owner of such lost, stolen or
        destroyed certificates to either (i) deliver a bond in such amount as it
        may
        reasonably direct or (ii) provide an indemnification agreement in a form
        and
        substance acceptable to Stockholder, against any claim that may be made against
        Buyer or the Exchange Agent with respect to the certificates alleged to have
        been lost, stolen or destroyed. 

       

       

      Section
        1.5 Closing.
        The
        closing of the transactions contemplated by this Agreement (the “Closing”)
        shall
        take place at the offices of Isaacks & Associates, Ltd, L.L.P., 12777 Jones
        Road, Suite 100, Houston, Texas 77060, at 10:00 a.m. local time within 48
        hours
        of satisfaction or waiver of all closing conditions set forth in Article
        6, or
        such later date or time as the parties hereto may agree in writing (the
“Closing
        Date”).
        

       

      ARTICLE
        2 

       

      REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY AND 

      THE
        STOCKHOLDERS 

       

      Except
        as
        specifically set forth in the disclosure schedule delivered by the Company
        and
        the Stockholders to Buyer at or prior to the execution of this Agreement
        (the
“Company
        to its knowledge Disclosure Schedule”),
        the
parts
        of
        which are numbered to correspond to the Section numbers of this Agreement,
        the
        Company and, severally and not jointly to his or its knowledge, each of the
        Stockholders, hereby represent and warrant to Buyer: 

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      Section
        2.1 Due
        Organization; Good Standing; Authority; Binding Nature of
        Agreements.
        

       

      (a) The
        Company is a corporation duly organized, validly existing and in good standing
        under the laws of the State of Texas, and has all necessary corporate power
        and
        authority: (i) to conduct its business in the manner in which its business
        is
        currently being conducted; (ii) to own and use its assets in the manner in
        which
        its assets are currently owned and used; (iii) to perform its obligations
        under
        all Company Contracts; and (iv) to enter into and perform all of its obligations
        under the Transactional Agreements to which it is a party. 

       

      (b) Except
        as
        set forth on Section 2.1(b) of the Company Disclosure Schedule, the Company
        has
        never conducted any business under or otherwise used, for any purpose or
        in any
        jurisdiction, any fictitious name, assumed name, trade name or name other
        than
        the name set forth in its articles of incorporation, as amended. 

       

      (c)
        The
        Company is not qualified as a foreign corporation in any jurisdictions and
        the
        nature of its business or the ownership or leasing of its properties does
        not
        requires any such qualification, except where the failure to so qualify and
        be
        in good standing would not have a Company Material Adverse Effect. 

       

      (d) Neither
        the Company nor any of the Stockholders has approved, or commenced any
        proceeding or made any election contemplating, the dissolution or liquidation
        of
        the Company or the winding up or cessation of the Company’s business or affairs.

       

      (e) Except
        as
        set forth on Section 2.1(e) of the Company Disclosure Schedule, the Company
        has
        no subsidiaries, and the Company does not own, beneficially or otherwise,
        any
        shares or other securities of, or any direct or indirect equity interest
        in, any
        Entity. 

       

      (f) Each
        of
        the Transactional Agreements to which the Company is a party constitutes
        the
        legal, valid and binding obligation of the Company, enforceable against the
        Company in accordance with its terms and conditions, subject to (i) bankruptcy,
        insolvency, reorganization, arrangement, moratorium and other similar laws
        of
        general applicability relating to or affecting creditors’ rights generally; and
        (ii) general principles of equity. 

       

      Section
        2.2 Articles
        of Incorporation and Bylaws; Records.
        

       

      (a) The
        Company has delivered to Buyer true and complete copies of: (i) the Company’s
        articles of incorporation and bylaws, including all amendments thereto; (ii)
        the
        stock records of the Company; and (iii) the minutes and other records of
        the
        meetings and other proceedings (including any actions taken by written consent
        or otherwise without a meeting) of the Stockholders, and any predecessor
        thereto, and the board of directors of the Company, and any predecessor thereto.
        There have been no meetings or other proceedings of the Stockholders, or
        any
        predecessor thereto, or the board of directors of the Company, or any
        predecessor thereto which required board or shareholder action, that are
        not
        reflected in such minutes or other records. 

       

      (b) Except
        as
        set forth on Section 2.2(b) of the Company Disclosure Schedule, there
        has
        not been any violation of any of the provisions of the Company’s articles of
        incorporation or bylaws or of any resolution adopted by the Stockholders
        or the
        Company’s board of directors, and to the knowledge of the Company no event has
        occurred, and no condition or circumstance exists, that likely would (with
        or
        without notice or lapse of time) constitute or result directly or indirectly
        in
        such a violation except where such violation would not constitute a Company
        Material Adverse Effect. 

       

      (c) Except
        as
        set forth on Section 2.2 of the Company Disclosure Schedule, the minute books
        of
        the Company (copies of which have been provided to Buyer) are accurate, up
        to
        date and complete in all respects, and such minute books of the Company and
        any
        predecessor thereto are in the actual possession and direct control of the
        Company. 

       

      Section
        2.3 Capitalization;
        Ownership of Stock.
        As of
        the date of this Agreement: 

       

      (a) The
        authorized capital stock of the Company consists of 2,000,000 shares of Company
        Common Stock. As of the date of this Agreement, the outstanding capital of
        the
        Company consists of 1,000 shares of Company Common Stock. All of such Company
        Stock are owned of record by the Stockholders, free and clear of any
        Encumbrances imposed by the Company. Section 2.3(a) of the Company Disclosure
        Schedule includes a list of all Stockholders and the number of shares of
        Company
        Common Stock held thereby, in each case indicating which of such stock is
        restricted stock. The Company has no Company Stock Options or Company Warrants
        issued or outstanding

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (b) All
        of
        the shares of Company Common Stock currently outstanding (i) have been duly
        authorized and validly issued, (ii) are fully paid and nonassessable, and
        (iii)
        have been issued in full compliance with all applicable securities laws and
        other applicable Legal Requirements, except where such noncompliance would
        not
        result in a Company Material Adverse Effect. 

       

      (c) Except
        as
        described in Section 2.3(a) of the Company Disclosure Schedule, there is
        no (i)
        outstanding preemptive right, subscription, option, call, warrant or right
        (whether or not currently exercisable) to acquire any shares of the capital
        stock or other securities of the Company; (ii) outstanding security, instrument
        or obligation that is or may become convertible into or exchangeable for
        any
        shares of the capital stock or other securities of the Company; (iii) Contract
        under which the Company is or may become obligated to sell or otherwise issue
        any shares of its capital stock or any other securities; or (iv) condition
        or
        circumstance that likely would directly or indirectly give rise to or provide
        a
        basis for the assertion of a claim by any Person to the effect that such
        Person
        is entitled to acquire or receive any shares of capital stock or other
        securities of the Company. 

       

      (d) Since
        December 31, 2006, the Company has neither repurchased, redeemed or otherwise
        reacquired, and has not agreed, committed or offered (in writing or otherwise)
        to reacquire, any shares of its capital stock or other securities. Any
        securities reacquired by the Company were (or will have been) reacquired
        in full
        compliance with the applicable provisions of all applicable Legal Requirements.
        

       

      Section
        2.4 Financial
        Statements.
        

       

      (a) The
        Company is currently having an accounting firm authorized to practice before
        the
        Securities and Exchange Commission conduct an audit of the balance sheet
        of the
        Company, as of December 31, 2006 and the related statements of operations,
        shareholders’ equity and cash flows for the two years then ended (the
“Company
        Audited Financial Statements”),
        and
        such audit shall be completed prior to Closing. The Company Audited Financial
        Statements will be true and accurate, in accordance with the books and records
        of Company in all material respects. Except as disclosed therein, the Company
        Audited Financial Statements (i) will be in accordance with the books and
        records of the Company and will be prepared in conformity with generally
        accepted accounting principles as
        in
        effect in the United States.
        (“GAAP”)
        consistently applied for all periods, and (ii) will present fairly the
        financial position of the Company as of the respective dates thereof, and
        the
        results of operations, and changes in shareholders’ equity and changes in cash
        flow for the periods then ended, all in accordance with GAAP consistently
        applied for all periods.

       

      (b) The
        Company has delivered to Buyer the unaudited balance sheets of Scantlin Machine
        Works Ltd. as of January 31, 2007 (the “Unaudited
        Interim Balance Sheet”)
        and
        related unaudited statements of operations for the one month then ended,
        a copy
        of which is attached hereto as Exhibit
        D.

       

      (c) Except
        as
        set forth on Section 2.4(c) of the Company Disclosure Schedule,
        at the
        date of the Unaudited Interim Balance Sheet, (i) the Company and Scantlin
        Machine Works Ltd. on a consolidated basis had no Liabilities of any nature
        required by GAAP to be provided for in such Unaudited Interim Balance Sheet
        which were not provided for, (ii) the Company and Scantlin Machine Works
        Ltd. on
        a consolidated basis had no Liabilities of any nature which were not required
        by
        GAAP to be provided for in the Unaudited Interim Balance Sheet, and (iii)
        all
        reserves established by the Company and Scantlin Machine Works Ltd. on a
        consolidated basis and set forth in the Unaudited Interim Balance Sheet were
        adequate in all material respects for the purposes for which they were
        established. 

       

      (d) Except
        as
        set forth in Section 2.4(d) of the Company Disclosure Schedule, since the
        date
        of the Unaudited Interim Balance Sheet, the Company has no (and Scantlin
        Machine
        Works Ltd. had no) Liabilities in excess of $15,000 individually or $35,000
        in
        the aggregate, except for (i) Liabilities identified as such in the
“liabilities” column of the Unaudited Interim Balance Sheet; (ii) accounts
        payable incurred and accrued by the Company in the Ordinary Course of Business
        since the date of the Unaudited Interim Balance Sheet; and (iii) fees
and
        expenses associated with the transactions contemplated hereby (such fees
        and
        expenses to be subject to Article 9 hereof). 

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      Section
        2.5 Absence
        of Changes.
        Except
        as set forth in Section 2.5 of the Company Disclosure Schedule, from the
        date of
        the Unaudited Interim Balance Sheet to the date of this Agreement: 

       

      (a) there
        has
        not been any Company Material Adverse Effect, and no event has occurred that
        likely would have a Company Material Adverse Effect; 

       

      (b) there
        has
        not been any material loss, damage or destruction to any of the Company’s assets
        not covered by insurance; 

       

      (c) the
        Company has not (i) declared, accrued, set aside or paid any dividend or
        made
        any other distribution in respect of any shares of capital stock, or (ii)
        repurchased, redeemed or otherwise reacquired any shares of capital stock
        or
        other securities, except for the repurchase of shares of Common Stock from
        employees, officers, directors, consultants or other persons performing services
        for the Company pursuant to agreements under which the Company has the option
        to
        repurchase such shares at cost upon the occurrence of certain events, such
        as
        the termination of employment, which repurchases are reflected in the Company
        Disclosure Schedules delivered in accordance with Section 2.3(d) hereof;
        

       

      (d) the
        Company has not sold or otherwise issued any shares of capital stock or any
        other securities, except pursuant to the Company Stock Option Plan or upon
        exercise or conversion of exercisable or convertible securities which exercises
        and conversions are reflected in the Company Disclosure Schedules delivered
        in
        accordance with Section 2.3 hereof; 

       

      (e) the
        Company has not amended its articles of incorporation or bylaws and has not
        effected or been a party to any recapitalization, reclassification of shares,
        stock split, reverse stock split or similar transaction; 

       

      (f) the
        Company has not purchased or otherwise acquired any asset from any other
        Person,
        except for assets acquired by the Company in the Ordinary Course of Business;
        

       

      (g) the
        Company has not leased or licensed any asset from any other Person, except
        for
        assets leased or licensed in the Ordinary Course of Business; 

       

      (h) the
        Company has not made any individual capital expenditure, measured by invoice
        amount, in excess of $15,000; 

       

      (i) the
        Company has not sold or otherwise transferred, and has not leased or licensed,
        any asset to any other Person except in the Ordinary Course of Business;
        

       

      (j) the
        Company has not written off as uncollectible, or established any reserve
        with
        respect to, any account receivable or other indebtedness of $25,000 or more;
        

       

      (k) the
        Company has not pledged or hypothecated any of its assets or otherwise permitted
        any of its assets to become subject to any Encumbrance; 

       

      (l) the
        Company has not made any loan or advance to any other Person, including without
        limitation, any shareholder (excluding routine advances to employees and
        consultants for expenses not exceeding $3,000 in any individual case or $15,000
        in the aggregate); 

       

      (m) the
        Company has not (i) established or adopted any Plan or (ii) paid any bonus
        or
        made any profit sharing or similar payment to, or increased the amount of
        the
        wages, salary, commissions, fringe benefits or other compensation or
        remuneration payable to, any of its directors, officers or employees other
        than
        salary increases for non-officer employees in the Ordinary Course of Business
        and consistent with the Company’s review and compensation practices then in
        force and the Company has not adopted any review or compensation policies;
        

       

      (n) the
        Company has not entered into, and neither the Company nor any of the assets
        owned or used by the Company has become bound by, any Contract, except in
        the
        Ordinary Course of Business; 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (o) no
        Contract by which the Company or any of the assets owned or used by the Company
        is or was bound, or under which the Company has or had any rights or interest,
        has been amended or terminated, except in the Ordinary Course of Business;
        

       

      (p) there
        has
        been no borrowing or agreement to borrow by the Company or change in the
        contingent obligations of the Company by way of guaranty, endorsement,
        indemnity, or otherwise or grant of a mortgage or security interest in any
        property of the Company (other than endorsements of checks and indemnities
        and
        warranties entered into in the Ordinary Course of Business), and the Company
        has
        not incurred, assumed or otherwise become subject to any Liabilities, other
        than
        Liabilities incurred by the Company in the Ordinary Course of Business;

       

      (q) the
        Company has not discharged any Encumbrance or discharged or paid any
        indebtedness or other Liability, except any that (i) are reflected as current
        liabilities in the Unaudited Interim Balance Sheet or have been incurred
        by the
        Company since the date thereof in the Ordinary Course of Business, and (ii)
        have
        been discharged or paid in the Ordinary Course of Business; 

       

      (r) the
        Company has not forgiven any debt or otherwise released or waived any right
        or
        claim in excess of $15,000; 

       

      (s) the
        Company has not changed any of its methods of accounting or accounting practices
        in any respect (except as required by GAAP); 

       

      (t) the
        Company has not entered into any material transaction or taken any other
        action
        outside the Ordinary Course of Business; and 

       

      (u) the
        Company has not agreed or committed (in writing or otherwise) to take any
        of the
        actions referred to in clauses (c) through (t) above. 

       

      Section
        2.6 Title
        to Assets; Equipment; Real Property, Leases.
        

       

      (a) Except
        as
        set forth in Section 2.6 to the Company Disclosure Schedule, the Company
        owns,
        and has good, valid and marketable title to, all assets it purports to own,
        including (i) all assets reflected on the Unaudited Interim Balance Sheet;
        (ii)
        all assets acquired by the Company since the date of the Unaudited Interim
        Balance Sheet; and (iii) all other assets reflected in the Company’s books and
        records as being owned by the Company. Except as set forth in Section 2.6
        to the
        Company Disclosure Schedule, all of said assets are owned by the Company
        free
        and clear of any Encumbrances, except liens for current taxes and assessments
        not delinquent and minor Encumbrances that have arisen in the Ordinary Course
        of
        Business that do not (individually or in the aggregate) materially detract
        from
        the value of the assets subject thereto or materially impair the operations
        of
        the Company. 

       

      (b) Section
        2.6(b) of the Company Disclosure Schedule identifies all equipment, furniture,
        fixtures, improvements and other tangible owned by or leased to the Company.
        

       

      (c) To
        the
        knowledge of the Company, each asset identified in Section 2.6(b) of the
        Company
        Disclosure Schedule (i) is free of defects and deficiencies and in good
        condition and repair, consistent with its age and intended use (ordinary
        wear
        and tear excepted); (ii) complies in all material respects, and is being
        operated and otherwise used in full compliance, with all applicable Legal
        Requirements; and (iii) is adequate in all material respects for the uses
        to
        which it is being put. 

       

      (d) The
        Company does not own any real property or any interest in real property,
        except
        for the leaseholds created under the real property leases identified in Section
        2.6(d) of the Company Disclosure Schedule (the “Leased
        Premises”).
        Section 2.6(d) of the Company Disclosure Schedule provides an accurate and
        complete summary description of the premises covered by said leases and the
        facilities located on such premises. The Company enjoys peaceful and undisturbed
        possession of such premises. The Company has delivered to Buyer complete
        copies
        of all such leases. The Company has no further obligations or liabilities
        to any
        Persons in connection with or arising from its occupancy of the Leased Premises,
        including any lease payments or restoration obligations. 

       

      (e) Except
        as
        set forth on Section 2.6(e) of the Company Disclosure Schedule, the Company
        does
        not have any tangible personal property assets that are being leased or licensed
        to the Company with respect to which annual lease or license payments exceed
        $10,000. 

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (f) Except
        as
        set forth on Section 2.6(f) of the Company Disclosure Schedule, all leases
        pursuant to which the Company leases real property are valid and effective
        in
        accordance with their respective terms and, to the Company’s knowledge, there
        exists no default thereunder or occurrence or condition (other than the passage
        of time) which could result in a default by the Company thereunder or
        termination thereof. 

       

      Section
        2.7 Bank
        Accounts.
        Section
        2.7 of the Company Disclosure Schedule accurately sets forth, with respect
        to
        each account maintained by or for the benefit of the Company at any bank
        or
        other financial institution: 

       

      (a) the
        name
        and location of the institution at which such account is maintained;

       

      (b) the
        name
        in which such account is maintained and the account number of such account;
        

       

      (c) a
        description of such account and the purpose for which such account is used;
        

       

      (d) the
        balance in such account as of July 31, 2007; and 

       

      (e) the
        names
        of all individuals authorized to draw on or make withdrawals from such account.
        There are no safe deposit boxes or similar arrangements maintained by or
        for the
        benefit of the Company. 

       

      Section
        2.8 Receivables;
        Customers.
        

       

      (a) The
        Company has made available to Buyer a list of all accounts receivable of
        the
        Company as of the Unaudited Interim Balance Sheet Date, together with an
        aging
        schedule indicating a range of days elapsed since invoice. 

       

      (b) Except
        as
        set forth on Section 2.8(b) of the Company Disclosure Schedule, all of the
        Company’s accounts receivable arose in the Ordinary Course of Business, are
        carried at values determined in accordance with GAAP consistently applied,
        and
        are collectible except to the extent of reserves therefor set forth in the
        Unaudited Interim Balance Sheet or, for receivables arising subsequent to
        December 31, 2006, as reflected on the books and records of the Company (which
        are prepared in accordance with GAAP consistently applied). Except as set
        forth
        on Section 2.8(b) of the Company Disclosure Schedule, no person has any Lien
        on
        any of the Company’s accounts receivable and no request or agreement for
        deduction or discount has been made with respect to any of the Company’s
        accounts receivable. 

       

      Section
        2.9 Accounts
        Payable.
        Section
        2.9 of the Company Disclosure Schedule (i) provides an accurate and complete
        breakdown and aging of the Company’s accounts payable as of May 1, 2007 and (ii)
        provides an accurate and complete breakdown of the Company’s long term debt as
        of the date of this Agreement. 

       

      Section
        2.10 Proprietary
        Assets.
        

      

      (a) Section
        2.10(a) of the Company Disclosure Schedule sets forth each of the following
        Proprietary Assets owned by or licensed to the Company or otherwise used
        in
        connection with the Company’s business: all United States and foreign (i) patent
        and patent applications; (ii) registered trademarks and trademark applications;
        (iii) registered copyrights and applications for copyright registration;
        and
        (iv) any other such Proprietary Asset that is the subject of an application
        to,
        or certificate or registration issued by, any state, government or other
        public
        legal authority. 

       

      (b) The
        Company has taken reasonable measures and precautions necessary to protect
        the
        confidentiality and value of each Proprietary Asset that is owned by or licensed
        to the Company or that is otherwise used in connection with the Company’s
        business. 

       

      (c) Except
        as
        set forth on Section 2.10(c)(i) of the Company Disclosure Schedule, the Company
        has not granted any third party any right to manufacture, reproduce, license,
        use, distribute, market or exploit any of its Proprietary Assets or any
        adaptations, translations, or derivative works based on the Proprietary Assets
        or any portion thereof. Except as set forth on Section 2.10(c)(ii) of the
        Company Disclosure Schedule, no Company Proprietary Asset is a “derivative work”
of any original work currently owned by a third party as the term “derivative
        work” is defined in the United States Copyright Act, Title 17, U.S.C. Section
        101. 

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (d) The
        Proprietary Assets owned by or licensed to the Company include all Proprietary
        Assets necessary to conduct the Company’s business to the same extent and in the
        same manner as currently conducted. Such ownership or right to use, and to
        license others to use, are free and clear of, and without liability under,
        all
        claims and right of third parties (other than the licensor, and, to the
        Company’s knowledge, any claims and rights of third parties against such
        licensors).

       

      Section
        2.11 Contracts.
        

       

      (a) Section
        2.11(a) of the Company Disclosure Schedule lists each of the following Company
        Contracts: 

       

      (i)
        any
        Company Contract or series of related Company Contracts requiring in the
        aggregate payments after the date hereof by or to the Company of more than
        $50,000; 

       

      (ii)
        any
        Company Contract with or for the benefit of any current or former officer,
        director, shareholder, employee or consultant of the Company or, to the
        Company’s knowledge, a relative of any of the foregoing; 

       

      (iii)
        any
        Company Contract with any labor union or association representing any employee
        of the Company; 

       

      (iv)
        any
        Company Contract for the purchase or sale of materials, supplies, equipment,
        merchandise or services that contain an escalation, renegotiation or
        redetermination clause or that obligate the Company to purchase all or
        substantially all of its requirements of a particular product from a supplier,
        or for periodic minimum purchases of a particular product from a supplier
        in
        excess of $25,000; 

       

      (v)
        any
        Company Contract for sale of any of the assets or properties of the Company
        other than in the Ordinary Course of Business or for the grant to any Person
        of
        any options, rights of first refusal, or preferential or similar rights to
        purchase any such assets or properties and other than any of the Transaction
        Documents; 

       

      (vi)
        any
        agreement of surety, guarantee or indemnification, other than agreements
        in the
        Ordinary Course of Business with respect to obligations in an aggregate amount
        not in excess of $50,000; 

       

      (vii)
        any
        Company Contract containing covenants of the Company or any employee not
        to
        compete in any line of business, in any geographic area or with any Person
        or
        covenants of any other Person not to compete with the Company or in any line
        of
        business of the Company; 

       

      (viii)
        any Company Contract with customers or suppliers for the sharing of fees,
        the
        rebating of charges or other similar arrangements in excess of $25,000;

       

      (ix)
        any
        Company Contract with any holder of securities of the Company as such
        (including, without limitation, any Company Contract containing an obligation
        to
        register any of such securities under any federal or state securities laws);
        

       

      (x)
        any
        Company Contract obligating the Company to deliver services or product
        enhancements or containing a “most favored nation” pricing clause; 

       

      (xi)
        any
        Company Contract relating to the acquisition by the Company of any operating
        business or the capital stock of any other person other than as related to
        the
        Company’s merger with Scantlin Machine Works Ltd.; 

       

      (xii)
        any
        Company Contract requiring the payment to any Person of a brokerage or sales
        commission or a finder’s or referral fee (other than arrangements to pay
        commission or fees to employees in the Ordinary Course of Business) in excess
        of
        $25,000; 

       

      (xiii)
        any Company Contract or note relating to or evidencing outstanding indebtedness
        for borrowed money, including, without limitation, credit cards, open lines
        of
        credit and equipment leases in excess of $25,000; 

      
         

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

      

       

      (xiv)
        any
        lease, sublease or other Company Contract under which the Company is lessor
        or
        lessee of any real property or equipment or other tangible property with
        respect
        to obligations in excess of $50,000; 

       

      (xv)
        any
        Company Contract relating to the employment of any employee, and any Company
        Contract pursuant to which the Company is or may become obligated to make
        any
        severance, termination, bonus or relocation payment or any other payment
        (other
        than payments in respect of salary) in excess of $50,000, to any current
        or
        former employee or director; and 

       

      (xvii)
        any other material Company Contract whether or not made in the Ordinary Course
        of Business in excess of $50,000. 

       

      (b) Except
        as
        set forth on Section 2.11(b) of the Company Disclosure Schedule, each Company
        Contract is valid and in full force and effect, and is enforceable by the
        Company in accordance with its material terms, except as enforceability may
        be
        limited by bankruptcy and other similar laws and general principles of equity.
        

       

      (c) Except
        as
        set forth on Section 2.11(c) of the Company Disclosure Schedule, neither
        the
        Company nor, to the Company’s knowledge, any other party to a Company Contract
        is in default under any Company Contract. No event has occurred, and, to
        the
        Company’s knowledge, no circumstance or condition exists, that likely would
        (with or without notice or lapse of time) (i) result in a violation or breach
        of
        any of the provisions of any Company Contract except where such violation
        of
        breach would not result in a Company Material Adverse Effect, (ii) give any
        Person the right to declare a default or exercise any remedy or hinder any
        Company Contract, (iii) give any Person the right to accelerate the maturity
        or
        performance of any Company Contract, or (iv) give any Person the right to
        cancel, terminate or modify any Company Contract except for the passage of
        time.
        The Company has not waived any of its rights under any Company Contract,
        except
        in the Ordinary Course of Business. 

       

      (d) (i)
        The
        Company is not a guarantor of and has not otherwise agreed to cause, insure
        or
        become liable for, and has not pledged any of its assets to secure, the
        performance or payment of any obligation or other Liability of any other
        Person
        except in the Ordinary Course of Business; and (ii) except as set forth on
        Section 2.6(d)(ii) of the Company Disclosure Schedule, the Company has never
        been a party to or bound by any joint venture agreement, partnership agreement,
        profit sharing agreement, cost sharing agreement, loss sharing agreement
        or
        similar Contract. 

       

      (e) To
        the
        knowledge of the Company, the performance of the Company Contracts will not
        result in any violation of or failure to comply with any Legal Requirement.
        

       

      (f) There
        is
        no proposed Contract as to which any bid, offer, written proposal, term sheet
        or
        similar document has been submitted or received by the Company that would
        commit
        the Company to deliver goods or provide services with a value in excess of
        $50,000 and is outstanding. 

       

      (g) No
        party
        to any Company Contract has notified the Company or made a claim to the effect
        that the Company has failed to perform a material obligation thereunder.
        In
        addition, to the knowledge of the Company, there is no plan, intention or
        indication of any contracting party to any Company Contract to cause the
        termination, cancellation or modification of such Contract or to reduce or
        otherwise change its activity thereunder so as to adversely affect the benefits
        derived or expected to be derived therefrom by the Company. 

       

      Section
        2.12 Compliance
        With Legal Requirements.
        

       

      (a) Except
        as
        set forth on Section 2.12(a) of the Company Disclosure Schedule, the Company
        is
        in compliance with each material Legal Requirement that is applicable to
        it or
        to the conduct of its business or the ownership or use of any of its assets.
        

       

      (b) To
        the
        knowledge of the Company, no event has occurred, and no condition or
        circumstance exists, that likely would (with or without notice or lapse of
        time)
        constitute or result directly or indirectly in a violation by the Company
        of, or
        a failure on the part of the Company to comply with, any Legal Requirement,
        except such failures as would not have a Company Material Adverse Effect.
        

       

      (c) Except
        as
        set forth on Section 2.12(a) of the Company Disclosure Schedule, the Company
        has
        not received any notice or other communication (in writing or otherwise)
        from
        any Governmental Body, or any other Person, regarding (i) any actual, alleged,
        possible or potential violation of, or failure to comply with, any Legal
        Requirement
        or (ii) any actual, alleged, possible or potential obligation on the part
        of the
        Company to undertake, or to bear all or any portion of the cost of, any cleanup
        or any remedial, corrective or response action of any nature. 

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      Section
        2.13 Governmental
        Authorizations.
        

       

      (a) Except
        as
        set forth on Section 2.13(a) of the Company Disclosure Schedule, the Company
        has
        all licenses, permits, franchises, orders or approvals of any federal, state,
        local or foreign governmental or regulatory body required for the conduct
        of the
        business of the Company, except where not having such license, permit,
        franchise, order or approval would not result in a Company Material Adverse
        Effect; and all are in full force and effect; and no proceeding is pending
        or,
        to the knowledge of the Company, threatened to revoke or limit any of the
        foregoing. 

       

      Section
        2.14 Tax
        Matters.
        

       

      (a) Except
        as
        set forth on Section 2.14(a) of the Company Disclosure Schedule, since January
        1, 2002 each Tax required to have been paid, or claimed by any Governmental
        Body
        to be payable, by the Company (whether pursuant to any Tax Return or otherwise)
        has been duly paid in full on a timely basis. Any Tax required to have been
        withheld or collected by the Company has been duly withheld and collected,
        and
        (to the extent required) each such Tax has been paid to the appropriate
        Governmental Body. 

       

      (b) Since
        January 1, 2000, all Tax Returns required to be filed by or on behalf of
        the
        Company (“Company
        Returns”)
        (i)
        have been or will be filed when due, and (ii) have been, or will be when
        filed,
        accurately and completely prepared in material compliance with all applicable
        Legal Requirements. All amounts shown on the Company Returns to be due on
        or
        before the date hereof, and all amounts otherwise payable in connection with
        the
        Company Returns on or before the date hereof, have been paid. The Company
        has
        made available to Buyer accurate and complete copies of Company Returns filed
        by
        the Company. 

       

      (c) The
        Company’s liability for unpaid Taxes for all periods ending on or before the
        date of the Financial Statements does not, in the aggregate, exceed the amount
        of the current liability accruals for Taxes (excluding reserves for deferred
        taxes) reported in the Financial Statements. The Company has established
        in the
        Ordinary Course of Business reserves for the payment of all Taxes for the
        period
        from the date of the Financial Statements through the date hereof and has
        disclosed the dollar amount of such reserves to the Buyer. 

       

      (d) Section
        2.14(d) of the Company Disclosure Schedule accurately identifies each
        examination or audit of any Company Return that has been conducted by any
        Governmental Body since January 1, 2002. The Company has delivered to Buyer
        accurate and complete copies of all audit reports and similar documents relating
        to Company Returns. No extension or waiver of the limitation period applicable
        to any of the Company Returns has been granted (by the Company or any other
        Person) that are still in effect, and no such extension or waiver has been
        requested from the Company. 

       

      (e) Except
        as
        set forth on Section 2.14(e) of the Company Disclosure Schedule, no claim
        or
        other Proceeding is pending or to the Company’s knowledge has been threatened
        against or with respect to Company in respect of any Tax. There are no
        unsatisfied Liabilities for Taxes with respect to any notice of deficiency
        or
        similar document received by the Company. The Company has not entered into
        or
        become bound by any agreement or consent pursuant to Section 341(f) of the
        Code.
        The Company has not been, and will not be, required to include any adjustment
        in
        taxable income for any tax period prior to Closing (or portion thereof) pursuant
        to Section 481 or 263A of the Code or any comparable provision under state
        or
        foreign Tax laws as a result of transactions or events occurring, or accounting
        methods employed, prior to the Closing. The Company is in compliance with
        the
        terms and conditions of any applicable Tax exemptions, Tax agreements or
        Tax
        orders of any Governmental Body to which it may be subject or which it may
        have
        claimed, and the transactions contemplated by this Agreement will not have
        any
        adverse effect on such compliance. 

       

      (f) There
        is
        no agreement, plan, arrangement or other Contract covering any employee or
        independent contractor or former employee or independent contractor of the
        Company that, individually or collectively, could give rise directly or
        indirectly to the payment of any amount that would not be deductible pursuant
        to
        Section 280G or Section 162(m) of the Code. 

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (g) Except
        as
        set forth on Section 2.14(g) of the Company Disclosure Schedule, the Company
        is
        not liable for Taxes incurred by any individual, trust, corporation, partnership
        or other entity other than Company, either as a transferee or pursuant to
        Treasury Regulations Section 1.1502-6, or pursuant to any other provision
        of
        federal, state or local law or regulation. Except as set forth on Section
        2.14(f) of the Company Disclosure Schedule, the Company is not, and has never
        been, a party to or bound by any tax indemnity agreement, tax sharing agreement,
        tax allocation agreement or similar Contract. 

       

      (h) The
        Company is not a party to any joint venture, partnership or other arrangement
        or
        contract which could be treated as a partnership for United States federal
        income tax purposes. 

       

      (i) The
        Company is not a United States real property holding corporation within the
        meaning of Section 897(c)(2) of the Code and has not been a United States
        real
        property holding corporation within the applicable period specified in Section
        897(c)(1)(A)(ii) of the Code. 

       

      (j) The
        Company has not been the “distributing corporation” (within the meaning of
        Section 355(c)(2) of the Code) with respect to a transaction described in
        Section 355 of the Code within the 3-year period ending as of the date of
        this
        Agreement. 

       

      Section
        2.15 Employee
        and Labor Matters.
        

       

      (a) Section
        2.15(a) of the Company Disclosure Schedule accurately sets forth, with respect
        to each employee of the Company as of the date of this Agreement (including
        any
        employee of the Company who is on a leave of absence or on layoff status)
        (i)
        the name of such employee and the date as of which such employee was originally
        hired by the Company; (ii) such employee’s title; (iii) such employee’s
        annualized compensation as of the date of this Agreement (which will include
        the
        employee’s base salary and whether such employee is a bonus or commission
        employee, an approximate calculation of any bonus payable to such employee
        as of
        the date of this Agreement, and any commission schedule applicable to such
        employee); (iv) each Plan in which such employee participates or is eligible
        to
        participate; (v) accrued paid time off payable to such employee as of July
        31,
        2007; (vi) any severance that would be due upon termination with or without
        cause of such employee. and (vii) any Governmental Authorization that is
        held by
        such employee and that is used in connection with the Company’s business. Copies
        of all loans and commission plans have been made available to
        Buyer;

       

      (b) Section
        2.15(b) of the Company Disclosure Schedule contains a list of individuals
        who
        are currently performing services for the Company and are classified as
“consultants” or “independent contractors,” and the respective compensation of
        each such “consultant” or “independent contractor.” 

       

      (c) Except
        as
        set forth on Section 2.15(c) of the Company Disclosure Schedule There is
        no
        former employee of the Company who is receiving or is scheduled to receive
        (or
        whose spouse or other dependent is receiving or is scheduled to receive)
        any
        benefits (whether from the Company or otherwise) relating to such former
        employee’s employment with the Company except as is required under Section 4980B
        of the Code or similar applicable state law. 

       

      (d) Except
        as
        set forth on Schedule 2.15(d) of the Company Disclosure Schedule, the Company
        is
        not a party to or bound by any employment agreement or any union contract,
        collective bargaining agreement or similar Contract. 

       

      (e) Except
        as
        set forth on Section 2.15(e) of the Company Disclosure Schedule, the Company
        has
        never been a party to or bound by any Contract that creates or grants to
        any
        Person, or provides for the creation or grant of, any stock appreciation
        right,
        phantom stock right or similar right or interest. 

       

      (f) Except
        as
        set forth on Section 2.15(f) of the Company Disclosure Schedule, the employment
        of each of the Company’s employees is terminable by the Company at will. The
        Company has delivered to Buyer accurate and complete copies of all employee
        manuals and handbooks, policy statements and employment agreements relating
        to
        the employment of the current employees of the Company. 

       

      (g) To
        the
        knowledge of the Company (i) no employee of the Company intends to terminate
        his
        or her employment with the Company and the Company does not have a present
        intention to terminate the employment of any employee; (ii) to the Company’s
        knowledge, no employee of the Company has received since December 31, 2006,
        nor
        is currently considering, an offer to join a business that likely would be
        competitive with the Company’s business;
        and (iii) no employee of the Company is a party to or is bound by any
        confidentiality agreement, noncompetition agreement or other Contract (with
        any
        Person) that likely would have an adverse effect on (A) the performance by
        such
        employee of any of his or her duties or responsibilities as an employee of
        the
        Company, or (B) the Company’s business or operations. 

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      (h) To
        the
        Company’s knowledge, no employee who is a party to any proprietary information,
        confidentiality, noncompetition, employment or similar agreement with any
        third
        party is in breach of such agreement. 

       

      (i) To
        its
        knowledge, the Company is not engaged, and has never been engaged, in any
        unfair
        labor practice (as defined under the National Labor Relations Act). Since
        January 1, 2004, there has never been any slowdown, work stoppage, labor
        dispute
        or union organizing activity, or any similar activity or dispute, affecting
        the
        Company or any of its employees while employed by the Company. There is not
        now
        pending, and to the knowledge of the Company no Person has threatened to
        commence, any such slowdown, work stoppage, labor dispute or union organizing
        activity or any similar activity or dispute, nor has any event occurred,
        nor
        does any condition or circumstance exist, that likely would directly or
        indirectly give rise to or provide a basis for the commencement of any such
        slowdown, work stoppage, labor dispute or union organizing activity or any
        similar activity or dispute. 

       

      (j) Each
        employee of the Company is in compliance with all applicable visa and work
        permit requirements. Except as set forth on Section 2.15(j) of the Company
        Disclosure Schedule, no visa or work permit held by an employee of the Company
        will expire during the six month period beginning at the date of this Agreement.
        

       

      Section
        2.16 Benefit
        Plans; ERISA. 

       

      (a) Section
        2.16(a) of the Company Disclosure Schedule lists all written (i) Employee
        Benefit Plans, (ii) employment agreements, including, but not limited to,
        any
        individual benefit arrangement, policy or practice with respect to any current
        or former employee or director of the Company or any ERISA Affiliate, and
        (iii)
        other employee benefit, bonus or other incentive compensation, stock option,
        stock purchase, stock appreciation, severance pay, lay-off or reduction in
        force, change in control, sick pay, vacation pay, salary continuation, retainer,
        leave of absence, educational assistance, service award, employee discount,
        fringe benefit plans, arrangements, policies or practices, whether legally
        binding or not, and including a specific identification of those which contain
        severance pay or change of control provisions or pending change of control
        provisions, which the Company or any ERISA Affiliate maintains, contributes
        to
        or has any obligation to or liability for (collectively, the “Plans”).
        Except as set forth on Section 2.16(a) of the Company Disclosure Schedule,
        the
        Company is not party to any agreements regarding the payment of severance.
        

       

      (b) Except
        as
        set forth in Section 2.16(b) of the Company Disclosure Schedule, none of
        the
        Plans is a Defined Benefit Plan, and neither the Company nor any ERISA Affiliate
        has ever sponsored, maintained or contributed to, or ever been obligated
        to
        contribute to, a Defined Benefit Plan. 

       

      (c) Except
        as
        set forth in Section 2.16(b) of the Company Disclosure Schedule, none of
        the
        Plans is a Multiemployer Plan, and neither the Company nor any ERISA Affiliate
        has ever contributed to, or ever been obligated to contribute to, a
        Multiemployer Plan. 

       

      (d) The
        Company does not maintain or contribute to any welfare benefit plan that
        provides health benefits to an employee after the employee’s termination of
        employment or retirement except as required under Section 4980B of the Code
        and
        Sections 601 through 608 of ERISA or similar applicable state law. 

       

      (e) Each
        Plan
        that is an Employee Benefit Plan is in material compliance with its terms
        and in
        operation with the requirements provided by any and all statutes, orders
        or
        governmental rules or regulations currently in effect and applicable to the
        Plan, including but not limited to ERISA and the Code. 

       

      (f) All
        reports, forms and other documents required to be filed with any Governmental
        Body or furnished to employees with respect to any Plan (including without
        limitation, summary plan descriptions, Forms 5500 and summary annual reports)
        have been timely filed or furnished and are materially accurate. 

       

      (g) Each
        Plan
        intended to qualify under Section 401(a) of the Code is the subject of a
        favorable determination letter (or opinion letter, if applicable) issued
        by the
        Internal Revenue Service that provides that it so qualifies
        through the last day of the “TRA 86 Remedial Amendment Period,” as such term is
        defined in Section 3.02 of Revenue Procedure 96-55 issued by the Internal
        Revenue Service and that its related trust is exempt from taxation under
        Section
        501 of the Code or there is time remaining to apply for such determination
        letter under Section 401(b) of the Code and the Internal Revenue Service
        pronouncements thereunder. Nothing has occurred since the date of the Internal
        Revenue Service’s favorable determination letter that could adversely affect the
        qualification of such Plan or the tax exempt status of its related trust.
        

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

      (h) All
        contributions for all periods ending prior to the Closing (including periods
        from the first day of the current plan year to the Closing) have been made
        prior
        to the Closing by the Company or the applicable ERISA Affiliate, except
        contributions for the payroll periods ending during the month in which the
        Closing occurs. 

       

      (i) All
        insurance premiums have been paid in full, subject only to normal retrospective
        adjustments in the ordinary course, with regard to the Plans for coverage
        months
        ending on or before the Closing. 

       

      (j) With
        respect to each Plan: 

       

      (i) no
        prohibited transactions (as defined in Section 406 or 407 of ERISA or Section
        4975 of the Code) have occurred for which a statutory exemption is not
        available; 

       

      (ii) no
        action
        or claims (other than routine claims for benefits made in the ordinary course
        of
        Plan administration for which Plan administrative review procedures have
        not
        been exhausted) are pending, or to the Company’s knowledge, threatened or
        imminent against or with respect to the Plan, any employer who is participating
        (or who has participated) in any Plan or any fiduciary (as defined in Section
        3(21) of ERISA) of the Plan which would have a Company Material Adverse Effect;
        

       

      (iii) neither
        the Company nor, to the Company’s knowledge, any fiduciary has any knowledge of
        any facts which could give rise to any such action or claim; and 

       

      (iv) except
        as
        set forth on Section 2.16(j)(iv) of the Company Disclosure Schedule,  it
        provides that it may be amended or terminated at any time and, except for
        benefits protected under Section 411(d) of the Code and benefits to be provided
        in connection with termination of employment under contract or plan terms,
        all
        benefits payable to current, terminated employees or any beneficiary may
        be
        amended or terminated by the Company at any time without liability.

       

      (v) there
        are
        no audits, inquiries, investigations, or proceedings pending or, to the
        knowledge of the Company or any ERISA Affiliate, threatened by any Governmental
        Body with respect to any Plan. 

       

      (k) Neither
        the Company nor any ERISA Affiliate has any liability or to its knowledge
        is
        threatened with any liability (whether joint or several) (i) for any excise
        tax
        imposed by Sections 4971, 4975, 4976, 4977 or 4979 of the Code, or (ii) for
        a
        fine under Section 502 of ERISA. 

       

      (l) All
        of
        the Plans listed in the Company Disclosure Schedule, to the extent applicable,
        are in compliance with the continuation of group health coverage provisions
        contained in Section 4980B of the Code and Sections 601 through 608 of ERISA.
        

       

      (m) True,
        correct and complete copies of all documents creating or evidencing any Plan
        listed in the Company Disclosure Schedule including (without limitation)
        (i) all
        amendments thereto and all related trust documents, administrative service
        agreements, group annuity contracts, group insurance contracts, and policies
        pertaining to fiduciary liability insurance covering the fiduciaries for
        each
        Plan; (ii) all IRS determination, opinion, notification and advisory letters,
        and all applications and correspondence to or from the IRS or the DOL with
        respect to any such application or letter; (iii) all written communications
        to
        any Employee or Employees relating to any Plan and any proposed Plans, in
        each
        case, relating to any amendments, terminations, establishments, increases
        or
        decreases in benefits, acceleration of payments or vesting schedules or other
        events which would result in any material liability to the Company received
        by
        Employees in the last two (2) years; (iv) all correspondence to or from any
        governmental agency relating to any Plan since January 1, 2005; (v) all COBRA
        forms and related notices provided since January 1, 2005 (or such forms and
        notices as required under comparable law); (vi) nondiscrimination test reports
        for each applicable Plan for the last three (3) years; (vii) all registration
        statements, annual reports and prospectuses prepared in connection with each
        Plan for the last three (3) years; and (viii) all reports, forms and other
        documents required to be filed with any Governmental Body in the last two
        (2)
        years (including,
        without limitation, summary plan descriptions, Forms 5500 and summary annual
        reports for all plans subject to ERISA) have been delivered to Buyer.

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

      (n) All
        expenses and liabilities relating to all of the Plans described in the Company
        Disclosure Schedule have been, and will on the Closing be fully and properly
        accrued on the Company’s books and records and disclosed in accordance with GAAP
        and in Plan financial statements. 

       

      (o) Neither
        the Company nor any ERISA Affiliate has, prior to the Closing Date and in
        any
        material respect, violated any of the health care continuation requirements
        of
        COBRA, the requirements of FMLA, the requirements of the Health Insurance
        Portability and Accountability Act of 1996, the requirements of the Women’s
        Health and Cancer Rights Act of 1998, the requirements of the Newborns’ and
        Mothers’ Health Protection Act of 1996, or any amendment to each such act, or
        any similar provisions of state law applicable to its employees. 

       

      Section
        2.17 Environmental
        Matters.
        Except
        as set forth on Section 2.17 of the Company Disclosure Schedule, the Company
        is
        and has been at all times in compliance in all material respects with all
        Environmental Laws. The Company has now and at all times has had all the
        necessary permits required under Environmental Laws for the operation of
        its
        business, and is not and has not been in violation of any of the terms and
        conditions of any of its permits. The Company has not received any notice
        or
        other communication (in writing or otherwise) that alleges that the Company
        is
        not in compliance with any Environmental Law. The Company has not generated,
        manufactured, produced, transported, imported, used, treated, refined,
        processed, handled, stored, discharged, released, or disposed of any Hazardous
        Materials (whether lawfully or unlawfully) at any of the Leased Premises
        occupied or controlled by the Company on or at any time prior to the date
        hereof
        other than common household and office products in de
        minimis
        quantities. There are not and have not been any releases or threatened releases
        of any Hazardous Materials in any quantity (other than common household and
        office products in de
        minimis
        quantities) at, on, or from the Leased Premises, and to the knowledge of
        the
        Company (a) there are no circumstances that may prevent or interfere with
        the
        Company’s compliance with any Environmental Law and (b) no former owner or user
        of the Leased Premises engaged in any type of manufacturing or commercial
        activity which might be reasonably expected to generate, manufacture, produce,
        transport, import, use, treat, refine, process, handle, store, discharge,
        release, or dispose of any Hazardous Materials (whether lawfully or unlawfully)
        on the Leased Premises. 

       

      Section
        2.18 Sale
        of Products; Performance of Services.
        Section
        2.18 of the Company Disclosure lists all Contracts pursuant to which the
        Company
        has made an express written warranty or guaranty (the “Warranty
        Contracts”).
        Except for the Warranty Contracts, the Company has not made any express
        warranties or guarantees relating to its products or services that are in
        effect
        as of the date hereof. Except as set forth on Section 2.18 of the Company
        Disclosure Schedule, no customer or other Person has ever asserted or threatened
        to assert any material claim against the Company (i) under or based upon
        any
        warranty provided by or on behalf of the Company, or (ii) under or based
        upon
        any other warranty relating to any product sold by the Company or any services
        performed by the Company. To the knowledge of the Company, no event has
        occurred, and no condition or circumstance exists, that likely would (with
        or
        without notice or lapse of time) directly or indirectly give rise to or serve
        as
        a basis for the assertion of any such claim. 

       

      Section
        2.19 Insurance.
        

       

      (a) Section
        2.19(a) of the Company Disclosure Schedule accurately sets forth, with respect
        to each insurance policy maintained by or at the expense of, or for the direct
        or, to the Company’s knowledge, indirect benefit of, the Company: (i) the name
        of the insurance carrier and the policy number of such policy; (ii) whether
        such
        policy is a “claims made” or an “occurrences” policy; (iii) a description of the
        coverage provided by such policy ; (iv) the annual premium payable with respect
        to such policy, and the cash value (if any) of such policy; and (v) a
        description of any claims pending, and any claims that have been asserted
        in the
        past, with respect to such policy. The Company has delivered to Buyer accurate
        and complete copies of all of the insurance policies identified in Section
        2.19(a) of the Company Disclosure Schedule (including all renewals thereof
        and
        endorsements thereto) and binders relating thereto indicating that such policies
        are in full force and effect as of the date hereof. 

       

      (b) Each
        of
        the policies identified in Section 2.19(a) of the Company Disclosure Schedule
        is
        valid, enforceable and in full force and effect. The nature, scope and dollar
        amounts of the insurance coverage provided by said policies comply with all
        insurance coverage requirements of the Company Contracts. 

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (c) There
        is
        no pending claim under or based upon any of the policies identified in Section
        2.19(a) of the Company Disclosure Schedule, and to the Company’s knowledge, no
        event has occurred, and no condition or circumstance exists, that likely
        would
        (with or without notice or lapse of time) directly or indirectly give rise
        to or
        serve as a basis for any such claim. 

       

      Section
        2.20 Related
        Party Transactions.
        Since
        January 1, 2004:

       

      (a) To
        the
        Company’s knowledge, except as set forth in Section 2.20(a) of the Company
        Disclosure Schedule, no Related Party has, and no Related Party has at any
        time
        had, any direct or, except as a shareholder of the Company, indirect interest
        of
        any nature in any asset used in or otherwise relating to the business of
        the
        Company; 

       

      (b) No
        Related Party is, or has been indebted to the Company; 

       

      (c) To
        the
        Company’s knowledge, no Related Party has entered into, or has had any direct or
        indirect financial interest in, any Contract, transaction or business dealing
        of
        any nature involving the Company and no such Contract, transaction or business
        dealing of any nature is necessary to operate the business of the Company
        as it
        is currently conducted; 

       

      (d) To
        the
        Company’s knowledge, no Related Party is competing, or has at any time competed,
        directly or indirectly, with the Company in any market served by the Company;
        

       

      (e) To
        the
        Company’s knowledge, no Related Party has any claim or right against the
        Company; and 

       

      (f) To
        the
        Company’s knowledge, no event has occurred, and no condition or circumstance
        exists, that likely would (with or without notice or lapse of time) directly
        or
        indirectly give rise to or serve as a basis for any claim or right in favor
        of
        any Related Party against the Company. 

       

      Section
        2.21 Proceedings;
        Orders.
        

       

      (a) Except
        as
        set forth on Section 2.21 of the Company Disclosure Schedule, there is no
        pending Proceeding, and to the knowledge of the Company, no Person has
        threatened to commence any Proceeding (i) that involves the Company or that
        otherwise relates to or likely would affect the Company’s business or any of the
        assets owned or used by the Company (whether or not the Company is named
        as a
        party thereto); or (ii) that challenges, or that may have the effect of
        preventing, delaying, making illegal or otherwise interfering with, any of
        the
        Transactions. To the knowledge of the Company, no event has occurred, and
        no
        claim, dispute or other condition or circumstance exists, that likely would
        directly or indirectly give rise to or serve as a basis for the commencement
        of
        any such Proceeding. 

       

      (b) Except
        as
        set forth on Section 2.21 of the Company Disclosure Schedule, since January
        1,
        2004 no Proceeding has been commenced by or against the Company, and no
        Proceeding otherwise involving or relating to the Company has been pending
        or,
        to the Company’s knowledge, threatened at any time. 

       

      (c) The
        Company has delivered to Buyer complete copies of all pleadings, correspondence
        and other written materials to which the Company has access that relate to
        the
        Proceedings identified in Section 2.21 (a) or (b) of the Company Disclosure
        Schedule. 

       

      (d) There
        is
        no Order to which the Company, or any of the assets owned or used by the
        Company, is subject. 

       

      (e) To
        the
        knowledge of the Company, no officer or employee of the Company is subject
        to
        any Order that prohibits such officer or employee from engaging in or continuing
        any conduct, activity or practice relating to the Company’s business.

       

      (f) There
        is
        no Order, or to the knowledge of the Company, proposed Order (other than
        any
        proposed Order that would be applicable generally to the contract machine
        shop
        industry) that, if issued or otherwise put into effect, (i) likely would
        have a
        material adverse effect on the ability of the Company to comply with or perform
        any covenant or obligation under this Agreement or any of the other
        Transactional Agreements or (ii) may have the effect of preventing, delaying,
        making legal or otherwise interfering with any of the Transactions.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      Section
        2.22 Non-Contravention;
        Consents.
        Except
        as set forth on Section 2.22 of the Company Disclosure Schedule, neither
        the
        execution and delivery of this Agreement or the other Transactional Agreements
        to which the Company, a Stockholder, or a Key Employee is a party, nor the
        consummation or performance of any of the Transactions, will directly or
        indirectly (with or without notice or lapse of time): 

      

      (a) contravene,
        conflict with or result in a violation of (i) any of the provisions of the
        Company’s certificate of incorporation or bylaws, or (ii) any resolution adopted
        by the Stockholders, the Company’s board of directors or any committee of the
        Company’s board of directors, if any; 

       

      (b) to
        the
        knowledge of the Company, contravene, conflict with or result in a violation
        of,
        or give any Governmental Body or other Person the right to challenge any
        of the
        Transactions or to exercise any remedy or obtain any relief under, any Legal
        Requirement or any Order to which the Company, or any of the assets owned
        or
        used by the Company, is subject; 

       

      (c) cause
        the
        Company to become subject to, or to become liable for the payment of, any
        Tax;

       

      (d) cause
        any
        of the assets owned or used by the Company to be reassessed or revalued by
        any
        taxing authority or other Governmental Body; 

       

      (e) contravene,
        conflict with or result in a violation of any of the terms or requirements
        of,
        or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
        terminate or modify, any Governmental Authorization that is held by the Company
        or any of its employees or that otherwise relates to the Company’s business or
        to any of the assets owned or used by the Company; 

       

      (f) contravene,
        conflict with or result in a violation or breach of, or result in a default
        under, any provision of any of the Company Contracts; 

       

      (g) give
        any
        Person the right to (i) declare a default or exercise any remedy under any
        Company Contract, (ii) accelerate the maturity or performance of any Company
        Contract, or (iii) cancel, terminate or modify any Company Contract;

       

      (h) give
        any
        Person the right to any payment by the Company or give rise to any acceleration
        or change in the award, grant, vesting or determination of options, warrants,
        rights, severance payments or other contingent obligations of any nature
        whatsoever of the Company in favor of any Person, in any such case as a result
        of the change in control of the Company or otherwise resulting from the
        Transactions; or 

       

      (i) result
        in
        the imposition or creation of any Encumbrance upon or with respect to any
        asset
        owned or used by the Company. 

       

      Except
        as
        set forth in Section 2.22 of the Company Disclosure Schedule, the Company
        will
        not be required to make any filing with or give any notice to, or obtain
        any
        Consent from, any Person in connection with the execution and delivery of
        this
        Agreement and the other Transactional Agreements or the consummation or
        performance of any of the Transactions. As of the Closing Date, all such
        filings, notices and Consents will have been duly made, given or obtained
        and
        are in full force and effect, other than those which by their nature are
        required to be made, given or obtained after the execution of this Agreement,
        all of which shall be made, given or obtained within the time required therefor.
        

       

      Section
        2.23 Brokers.
        Except
        as set forth in Section 2.23 of the Company Disclosure Schedule, neither
        the
        Company nor any Stockholder has agreed or become obligated to pay, or taken
        any
        action that likely would result in any Person claiming to be entitled to
        receive, any brokerage commission, finder’s fee or similar commission or fee in
        connection with any of the Transactions. 

       

      Section
        2.24 Powers
        of Attorney.
        The
        Company has not given a power of attorney to any Person. 

       

      Section
        2.25 Voting
        Arrangements.
        Except
        as set forth on Section 2.25 of the Company Disclosure Schedule, to the
        Company’s knowledge, there are no outstanding shareholder agreements, voting
        trusts, proxies or other arrangements or understandings relating to the voting
        of any shares of the capital stock of the Company, except as contemplated
        by
        this Agreement. 

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      Section
        2.26 Full
        Disclosure.
        No
        statement contained in any representation or warranty contained herein or
        any
        statement contained in any certificate or schedule furnished or to be furnished
        by the Company to Buyer in, or pursuant to the provisions of, this Agreement
        contains or shall contain any untrue statement of a material fact or omits
        or
        will omit to state any material fact necessary, in the light of the
        circumstances under which it was made, in order to make the statements herein
        or
        therein not misleading. 

       

      Section
        2.27 Complete
        Copies of Materials.
        Except
        as set forth in Section 2.27 of the Company Disclosure Schedule, the Company
        has
        delivered or made available true and complete copies of each document (or
        summaries of same) that has been requested by Buyer or its counsel.

       

      ARTICLE
        3 

       

      REPRESENTATIONS
        AND WARRANTIES 

      OF
        THE STOCKHOLDERS 

       

      Except
        as
        specifically set forth in the disclosure schedule delivered by the Stockholders
        to the Buyer at or prior to the execution of this Agreement (the “Stockholders
        Disclosure Schedule”),
        the
        parts of which are numbered to correspond to the Section numbers of this
        Agreement, each of the Stockholders hereby severally represents and warrants
        to
        Buyer, as to himself or herself only, as of the date hereof and as of the
        Closing Date, as follows: 

       

      Section
        3.1 Title
        to Shares.  Each
        Stockholder owns the Shares set forth opposite his/her name on Schedule
        1
        hereto
        (which in the aggregate represent all of the issued and outstanding shares
        of
        Company Common Stock) free and clear of any Encumbrance (other than restrictions
        imposed by applicable securities laws), and has the authority to dispose
        of such
        Shares pursuant to this Agreement. 

       

      Section
        3.2 Stockholder
        Power and Authority.  Such
        Stockholder has the power and authority to execute, deliver and perform its
        obligations under this Agreement and the other Transactional Agreements to
        which
        such Stockholder is a party. This Agreement has been duly executed and delivered
        by such Stockholder, and constitutes a legal, valid and binding obligation
        of
        such Stockholder, enforceable against such Stockholder in accordance with
        its
        terms, except as enforcement thereof may be limited by liquidation,
        conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
        laws affecting the enforcement of creditors’ rights generally and general
        principles of equity. Each of the Transactional Agreements to which such
        Stockholder is a party, when executed and delivered in accordance with the
        terms
        hereof, will constitute a legal, valid and binding obligation of such
        Stockholder, enforceable against the Stockholder in accordance with its terms,
        except as enforcement thereof may be limited by liquidation, conservatorship,
        bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
        the
        enforcement of creditors’ rights generally and general principles of equity.

       

      Section
        3.3 Effect
        of Agreement on the Stockholders.  Except
        as set forth on Section 3.3 of the Stockholders Disclosure Schedule, neither
        the
        execution and delivery of this Agreement nor the Transactional Agreements to
        which such Stockholder is a party nor the consummation of the transactions
        contemplated hereby or thereby will (i) result in the acceleration, breach
        or
        termination of, or the creation in any party of the right to accelerate,
        terminate, modify, cancel or require any notice under, any contract, lease,
        license, instrument or other arrangement, or other obligation or liability
        to
        which such Stockholder is a party or is bound or to which the Stockholder’s
        assets are subject, (ii) conflict with or violate any law, rule, regulation,
        ordinance, order, writ, injunction or decree applicable to the Stockholder
        by
        which any of his or her respective properties or assets is bound or affected,
        (iii) or result in the creation of any Encumbrance upon the Shares.

       

      Section
        3.4 Litigation.  There
        are no claims, actions, suits, arbitrations, grievances, proceedings or
        investigations pending or, to the knowledge of each Stockholder, threatened
        against such Stockholder, at law, in equity or before any federal, state,
        municipal or other governmental or nongovernmental department, commission,
        board, bureau, agency or instrumentality, domestic or foreign, involving
        the
        transactions contemplated hereby. 

       

      Section
        3.5 Stockholder
        Agreements.  
        There are no agreements, written or oral, between the Company and any
        Stockholder or between the Stockholders, relating to the acquisition (including
        without limitation rights of first refusal or pre-emptive rights), disposition,
        registration under the Securities Act of 1933, as amended, or voting of the
        Company Stock. 

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      Section
        3.6 Receipt
        of Information.  
        Such Stockholder has received all the information such Stockholder considers
        necessary or appropriate for deciding whether to purchase their respective
        portion of the Note Consideration and the Stock Consideration. Such Stockholder
        represents that it has had an opportunity to ask questions and receive answers
        from Buyer regarding the sale of the Note Consideration and the Stock
        Consideration and the business, properties, prospects, and financial condition
        of the Buyer and to obtain additional information (to the extent the Buyer
        possessed such information or could acquire it without unreasonable effort
        or
        expense) necessary to verify the accuracy of any information furnished to
        the
        such Stockholder or to which such Stockholder has had access. The foregoing,
        however, does not limit or modify in any way the representations and warranties
        of the Buyer contained in this Agreement, or any of the rights of such
        Stockholder provided for under this Agreement or any other rights it may
        have
        under applicable law. 

       

      Section
        3.7 Investment
        Experience.  
        Such Stockholder represents that it is experienced in evaluating and investing
        in private placement transactions or securities of companies in a similar
        stage
        of development and acknowledges that it can bear the economic risk of such
        investment for an indefinite period of time, and has such knowledge and
        experience in financial and business matters that it is capable of evaluating
        the merits and risks of the purchase of the Shares. Each Stockholder also
        represents that it has not been organized for the purpose of acquiring the
        Shares. 

       

      Section
        3.8 Accredited
        Investor.  
        Such Stockholder is an “Accredited Investor,” as that term is defined in Rule
        501 of Regulation D promulgated under the Securities Act. 

       

      Section
        3.9 Restricted
        Securities.  
        Such Stockholder understands that the shares of Buyer Common Stock may not
        be
        sold, transferred, or otherwise disposed of without registration under the
        Securities Act or an exemption therefrom, and that in the absence of an
        effective registration statement covering the shares of Buyer Common Stock
        or an
        available exemption from registration under the Securities Act, the shares
        of
        Buyer Common Stock must be held indefinitely. In particular, each Stockholder
        is
        aware that the shares of Buyer Common Stock may not be sold pursuant to Rule
        144
        promulgated under the Securities Act unless all of the conditions of that
        Rule
        are met. Among the conditions for use of Rule 144 may be the availability
        of
        current information to the public about the Buyer. 

       

      ARTICLE
        4 

       

      REPRESENTATIONS
        AND WARRANTIES OF BUYER 

       

      The
        Buyer
        hereby represents and warrants, as of the date hereof, to the Company and
        the
        Stockholders as follows: 

       

      Section
        4.1 Corporate
        Existence and Power.  
        The Buyer is a corporation duly organized, validly existing and in good standing
        under the laws of the State of Delaware, and has all necessary corporate
        power
        and authority to enter into and perform its obligations under the Transactional
        Agreements to which it is a part and has all necessary corporate power and
        authority (i) to conduct its business in the manner in which its business
        is
        currently being conducted; (ii) to own and use it assets in the manner in
        which
        its assets are currently owned and used and (iii) to perform its obligations
        under contract to which it is a party. 

       

      Section
        4.2 Corporate
        Authorization and Authority.  
        The execution, delivery and performance of each of the Transactional Agreements
        to which the Buyer is a party have been duly authorized by all necessary
        action
        on the part of the Buyer. Each of the Transactional Agreements to which it
        is a
        party constitutes a legal, valid and binding obligation of the Buyer,
        enforceable against the Buyer in accordance with its terms and conditions,
        subject to (i) bankruptcy, insolvency, reorganization, arrangement, moratorium
        and other similar laws of general applicability relating to or affecting
        creditors’ rights generally; and (ii) general principles of equity.

       

      Section
        4.3 Non-Contravention;
        Consents.  
        Neither the execution and delivery of this Agreement or the Transactional
        Agreements to which the Buyer is a party, nor the consummation or performance
        of
        any of the Transactions, will (with or without notice or lapse of time)
        contravene, conflict with or result in a violation of (i) any of the provisions
        of the Buyer’s certificate of incorporation or bylaws, or (ii) any resolution
        adopted by the Buyer’s board of directors or any committee of the Buyer’s board
        of directors, or the Buyer’s stockholders. With the exception of any necessary
        filings pursuant to federal and state securities laws or the rules of other
        Governmental Bodies, Buyer will not be required to make any filing with or
        give
        any notice to, or to obtain any Consent from, any Person
        in
        connection with the execution and delivery of this Agreement or the consummation
        or performance of any of the Transactions. 

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

       

      Section
        4.4 Validity
        of Shares to be Issued.
        The
        issuance of shares of Buyer Common Stock to the Stockholders under
        this
        Agreement have been duly authorized by all necessary corporate action, and
        upon
        issuance in accordance with the
        terms of
        this Agreement, will be validly issued, fully paid and nonassessable and
        issued
        free of pre-emptive rights.

      

      Section
        4.5 SEC
        Reports.
        The
        Buyer has delivered or made available to the Company and the Stockholders
        true
        and complete copies (excluding copies of exhibits) of each report, registration
        statement, and definitive proxy statement filed by the Company with the United
        States Securities and Exchange Commission (“SEC”)
        since
        January 1, 2005 (collectively, with all information incorporated by reference
        therein or deemed to be incorporated by reference therein, the “SEC
        Reports”).
        The
        information in the SEC Reports was, to the Buyer’s knowledge, true and correct
        in all material respects at the time the SEC Reports were filed and did not
        contain any untrue statement of a material fact or omit to state a material
        fact
        necessary in order to make the statements therein, in light of the circumstances
        under which
        they
        were made, not misleading at the time the SEC Reports were filed.

      

      Section
        4.6 Brokers.  
        The Buyer has not agreed or become obligated to pay, or taken any action
        that
        likely would result in any Person claiming to be entitled to receive, any
        brokerage commission, finder’s fee or similar commission or fee in connection
        with any of the Transactions. 

       

      Section
        4.7 Purchase
        Entirely for Own Account.  
        The Shares to be purchased by the Buyer will be acquired for investment for
        the
        Buyer’s own account, not as a nominee or agent, and not with a view to the
        resale or distribution of any part thereof, and the Buyer has no present
        intention of selling, granting any participation in, or otherwise distributing
        the same. The Buyer does not have any contract, undertaking, agreement or
        arrangement with any person to sell, transfer or grant participations to
        such
        person or to any third person, with respect to any of the Shares.

       

      Section
        4.8 Reliance
        Upon the Buyer’s Representations.  
        The Buyer understands that the Shares are not and will not be registered
        under
        the Securities Act on the ground that the sale provided for in this Agreement
        is
        exempt from registration under the Securities Act, and that the Stockholders’
reliance on any such exemption is predicated on the Buyer’s representations set
        forth herein. 

      

      Section
        4.9 Full
        Disclosure.
        No
        statement contained in any representation or warranty contained herein or
        any
        statement contained in any certificate or schedule furnished or to be furnished
        by the Buyer to the Company or the Stockholder in, or pursuant to the provisions
        of, this Agreement contains or shall contain any untrue statement of a material
        fact or omits or will omit to state any material fact necessary, in the light
        of
        the circumstances under which it was made, in order to make the statements
        herein or therein not misleading. 

       

      Section
        4.10 Complete
        Copies of Materials.
        The
        Buyer has delivered or made available true and complete copies of each document
        (or summaries of same) that has been requested by the Company or its counsel.
        

      

      Section
        4.11 No
        Known Breaches or Exceptions to Company’s and Stockholders’ Representations and
        Warranties.
        Except
        as set forth on Section 4.11 of the Buyer’s disclosure Schedule, as of the
        Closing Date, to the knowledge of Buyer, there are no breaches of any of
        the
        representations and warranties of the Company or the Stockholders under Article
        2 or Article 3, or of any of the covenants hereto.

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

    

    ARTICLE
      5 

     

    ADDITIONAL
      AGREEMENTS 

     

    Section
      5.1 Additional
      Agreements.
      In case
      at any time after the Closing Date any further action is necessary or desirable
      to carry out the purposes of this Agreement, the proper officers and directors
      of Buyer and the Company are authorized to take all such necessary action.
      

     

    Section
      5.2 Conduct
      of Business by the Company Pending the Stock Purchase.
      During
      the period from the date of this Agreement and continuing until the earlier
      of
      the termination of this Agreement or the Closing Date, the Company covenants
      and
      agrees that, unless Buyer shall otherwise agree in writing or as required or
      permitted under this Agreement, the Company shall conduct its business only
      in,
      and the Company shall not take any action except in the Ordinary Course of
      Business; and the Company shall use its commercially reasonable efforts to
      preserve substantially intact the business organization of the Company, to
      keep
      available the services of the present officers, employees and consultants of
      the
      Company and its subsidiaries and to preserve the present relationships of the
      Company with customers, suppliers and other persons with which the Company
      has
      significant business relations. By way of amplification and not limitation,
      except as contemplated by this Agreement the Company shall not, during the
      period from the date of this Agreement and continuing until the earlier of
      the
      termination of this Agreement or the Closing Date, directly or indirectly do,
      or
      propose to do, any of the following without the prior written consent of Buyer
      (not to be unreasonably withheld): 

     

    (a) amend
      or
      otherwise change the Company’s articles of incorporation or bylaws;

     

    (b) issue,
      sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge,
      disposition or encumbrance of, any shares of Company Stock of any class, or
      any
      options, warrants, convertible securities or other rights of any kind to acquire
      any shares of Company Stock, or any other ownership interest (including, without
      limitation, any phantom interest) of the Company, any subsidiary or any of
      its
      Affiliates (except the exercise of currently outstanding options and warrants
      in
      accordance with their terms); 

     

    (c) except
      as
      otherwise set forth in Section 6.2(n) hereof, sell, pledge, dispose of or
      encumber any assets or inventory of the Company or of any subsidiary in excess
      of $25,000 or take any action that would reasonably be expected to result in
      any
      damage to, destruction or loss of any material asset of the Company (whether
      or
      not covered by insurance); 

     

    (d) except
      as
      is contemplated by this Agreement, or the applicable award agreement or Employee
      Plan or pursuant to a written contractual agreement with an award recipient
      set
      forth on Section 5.2(d) of the Company Disclosure Schedule, accelerate, amend
      or
      change the period (or permit any acceleration, amendment or change) of
      exercisability of options or restricted stock granted under the Plans (including
      the Company Stock Option Plan) or authorize cash payments in exchange for any
      options granted under any of such plans; 

     

    (e) [(i)
      declare, set aside, make or pay any dividend or other distribution (whether
      in
      cash, stock or property or any combination thereof) in respect of any of its
      common stock,] (ii) split, combine or reclassify any of its common stock or
      issue or authorize or propose the issuance of any other securities in respect
      of, in lieu of or in substitution for shares of its common stock, (iii) amend
      the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary
      to repurchase, redeem or otherwise acquire, any of its securities or any
      securities of a subsidiary, except in accordance with preexisting commitments
      as
      of the date hereof, or propose to do any of the foregoing; 

     

    (f) (i)
      acquire (by merger, consolidation, or acquisition of stock or assets) any
      company, corporation, partnership or other business organization or division
      thereof, or enter into or amend any contract, agreement, commitment or
      arrangement to effect any such acquisition, (ii) incur any indebtedness for
      borrowed money or issue any debt securities or assume, guarantee or endorse
      (other than checks in the Ordinary Course of Business) or otherwise as an
      accommodation become responsible for, the obligations of any person, or make
      any
      loans or advances; (iii) to provide funds to or make any investment (in the
      form
      of a loan, capital contribution or otherwise) in any Entity; (iv) to enter
      into
      or amend any material agreement or contract which provides for the sale,
      license, or purchase by the Company or any of its subsidiaries of assets; (v)
      authorize any capital expenditures or purchase of fixed assets which are
      individually in excess of $25,000 or, in the aggregate, in excess of $100,000;
      or (vi) enter into or amend any contract, agreement, commitment or arrangement
      to effect any of the matters prohibited by this Section 5.2(f); 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (g) increase
      the compensation or fringe benefits payable or to become payable to its officers
      or employees, or grant any severance or termination pay to, or enter into any
      employment or severance agreement with any director, officer, or, establish,
      adopt, enter into or amend any collective bargaining, bonus, profit sharing,
      thrift, compensation, stock option, restricted stock, pension, retirement,
      deferred compensation, employment, termination, severance or other plan,
      agreement, trust, fund, policy or arrangement for the benefit of any current
      or
      former directors, officers or employees, except, in each case, as may be
      required by law or as expressly contemplated by this Agreement, or terminate
      any
      employee of the Company; 

     

    (h) take
      any
      action to change accounting policies or procedures (including, without
      limitation, procedures with respect to revenue recognition, payments of accounts
      payable and collection of accounts receivable) (except as required by GAAP);
      

     

    (i) make
      any
      material Tax election inconsistent with past practices or settle or compromise
      any material federal, state, local or foreign Tax liability or agree to an
      extension of a statute of limitations; 

     

    (j) pay,
      discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
      asserted or unasserted, contingent or otherwise), other than payment, discharge
      or satisfaction in the Ordinary Course of Business; 

     

    (k) enter
      into discussions regarding material customer contracts in excess of $100,000;
      

     

    (l) engage
      in
      any action or enter into any transaction or permit any action to be taken or
      transaction to be entered into that could reasonably be expected to delay the
      consummation of, or otherwise adversely affect, any of the Transactions;

     

    (m) undertake
      any revaluation of any of the Company’s or any subsidiary’s assets, including,
      without limitation, writing down the value of inventory or writing off notes
      or
      accounts receivable other than in the Ordinary Course of Business or in
      accordance with GAAP; and 

      

    (n) take,
      or
      agree in writing or otherwise to take, any of the actions described in Sections
      5.2(a) through (m). 

    

    For
      the
      purpose of obtaining written consent under this Section, the Company shall
      submit requests for written consent to Larry Shumate, and written consent may
      be
      evidenced by facsimile or email. For consents relating to subparagraph (k),
      above, Buyer shall respond to any request for consent within two, (2) business
      days of the request, including the day of the request, or consent shall be
      deemed granted.

     

    Section
      5.3 No
      Solicitation.
      

     

    (a) Until
      the
      later of Closing Date, the termination of this Agreement pursuant to Article
      8
      or August 22, 2007, neither the Company or any Stockholder shall, and shall
      not
      permit or authorize its respective officers, directors, employees, affiliates,
      agents or other representatives (including without limitation any investment
      banker, financial advisor, attorney or accountant retained by it) to initiate,
      solicit or encourage (including by way of furnishing information or assistance)
      or take any other action to facilitate, any inquiries or the making of any
      proposal relating to, or that may reasonably be expected to lead to, any
      Alternative Transaction, or enter into discussions (except as to the existence
      of these provisions) or negotiate with any person or entity in furtherance
      of
      such inquiries or to obtain an Alternative Transaction, or agree to, or endorse,
      any Alternative Transaction, or authorize or permit any of the officers,
      directors, employees or agents of the Company or any investment banker,
      financial advisor, attorney, accountant or other representative retained by
      the
      Company to take any such action and the Company shall promptly (and in any
      event, within 24 hours) notify Buyer of all relevant terms of any such inquiries
      or proposals received by the Company or by any such officer, director, employee,
      agent, investment banker, financial advisor, attorney, accountant or other
      representative relating to any of such matters and if such inquiry or proposal
      is in writing, the Company shall promptly (and in any event, within 24 hours)
      deliver or cause to be delivered to Buyer a copy of such inquiry or proposal
      and
      promptly (and in any event, within 24 hours) update Buyer as to any material
      changes with respect to such inquiry or proposal; provided,
      however,
      that
      nothing contained in this subsection (a) shall prohibit the Company or its
      Board
      of Directors from making such disclosure to the Stockholders as, in the good
      faith judgment of the Company’s Board of Directors after consultation with its
      outside legal counsel, is required by its fiduciary duties under applicable
      law.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (b) The
      Company and each Stockholder shall immediately cease and cause to be terminated
      any existing discussions or negotiations with any parties (other than Buyer)
      conducted heretofore with respect to any Alternative Transaction. The Company
      and each Stockholder agrees not to release any third party from any
      confidentiality or standstill agreement to which the Company and each
      Stockholder is a party. 

     

    (c) The
      Company shall inform its officers, directors and employees of the Company and
      any investment banker or other advisor or representative retained by the Company
      who are aware of, and require such person to agree to abide by, the restrictions
      described in this Section 5.3. 

     

    Section
      5.4 Consents;
      Approvals.
      The
      Company and Buyer shall coordinate and cooperate with one another and shall
      each
      use their reasonable best efforts to obtain (and shall each refrain from taking
      any willful action that would impede obtaining) all consents, waivers,
      approvals, authorizations or orders (including, without limitation, all rulings,
      decisions or approvals by any Governmental Body), and the Company and Buyer
      shall make all filings (including, without limitation, all filings with
      governmental bodies) required in connection with the authorization, execution
      and delivery of this Agreement by the Company and Buyer and the consummation
      by
      them of the Transactions, excepting only those merger notification filings
      with
      foreign jurisdictions for which the failure to file would not have a Company
      Material Adverse Effect or a material adverse effect on the transactions
      contemplated hereby. The Company and Buyer shall furnish all information
      required to be included in any application or other filing to be made pursuant
      to the rules and regulations of any Governmental Body in connection with the
      Transactions. Except where prohibited by applicable statutes and regulations,
      and subject to the Confidentiality Agreement, each party shall coordinate with
      one another in preparing and exchanging such information, and shall promptly
      provide the other (or its counsel) with copies of all filings, presentations
      or
      submissions made by such party with any Governmental Body in connection with
      this Agreement or the Transactions. 

     

    Section
      5.5 Notification
      of Certain Matters.
      The
      Company and each Stockholder shall give prompt notice to Buyer, and Buyer shall
      give prompt notice to the Company, of (i) the occurrence or non-occurrence
      of
      any event the occurrence or non-occurrence of which would be likely to cause
      any
      representation or warranty contained in this Agreement to be materially untrue
      or inaccurate such that the conditions to closing set forth in Section 6.2(a)
      and 6.3(a), as the case may be, shall not be met and (ii) any failure of the
      Company, a Stockholder, or the Buyer, as the case may be, to comply with or
      satisfy any covenant, condition or agreement to be complied with or satisfied
      by
      it hereunder such that the conditions to closing set forth in Section 6.2(a)
      and
      6.3(a), as the case may be, shall not be met; provided,
      however,
      that
      the delivery of any notice pursuant to this Section 5.5 shall not limit or
      otherwise affect the remedies available hereunder to the party receiving such
      notice. 

     

    Section
      5.6 Public
      Announcements.
      No
      party will issue or make or cause the publication of, any press release or
      other
      public announcement with respect to this Agreement or the transactions
      contemplated hereby without the prior written consent of the other parties
      hereto; provided, however, that for the purposes of this Section, the Company
      shall be entitled to give such prior written consent on behalf of the
      Stockholders. Buyer may elect at any time after the Closing Date issue a press
      release or make a public statement with respect to the Stock Purchase or this
      Agreement; provided, further, that the Buyer may issue a press release or make
      a
      public statement with respect to the Stock Purchase or this Agreement prior
      to
      the Closing Date. It is understood and agreed that Buyer will disclose the
      terms
      of this Agreement in connection the Announcing 8-K and with procurement of
      the
      Financing referred to in Section 6.2(i) hereto. If required under applicable
      securities laws and the rules of the Over-the-Counter Bulletin Board; Buyer
      and
      the Company shall make all necessary filings with governmental bodies and shall
      promptly provide the other party with copies of filings made by such party
      between the date hereof and the Closing Date. 

     

    Section
      5.7 Conveyance
      Taxes.
      Buyer
      and the Company shall cooperate in the preparation, execution and filing of
      all
      returns, questionnaires, applications, or other documents regarding any real
      property transfer or gains, sales, use, transfer, value added, stock transfer
      and stamp taxes, any transfer, recording, registration and other fees, and
      any
      similar taxes which become payable in connection with the transactions
      contemplated hereby that are required or permitted to be filed on or before
      the
      Closing Date. 

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    Section
      5.8 Non
      Competition Agreement.
      Concurrently herewith, the Company will use commercially reasonable efforts
      to
      have C. Frank Scantlin execute and deliver to Buyer a Noncompetition Agreement
      in the form attached hereto as Exhibit
      E
      (the
“Non
      Competition Agreement”)).

     

    Section
      5.9 Employment
      Agreements.
      Concurrently herewith, the Company will use commercially reasonable efforts
      to
      have Craig Scantlin and Brent Scantlin execute and deliver to Buyer an
      Employment and Noncompetition Agreement in the form attached hereto as
Exhibit
      F
      (the
“Employment
      Agreement”).
      

     

    Section
      5.10 Access
      to Information.
      

     

    (a) Subject
      to currently existing contractual and legal restrictions applicable to the
      Company or any of its subsidiaries, the Company shall, and shall cause each
      of
      its subsidiaries to, afford to the accountants, counsel, financial advisors
      and
      other representatives of Buyer reasonable access to, and permit them to make
      such inspections as they may reasonably require of, during the period from
      the
      date of this Agreement through the Closing Date, all of their respective
      properties, books, contracts, commitments and records (including accounting
      records and Tax Returns and the work papers of independent accountants, if
      available and subject to the consent of such independent accountants). During
      such period, the Company shall (i) furnish promptly to Buyer a copy of each
      report, schedule, registration statement and other document filed by it during
      such period pursuant to the requirements of federal or state securities laws,
      (ii) furnish promptly to Buyer all other information within its possession
      concerning its business, properties and personnel as Buyer may reasonably
      request and (iii) promptly make reasonably available to Buyer all personnel
      of
      the Company and its subsidiaries knowledgeable about matters relevant to such
      inspections. No investigation pursuant to this Section 5.10(a) shall affect
      any
      representation or warranty in this Agreement of any party hereto or any
      condition to the obligations of the parties hereto. 

     

    (b) All
      information obtained by Buyer pursuant to this Section 5.10 shall be kept
      confidential in accordance with the Confidentiality Agreement. 

     

    Section
      5.11 Lease
      Agreements.
      Buyer
      agrees to lease the properties located at (i) 13410 Redfish Lane, Stafford
      Texas
      77477 and (ii) 13411 Redfish Lane, Stafford Texas 77477, on the terms on and
      conditions set forth in the lease agreement attached hereto as Exhibit
      G
      (the
“Lease
      Agreements”).

     

    Section
      5.12  Satisfaction
      of Conditions Precedent.
      The
      parties hereto shall use all commercially reasonable efforts to satisfy or
      cause
      to be satisfied all of the conditions precedent which are set forth in Article
      6, and shall use all commercially reasonable efforts to cause the Stock Purchase
      and other transactions contemplated by this Agreement to be consummated in
      accordance with the terms of this Agreement. 

    

    Section
      5.13 Exclusivity
      of Remedies.
      The
      parties hereto have voluntarily agreed to define their rights, liabilities
      and
      obligations respecting the subject matter of this Agreement exclusively in
      contract pursuant to the express terms and provisions of this Agreement.
      Furthermore, the parties each hereby acknowledge that this Agreement embodies
      the justifiable expectations of sophisticated parties derived from arm’s length
      negotiations; all parties to this Agreement specifically acknowledge that no
      party has any special relationship with another party that would justify any
      expectations beyond that of any ordinary buyer and an ordinary seller in an
      arm’s length transaction. The remedies for any breach of the terms and
      provisions of this Agreement (including any representations and warranties
      ser
      forth herein) shall be those remedies available at law or in equity for breach
      of contract.

    

    Section
      5.14 No
      Third Party Liability.
      This
      Agreement may only be enforced against the named parties hereto. All claims
      or
      causes or action (whether in contract or tort) that may be based upon, arise
      out
      of or relate to this Agreement, or the negotiation, execution or performance
      of
      this Agreement (including any representation or warranty made in or in
      connection with this Agreement or as an inducement to enter into this
      Agreement), may be made only against the entities that are expressly identified
      as parties hereto; and no officer, director, shareholder, employee or affiliate
      of any party hereto (including any person negotiating or executing this
      Agreement on behalf of a party hereto) shall have any liability or obligation
      with respect to this Agreement or with respect to any claim or cause of action
      (whether in contract or tort) that may arise out of or relate to this Agreement,
      or the negotiation, execution or performance of this Agreement (including a
      representation or warranty made in or in connection with this Agreement or
      as an
      inducement to enter into this Agreement).

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    Section
      5.15 SEC
      Reports.
      From
      and after the date of this agreement Buyer shall, so long as any Stockholder
      owns any of the Buyer Common Stock, use its reasonable best efforts
      to:

     

    (a) make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144 under the Securities Act;

     

    (b) file
      with
      the Securities and Exchange Commission in a timely manner all reports and other
      documents required of the Company under the Securities Act and the Exchange
      Act;
      and 

     

    (c) furnish
      to each holder of Buyer Common Stock forthwith upon request a written statement
      by the Buyer as to its compliance with the reporting requirements of such Rule
      144 and of the Securities Act and the Securities Exchange Act of 1934, as
      amended (the “Exchange
      Act”),
      a
      copy of the most recent annual or quarterly report of the Company, and such
      other reports and documents so filed by the Buyer as such holder may reasonably
      request in availing itself of any rule or regulation of the Commission allowing
      such holder to sell any Buyer Common Stock with out registration. 

     

    (d) the
      Buyer
      shall, at all times during which it is neither subject to the reporting
      requirements of Section 13 or 15(d) of the Exchange Act, nor exempt from
      reporting pursuant to Rule 12g3-2(b) under the Exchange Act, use reasonable
      efforts to provide in writing, upon the written request of any Stockholder,
      all
      information required by Rule 144A(d)(4)(i) of the General Regulations
      promulgated by the Commission under the Securities Act (“Rule 144A
      Information”). The Buyer also shall, upon the written request of any
      Stockholder, use reasonable efforts to cooperate with and assist such
      Stockholder or any member of the National Association of Securities Dealers,
      Inc. PORTAL system in applying to designate and thereafter maintain the
      eligibility of the shares of Buyer Common Stock, as the case may be, for trading
      through PORTAL. The Buyer’s obligations under this Section 5.15 shall at all
      times be contingent upon the relevant Stockholder’s obtaining from the
      prospective buyer of shares of Buyer Common Stock, a written agreement to take
      all reasonable precautions to safeguard the Rule 144A Information from
      disclosure to anyone other than a person who will assist such buyer in
      evaluating the purchase of any shares of Buyer Common Stock.

     

    Section
      5.16 Piggy-Back
      Registration Rights.

     

    (a) If
      Buyer
      determines to register any of its securities, either for its own account or
      the
      account of a security holder or holders, other than (i) a registration relating
      solely to employee benefit plans on Form S-8 (or any successor form) or (ii)
      a
      registration relating solely to a Commission Rule 145 transaction on Form S-4
      (or any successor form), the Company will: include in such registration (and
      any
      related qualification under blue sky laws or other compliance), and in any
      underwriting involved therein, all the Buyer Common Stock delivered pursuant
      to
      this Agreement, subject to any reductions in the Buyer Common Stock to be
      registered made at the request of the Placement Agent or any other reductions
      required due to the Securities and Exchange Commission’s (the “SEC”) recent
      interpretation of Rule 415 of the Securities Act. The Sellers understand that
      the SEC is currently taking the position that Rule 415 is not available to
      an
      issuer that attempts to register on behalf of security holders approximately
      30%
      or more of the number of issued and outstanding shares held by non-affiliates
      of
      that issuer. Accordingly, the Sellers agree that such rights are subordinate
      to
      the registration rights of investors in the Financing described in Section
      6.2(g). Sellers agree, if requested by the Placement Agent for the Financing,
      to
      execute a lock up agreement in connection with any such registration for a
      period of the date of filing of such registration statement and ending 90 days
      after effectiveness of said registration statement.

     

    (b) If,
      in
      connection with the underwritten public offering by the Buyer the managing
      underwriter(s) advise the Buyer in writing that in their opinion the number
      of
      securities requested to be included in such registration exceeds the number
      that
      can be sold in an orderly manner in such offering within a price range
      acceptable to the Buyer, the Buyer will include in such registration (i) first,
      the securities proposed to be sold by the Buyer; and (ii) second, the common
      stock requested to be included in such registration, pro rata among the
      Stockholders and the other selling stockholders based on the ratio of the number
      of shares of common stock that each such selling stockholder has requested
      that
      the Buyer include in such registration over the total number of shares of common
      stock requested to be included in such registration.

     

    
      
        
        

      

      
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ARTICLE
      6 

     

    CONDITIONS
      TO CONSUMMATION OF THE STOCK PURCHASE

     

    Section
      6.1 Conditions
      to Obligations of Each Party to Effect the Stock
      Purchase.
      The
      respective obligations of each party to effect the Stock Purchase shall be
      subject to the satisfaction at or prior to the Closing Date of the following
      conditions: 

     

    (a) No
      temporary restraining order, preliminary or permanent injunction or other order
      issued by any court of competent jurisdiction or other legal restraint or
      prohibition preventing the consummation of the Stock Purchase shall be in
      effect; and there shall not be any action taken, or any statute, rule,
      regulation or order enacted, entered, enforced or deemed applicable to the
      Stock
      Purchase, which makes the consummation of the Stock Purchase illegal.

     

    Section
      6.2 Additional
      Conditions to Buyer’s Obligation to Consummate the Stock
      Purchase.
      Buyer’s
      obligations to consummate the Stock Purchase and to take the other actions
      required to be taken by Buyer at the Closing is subject to the satisfaction
      of
      each of the following conditions (any of which may be waived by Buyer, in whole
      or in part): 

     

    (a) the
      Exchange Agent shall have received the certificates representing the Shares
      duly
      endorsed for transfer (or accompanied by a duly executed stock power) together
      with the Letter of Transmittal;

    

    (b) Buyer
      shall have received the following documents: 

     

    (i)
      the
      opinion letter from Shanks Law Firm, counsel to the Company, in substantially
      the form attached hereto as Exhibit
      H;
      

     

    (ii)
      a
      certificate, duly executed by the Company, certifying that (A) each of the
      representations and warranties made by the Company in this Agreement and in
      the
      other Transactional Agreements is accurate in all respects as if made as of
      the
      date of Closing, (provided
      that
      such representations and warranties which are by their express provisions made
      as of a specific date need to be accurate only as of such specific date), except
      to the extent that any failures of such representations and warranties to be
      accurate, in the aggregate, would not have, or reasonably be expected to have,
      a
      Company Material Adverse Effect (disregarding for these purposes any materiality
      or material adverse effect qualifications therein contained), (B) each of the
      covenants and obligations that the Company is required to have complied with
      or
      performed pursuant to this Agreement or any of the other Transactional
      Agreements at or prior to the Closing has been duly complied with and performed
      in all material respects, and (C) each of the conditions set forth in this
      Section 6.2 has been satisfied in all respects; and 

     

    (iii)
      a
      certificate, duly executed by the Stockholders’ Agent, certifying that each of
      the representations and warranties made by the Stockholders in this Agreement
      and in the other Transactional Agreements is accurate in all respects as if
      made
      as of the date of Closing, (provided
      that
      such representations and warranties which are by their express provisions made
      as of a specific date need to be accurate only as of such specific date);

    

    (iv)
      copies of resolutions of the board of directors of the Company, certified by
      the
      Secretary of the Company, authorizing the execution, delivery and performance
      of
      the Transactional Agreements to which the Company is a party and the
      Transactions;

    

    (v)
      a
      certificate of good standing of the Company from the State of Texas as of the
      most recent practicable date: and

    

    (vi)
      written resignations of Craig Scantlin as Secretary and Brent Scantlin as
      Treasurer of the Company effective as of the Closing Date in form satisfactory
      to the Buyer; 

    

    (vii)
      written resignations of C. Frank Scantlin and Brent Scantlin as directors of
      the
      Company, effective as of the Closing Date in form satisfactory to the
      Buyer

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (viii)
      resolutions of the board of directors of the Company appointing Larry C. Shumate
      and Matthew C. Flemming to the board of directors to fill the vacancies created
      by the resignations of C. Frank Scantlin and Brent Scantlin

    

    (ix)
      such
      other documents as Buyer may reasonably request in good faith for the purpose
      of
      (i) evidencing the accuracy of any representation or warranty made by the
      Company or the Stockholders, (ii) evidencing the compliance by the Company,
      or
      the performance by the Company of, any covenant or obligation set forth in
      this
      Agreement, (iii) evidencing the satisfaction of any condition set forth in
      Section 6.1 or this Section 6.2, or (iv) otherwise facilitating the consummation
      or performance of any of the Transactions. 

     

    (c) Since
      the
      date of this Agreement, there shall not have occurred a Company Material Adverse
      Effect. 

     

    (d) The
      consents identified on Section 2.22 of the Company Disclosure Schedule
      (“Material
      Consents”)
      for
      the authorization, execution and delivery of this Agreement and the consummation
      by it of the transactions contemplated hereby shall have been obtained and
      made
      by the Company and copies thereof shall have been delivered to
      Buyer.

     

    (e) Each
      of
      the representations and warranties made by the Company and the Stockholders
      in
      the Agreement are true and accurate in all respects as of the Closing
      (provided
      that
      such representations and warranties which are by their express provisions made
      as of a specific date need be accurate only as of such specific date), except
      to
      the extent that any failures of such representations and warranties to be
      accurate, on the aggregate, would not have, or reasonably be expected to have,
      a
      Company Material Adverse Effect (disregarding for these purposes any materiality
      or material adverse effect qualifications therein contained); and all covenants
      and obligations that the Company is required to have complied with or performed
      pursuant to this Agreement or any of the Transaction Documents at or prior
      to
      Closing have been duly complied with or performed in all material respects.
      

     

    (f) The
      Company shall have executed and delivered all Transactional Agreements to which
      the Company it is a party. 

     

    (g) Buyer
      shall
      have
      completed the sale of
      its debt
      and/or equity securities in a private placement which is exempt from
      registration under the Securities Act in which the gross proceeds to Buyer
      equal
      or exceed fourteen million dollars ($14,000,000.00) (the “Financing”);

     

    (h) The
      Escrow Agent and the Stockholders Agent (as define in Section 7.4) shall have
      executed and delivered the Escrow Agreement in substantially the form attached
      hereto as Exhibit
      I
      (the
“Escrow
      Agreement”);

    

    (i) Craig
      Scantlin and Brent Scantlin shall have entered into an Employment Agreement
      with
      Buyer.

     

    (j) 
      C. Frank
      Scantlin shall have entered into a Non Competition Agreement with
      Buyer 

    

    (k) 
      Each
      Employment and Noncompetition Agreement and the Escrow Agreement shall be in
      full force and effect. 

     

    (l) 
      Buyer’s
      due diligence investigation of the Company shall have been completed to Buyer's
      sole satisfaction; provided, however, that if Buyer has not notified the Company
      of the failure of this condition within fifty (50) days after the date of this
      Agreement, the condition set forth in this section shall be deemed to have
      been

    satisfied.

    

    (m) The
      Company Audited Financial Statements shall have been completed;

     

    (n) The
      business of the Company shall have been conducted in all material respects
      only
      in the Ordinary Course of Business consistent with past practice and the Company
      shall not have taken any of the actions set forth in Section 5.2 hereof except
      as contemplated by this Agreement or with the prior written consent of the
      Buyer. 

     

    (o) The
      Company shall have delivered the Closing Date Balance Sheet (as defined in
      Exhibit
      A
      hereto).

     

    (p) 
      The
      Company shall have provided evidence satisfactory to Buyer that it has
      distributed and disposed of the assets set forth on Section 6.2(p) of the
      Company Disclosure Schedule.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    Section
      6.3 Additional
      Conditions to the Company’s Obligation to Consummate the Stock
      Purchase.
      The
      Company’s and the Stockholders’ obligation to consummate the Stock Purchase and
      to take the other actions required to be taken by the Company and the
      Stockholders at the Closing shall be subject to the satisfaction, at or prior
      to
      the Closing, of each of the following conditions (any of which may be waived
      by
      the Company and the Stockholders, in whole or in part): 

     

    (a) The
      Exchange Agent shall have received the Cash Consideration, the Note
      Consideration and the Stock Consideration;

    

    (b) The
      Company and the Stockholders shall have received the following documents:

     

    (i)
      a
      certificate, duly executed by Buyer, certifying that (A) each of the
      representations and warranties made by Buyer in this Agreement and in the other
      Transactional Agreements is accurate in all respects as if made as of the date
      of the Closing (provided
      that
      such representations and warranties which are by their express provisions made
      as of a specific date need to be accurate only as of such date specific date),
      except to the extent that any failures of such representations and warranties
      to
      be accurate, in the aggregate, would not have, or reasonably be expected to
      have
      a material adverse effect on Buyer (disregarding for these purposes any
      materiality or material adverse effect qualifications therein contained), (B)
      each of the covenants and obligations that Buyer is required to have complied
      with or performed pursuant to this Agreement or any of the other Transactional
      Agreements at or prior to the Closing has been duly complied with and performed
      in all material respects, and (C) each of the conditions set forth in Section
      6.3 has been satisfied in all respects; 

    

    (ii)
      a
      certificate of good standing of the Buyer from the State of Delaware as of
      the
      most recent practicable date: and

     

    (iii)
      such other documents as the Company and the Stockholders may request in good
      faith for the purpose of (A) evidencing the accuracy of any representation
      or
      warranty made by Buyer (B) evidencing the compliance by Buyer with, or the
      performance by Buyer, any covenant or obligation set forth in this Agreement
      or
      any of the other Transactional Agreements, (C) evidencing the satisfaction
      of
      any condition set forth in Section 6.1 or this Section 6.3, or (D) otherwise
      facilitating the consummation or performance of any of the Transactions.

     

    (c) All
      material consents, waivers, approvals, authorizations or orders required to
      be
      obtained, and all filings required to be made, by the Buyer for the
      authorization, execution and delivery of this Agreement and the consummation
      by
      each of them respectively of the transactions contemplated hereby shall have
      been obtained and made by the Buyer. 

     

    (d) Each
      of
      the representations and warranties made by Buyer in the Agreement are true
      and
      accurate in all respects as of the Closing (provided
      that
      such representations and warranties which are by their express provisions made
      as of a specific date need to be accurate only as of such date specific date),
      except to the extent that any failures of such representations and warranties
      to
      be accurate, in the aggregate, would not have, or reasonably be expected to
      have
      a material adverse effect on Buyer (disregarding for these purposes any
      materiality or material adverse effect qualifications therein contained), and
      all covenants and obligations that the Buyer is required to have complied with
      or performed pursuant to this Agreement or any of the Transaction Documents
      at
      or prior to Closing have been duly complied with or performed in all material
      respects;

    

    (e) Buyer
      shall have executed and delivered the Lease Agreements; and

    

    (f) Buyer
      shall have executed and delivered the consent to Closing the Books election
      for
      the S. corporation tax return provided in Section 9.3 and Exhibit
      9.3.

     

    ARTICLE
      7 

     

    ESCROW
      AND INDEMNIFICATION

     

    Section
      7.1 Indemnification.
      From
      and after the Closing Date and subject to the limitations contained in Sections
      7.2, each of the Stockholders (the “Indemnifying
      Parties”)
      shall,
      jointly and severally, indemnify and hold Buyer harmless against any loss,
      expense, liability or other damage, including reasonable attorneys’ fees, to the
      extent of the amount of such loss, expense, liability or other damage
      (collectively, “Damages”)
      that
      Buyer has incurred by reason of the breach or alleged breach by the Company
      of
      any representation, warranty, covenant or agreement of the Company contained
      in
      this Agreement or in any document, schedule or certificate delivered by the
      Company pursuant hereto but in no event shall any Damages be payable by the
      Indemnifying Parties under this sentence in excess of $1,250,000 (the
“Damages
      Cap”
except
      as follows: (i) with respect to damages that Buyer has incurred by reason of
      the
      breach or alleged breach by the Company of the representations and warranties
      set out in Section 2.3 (Capitalization; Ownership of Stock) or Section 2.14
      (Tax
      Matters) the Damages Cap shall be $3,000,000). In addition, each Indemnifying
      Party shall be fully liable to the Buyer for any actual Damages incurred by
      Buyer relating to such Indemnifying Party’s willful misconduct or fraud in
      connection with the representations and warranties set forth herein or in any
      document delivered by such Indemnifying Party to the Buyer, and the transactions
      contemplated under this Agreement and in connection with the Stock Purchase
      without limitation to the Damages Cap; provided,
      however,
      in no
      event shall any Indemnifying Party be liable for such willful misconduct or
      fraud of another Indemnifying Party. 

     

    
      
        
        

      

      
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    Section
      7.2 Damage
      Threshold.
      Notwithstanding the foregoing, the Indemnifying Parties shall have no liability
      under Section 7.1 unless the amount for any individual claim for Damages exceeds
      $5,000 (the “Individual
      Threshold”) and
      until
      the aggregate amount of Damages for all such claims in excess of $250,000 has
      been incurred (the “Damages
      Threshold”);
      provided,
      however,
      that
      after the Damage Threshold has been reached, Buyer shall be entitled to
      indemnification for any and all Damages incurred since the Closing
      Date.

     

    Section
      7.3 Indemnification
      Procedures.
      Upon
      Buyer becoming aware of a fact, condition or event that constitutes a claim
      for
      Damages under Section 7.1 above, if such a claim is to be made, Buyer will
      with
      reasonable promptness and specificity notify the Stockholders’ Agent (as defined
      below) in writing of such fact, condition or event. The failure to notify the
      Stockholders’ Agent under this Section 7.3 shall not relieve any of the
      Stockholders of any liability that it may have to Buyer except and to the extend
      that such failure to notify shall have resulted in a waiver of any lawful and
      valid affirmative defense to any third-party claim or otherwise materially
      prejudices the Stockholders in connection with the administration or defense
      of
      such third-party claim

     

    Section
      7.4 Stockholders’
      Agent.
      

     

    (a) Craig
      Scantlin is constituted and appointed as agent (the “Stockholders’
      Agent”)
      for
      and on behalf of the Stockholders to give and receive notices and
      communications, to object to such deliveries, to agree to, negotiate, enter
      into
      settlements and compromises of, and demand arbitration and comply with orders
      of
      courts and awards of arbitrators with respect to such claims, and to take all
      actions necessary or appropriate in the judgment of the Stockholders’ Agent for
      the accomplishment of the foregoing. Such agency may be changed by the holders
      of a majority in interest of the Company Stock from time to time upon not less
      than ten (10) days’ prior written notice to Buyer. No bond shall be required of
      the Stockholders’ Agent, and the Stockholders’ Agent shall receive reasonable
      compensation for services, fees and expenses incurred in good faith arising
      out
      of or in connection with the acceptance or administration of his duties under
      this Agreement, such compensation, fees and expenses due from the other
      Stockholders. Notices or communications to or from the Stockholders’ Agent shall
      constitute notice to or from each of the Stockholders. If the Stockholders’
Agent shall die, become disabled or otherwise be unable to fulfill his
      responsibilities as agent of Stockholders, then Stockholders shall, within
      ten
      days after such death or disability, appoint a successor agent and, promptly
      thereafter, shall notify Buyer of the identity of such successor. Any such
      successor shall become the “Stockholders’ Agent” for purposes of this Agreement.
      If for any reason there is no Stockholders’ Agent at any time, all references
      herein to the Stockholders’ Agent shall be deemed to refer to the Stockholders.

     

    (b) The
      Stockholders’ Agent shall not be liable for any act done or omitted hereunder as
      Stockholders’ Agent while acting in good faith, and any act done or omitted
      pursuant to the advice of counsel shall be conclusive evidence of such good
      faith. The Stockholders shall jointly and severally indemnify the Stockholders’
Agent and hold him harmless against any loss, liability or expense incurred
      without gross negligence or bad faith on the part of the Stockholders’ Agent and
      arising out of or in connection with the acceptance or administration of his
      duties under this Agreement. 

     

    (c) The
      Stockholders’ Agent shall have reasonable access to information about Company
      and Buyer and the reasonable assistance of Company’s and Buyer’s officers and
      employees for purposes of performing its duties and exercising its rights under
      this Article 7, provided
      that the
      Stockholders’ Agent shall treat confidentially and not disclose any nonpublic
      information from or about Company or Buyer to anyone (except on a need to know
      basis to individuals who agree to treat such information confidentially).

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Section
      7.5 Actions
      of the Stockholders’ Agent.
      A
      decision, act, consent or instruction of the Stockholders’ Agent shall
      constitute a decision of all of the Stockholders and shall be final, binding
      and
      conclusive upon each such Stockholder, and Buyer may rely upon any decision,
      act, consent or instruction of the Stockholders’ Agent as being the decision,
      act, consent or instruction of each and every such Stockholder. The Buyer is
      hereby relieved from any liability to any person for any acts done by them
      in
      accordance with such decision, act, consent or instruction of the Stockholders’
Agent. 

    

    Section
      7.6 Escrow
      Fund.
      As
      partial security for the indemnities in Section 7.1, the Stock Consideration
      shall be deposited with the Escrow Agent within ten days of the Closing, such
      deposit to constitute an escrow fund (the “Escrow
      Fund”)
      to be
      governed by the terms set forth in this Article 7 and in the Escrow Agreement.
      All claims upon the Escrow Fund, objections thereto and resolution of any
      conflicts related to claims upon to the Escrow Fund shall be governed by and
      conduction in accordance with Section 4 of the Escrow Agreement

     

    Section
      7.7 Claims.
      In the
      event Buyer becomes aware of a third-party claim which Buyer believes may result
      in a demand against the Stockholders, Buyer shall notify the Stockholders’ Agent
      of such claim, and the Stockholders’ Agent and the Stockholders shall be
      entitled, at their expense, to participate in any defense of such claim. Buyer
      shall have the right in its sole discretion to settle any such claim;
provided,
      however,
      that
      Buyer may not effect the settlement of any such claim without the consent of
      the
      Stockholders’ Agent, which consent shall not be unreasonably withheld. In the
      event that the Stockholders’ Agent has consented to any such settlement, the
      Stockholders’ Agent shall have no power or authority to object to the amount of
      any claim by Buyer against the Stockholders for indemnity with respect to such
      settlement, unless such claim is in an amount in excess of any amount consented
      to by the Stockholders’ Agent. 

     

    Section
      7.8 Working
      Capital Adjustment.
      

     

    (a) Immediately
      prior to the Closing Date, the Stockholders’ Agent shall cause to be prepared
      and delivered to the Buyer and the Buyer shall have reviewed a statement (the
      “Working
      Capital Statement”)
      setting forth the calculation of the Closing Date Net Working Capital (as
      defined below). The “Closing
      Date Net Working Capital”
shall
      mean: (A) the sum of (i) cash and cash equivalents, (ii) prepaid expenses (iii)
      the Eligible Accounts Receivable (as defined below) of the Company earned prior
      to the Closing Date and collectible on or after the Closing Date, and (iv)
      inventory all as reflected on the Closing Date Balance Sheet, (B) with deduction
      for (i) the accounts payable and (ii) accrued expenses. The Closing Date Net
      Working Capital shall include adjustments increases or decreases on a dollar
      for
      dollar basis, as follows: (a) if the equipment leases and equipment notes
      designated on Section 2.6(b) of the Company Disclosure Schedule are more or
      less
      than $563,000 on the day immediately preceding the Closing Date and (b) to
      the
      extent of equipment purchased since January 31, 2007 less cash proceeds on
      equipment disposed of since January 31, 2007, without regard to excluded assets.
      The “Elibigle
      Accounts Receivable”
shall
      mean all receivables due and outstanding 90 days or less from the Closing Date.
      The Working Capital Target shall mean $3,700,000. 

     

    (b) In
      the
      event that it is determined that the Closing Date Net Working Capital is greater
      than the Working Capital Target (as defined above), the excess shall be paid
      to
      Stockholders on a Pro Rata Basis (the “Stockholder
      Working Capital Adjustment”).
      If
      the Closing Date Net Working Capital is less than the Working Capital Target,
      then the amount shall be subtracted from the Cash Consideration due Stockholders
      (the “Buyer Working Capital Adjustment”). 

     

    (c) It
      is
      understood and agreed that with respect to any Working Capital Adjustment
      discussed in Section (b) above, only 80% of such Adjustment shall be realized
      by
      Buyer or Stockholders, as applicable at Closing with the remaining 20% to be
      realized (i.e. paid by such party which owes a net adjustment to the other
      party) 60 days after Closing (the “Final
      Adjustment Date”).
      Buyer
      and the Stockholders Agent will jointly determine whether any adjustments are
      required to the Working Capital Statement resulting in adjustments to the
      Working Capital Adjustments in Section (b) above.

    

    (d) Collections
      after the Closing Date of all accounts receivable of the Company earned prior
      to
      the Closing Date which are not Eligible Accounts Receivable shall be paid to
      Stockholders on a Pro Rata Basis, monthly, as collections are received by the
      Company. The Company shall diligently pursue collection of any such accounts
      receivable after the Closing Date, and shall not write off, forgive, or
      otherwise reduce or offset any such accounts receivable without the consent
      of
      the Stockholders. The Company, at its option, may assign any such accounts
      receivable that remain uncollected after the first anniversary of the Closing
      Date to the Stockholders with full right of collection.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      8

     

    TERMINATION
      

     

    Section
      8.1 Termination.
      This
      Agreement may be terminated at any time prior to the Closing Date, as follows:
      

     

    (a) by
      mutual
      written consent of Buyer and the Company; 

     

    (b) by
      either
      Buyer or the Company if the Stock Purchase shall not have been consummated
      by
      October 16, 2007 (the “Termination
      Date”),
      provided
      that the
      right to terminate this Agreement under this Section 8.1(b) shall not be
      available to any party whose failure to fulfill any obligation under this
      Agreement has been a principal cause of or resulted in the failure of the Stock
      Purchase to occur on or before such date and such action or failure to act
      constitutes a material breach of this Agreement; 

     

    (c) by
      either
      Buyer or the Company if a court of competent jurisdiction or governmental,
      regulatory or administrative agency or commission shall have issued a
      non-appealable final order, decree or ruling or taken any other action, in
      each
      case having the effect of permanently restraining, enjoining or otherwise
      prohibiting the Stock Purchase, except if the party relying on such order,
      decree or ruling or other action has not complied with its obligations under
      Section 5.5; 

      

    (d) by
      Buyer
      or the Company, upon a breach of any representation, warranty, covenant or
      agreement on the part of the Company or Buyer, respectively, set forth in this
      Agreement such that the conditions set forth in Section 6.2(e) or Section
      6.3(d), respectively, would not be satisfied, provided,
      that if
      such breach is curable through the exercise of commercially reasonable efforts,
      then the other party may not terminate pursuant to this Section 8.1(d) in
      respect of such breach if such breach is curable and shall have been cured
      within 30 days following notice by the other party of such breach, provided
      the
      breaching party continues to use commercially reasonable efforts to cure such
      breach during the 30 day period (it being understood that (i) the other party
      may not terminate this Agreement pursuant to this Section 8.1(d) after notice
      of
      such breach if such breach shall have been cured within 30 days or the party
      seeking to terminate shall then be in material breach of this Agreement and
      (ii)
      no cure period shall be required for a breach which by its nature cannot be
      cured). 

    

    (e) In
      the
      event that the Company directly or indirectly, through any officer, employee,
      director, representative, parent, affiliate, broker, advisor or agent (i) seeks,
      solicits, initiates or encourages the submission of any inquiry, proposal or
      offer from any corporation, or any lender, partnership, person or other entity
      or group relating to any acquisition or purchase of the assets of the Company,
      or exchange offer, merger, reverse merger, consolidation, business combination,
      recapitalization, spin-off, liquidation, dissolution, or similar transaction
      involving, directly or indirectly, Company (each an "Acquisition
      Proposal");
      or
      (ii) participates or cooperates in or pursues any discussions or negotiations
      regarding any Acquisition Proposal or furnishes to any person or entity
      information concerning the Company for any Acquisition Proposal; the Company
      shall be obligated to reimburse Buyer for all reasonable out-of-pocket costs
      and
      expenses incurred in connection with this transaction up to a maximum of
      $150,000. 

     

    Section
      8.2 Effect
      of Termination.
      In the
      event of the termination of this Agreement pursuant to Section 8.1, this
      Agreement shall forthwith become void and there shall be no liability on the
      part of any party hereto or any of its affiliates, directors, officers or
      Stockholders except (i) as set forth in Section 8.1 (e) and Section 8.3, and
      (ii) nothing herein shall relieve any party from liability for any willful
      breach hereof or willful or intentional misrepresentations. 

      

    Section
      8.3 Fees
      and Expenses.
       Except
      as
      other in set forth in Section 8.1(e) above,
      whether
      or
      not the Stock Purchase is consummated, all costs and expenses incurred in
      connection with this Agreement and the transactions contemplated hereby,
      including the fees and disbursements of counsel, financial advisors and
      accountants, shall be paid by the party incurring such costs and expenses;
      provided, however, that 50% of the fees charged by the Company’s auditor in
      connection with the preparation of the Company Audited Financial Statements
      shall be paid for by Buyer and provided further that if the Closing Date of
      the
      Stock Purchase occurs after August 22, 2007 then Buyer shall be responsible
      for
      100% of the fees charged by the Company’s auditor in connection with preparation
      of the Company Audited Financial Statements. Further, Sellers and Company agrees
      that all professional fees and expenses related to the Stock Purchase shall
      be
      paid on or before the Closing Date.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    Section
      8.4 Termination
      Fee.
      

    

    (a) In
      the
      event the
      Stock
      Purchase is not consummated within 61 days of the date of this Agreement for
      any
      reason other than (i) termination
      of this Agreement pursuant to Section 8.1(a), or (ii) termination of this
      Agreement by Buyer pursuant to Section 8.1(c), Section 8.1(d) or Section 8.1(e),
      Buyer shall pay the Company a termination fee of $150,000,
      provided the Company is not material
      breach of this Agreement and the Company has exercised its right of termination
      under this Agreement pursuant to Section 8.1(b). Such termination fee shall
      be
      paid in four equal installments of $37,500, with the first installment due
      and
      payable within 4 business days of termination of the Agreement and the remaining
      installments to be paid on the four, eight and twelve month anniversary of
      the
      termination date.

    

    (b) In
      the
      event the
      Stock
      Purchase is not consummated within 61 days of the date of this Agreement for
      any
      reason other than (i) termination
      of this Agreement pursuant to Section 8.1(a), or (ii) termination of this
      Agreement by the Company pursuant to Section 8.1(c), the Company shall pay
      Buyer
      a termination fee of $150,000,
      provided the Buyer is not in material
      breach of this Agreement and Buyer has exercised its right of termination under
      this Agreement pursuant to Section 8.1(b). Such termination fee shall be paid
      in
      four equal installments of $37,500, with the first installment due and payable
      within 4 business days of termination of the Agreement and the remaining
      installments to be paid on the four, eight and twelve month anniversary of
      the
      termination date.

    

    ARTICLE
      9 

     

    MISCELLANEOUS
      PROVISIONS 

     

    Section
      9.1 Survival
      of Representations and Covenants.
      All
      representations, warranties, covenants and agreements of the Company and the
      Stockholders contained in this Agreement shall survive the Closing and any
      investigation at any time made by or on behalf of Buyer until the end of the
      [twelfth] month following the Closing Date (the “Expiration
      Date”),
      except for fraud provided that such survival for fraud shall be specific to
      each
      incident and shall otherwise vitiate the Expiration Date, and provided further
      that the representations and warranties set out in Section 2.14 (Tax matters)
      shall survive until the expiration of the statute of limitations applicable
      thereto. All representations, warranties, covenants and agreements of Buyer
      contained in this Agreement shall survive until the Closing Date, except for
      covenants and agreements which by their terms must be performed after the
      Closing Date. 

     

     

    Section
      9.2 Transfer
      Taxes.
      Each
      Stockholder shall be individually responsible for his, her or its respective
      sales, use and transfer taxes, including but not limited to any value added,
      stock transfer, gross receipts, stamp duty and real, personal or intangible
      property transfer taxes, due by reason of the consummation of the Transactions,
      including but not limited to any interest or penalties in respect thereof.
      

     

     

    Section
      9.3 Tax
      Returns.
      Each
      Stockholder and Buyer shall cooperate in connection with the preparation,
      execution and filing of all Tax Returns and shall make themselves available
      in a
      timely manner to execute such Tax Returns. Stockholders and Buyer agree to
      consent to and join in filing an Election To Close Books Upon S-Corporation
      Termination pursuant to Code §1362(e)(3) and Regs. §1.1362-6(b)(1),
      substantially in the form set out as Exhibit 9.3, for the federal income tax
      returns of the Company for 2007 which shall consist of a an S-corporation tax
      return for the period from January 1, 2007 to the Closing Date and a
      C-corporation tax return for the period from the Closing Date to the end of
      the
      tax year. Stockholders shall prepare the S corporation tax return at their
      expense and Buyer shall prepare the C corporation tax return at Buyer’s
      expense.

     

    
      
        
        

      

      
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    Section
      9.4 Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed given when delivered personally, one day after being delivered to an
      overnight courier or when telecopied (with a confirmatory copy sent by overnight
      courier) to the parties at the following addresses (or at such other address
      for
      a party as shall be specified by like notice): 

     

    if
      to the
      Company: 

     

    Sunbelt
      Machine Works Corporation

    13411
      Redfish Lane

    Stafford,
      Texas

    Attention:
      President

    Telefax:
      (650) 596-0503 

     

    with
      a
      copy to: 

     

    The
      Shanks Law Firm

    5300
      Memorial Dr., Suite 800

    Houston,
      Texas  77007-8248

    Attention:
      Rick Shanks, Esq

    Telefax:
      (713) 803-1091

    

    And

    

    Isaacks
      & Associates, Ltd., L.L.P.

    12777
      Jones Road, Suite 100

    Houston,
      TX 77070-4624

    Attention:
      Wayne Isaacks, Esq.

    Telefax:
      (281) 807-6173

     

    if
      to
      Buyer: 

     

    Shumate
      Machine Works, Inc. 

    12060
      FM
      3083

    Conroe,
      Texas 77301 

    Attention:
      Chief Executive Officer

    Telefax:
      (936)
      539-9396

     

    with
      a
      copy to: 

     

    Spectrum
      Law Group LLP 

    1900
      Main
      Street, Suite 125

    Irvine,
      California 92614 

    Attention:
      Marc Indeglia, Esq. 

    Telefax:
      (949) 851-5940 

    

    if
      to the
      Stockholders: 

     

    at
      each
      of their addresses set forth in Schedule
      1.

     

    Section
      9.5 Time
      of the Essence.
      Time is
      of the essence in the performance of each of the terms hereof with respect
      to
      the obligations and rights of each party hereto. 

     

    Section
      9.6 Headings.
      The
      headings contained in this Agreement are for convenience of reference only,
      shall not be deemed to be a part of this Agreement and shall not be referred
      to
      in connection with the construction or interpretation of this Agreement.

     

    Section
      9.7 Counterparts.
      This
      Agreement may be executed in several counterparts, each of which shall
      constitute an original and all of which, when taken together, shall constitute
      one agreement. 

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    Section
      9.8 Governing
      Law.
      This
      Agreement shall be construed in accordance with and governed by the internal
      laws of the State of Texas without giving effect to any choice of law rule
      that
      would cause the application of the laws of any jurisdiction other than the
      internal laws of the State of Texas to the rights and duties of the parties.
      

     

    Section
      9.9. Arbitration.
      The
      parties agree that any dispute, controversy or claim, whether based on contract,
      tort, statute, discrimination, retaliation, or otherwise, relating to, arising
      from or connected in any manner to this Agreement, or to the alleged breach
      of
      this Agreement, shall, upon timely written request of either party be submitted
      to and resolved by binding arbitration. The arbitration shall be conducted
      in
      Houston, Texas. The arbitration shall proceed in accordance with the National
      Rules of the American Arbitration Association ("AAA") in effect at the time
      the
      claim or dispute arose, unless other rules are agreed upon by the parties.
      Unless otherwise agreed to by the parties in writing, the arbitration shall
      be
      conducted by one arbitrator who is a member of the AAA and who is selected
      pursuant to the methods set out in the National Rules of the AAA. Any claims
      received after the applicable/relevant statute of limitations period has passed
      shall be deemed null and void. The award of the arbitrator shall be a reasoned
      award with findings of fact and conclusions of law. Either party may bring
      an
      action in any court of competent jurisdiction to compel arbitration under this
      Agreement, to enforce an arbitration award, and to vacate an arbitration award.
      However, in actions seeking to vacate an award, the standard of review to be
      applied by said court to the arbitrator's findings of fact and conclusions
      of
      law will be the same as that applied by an appellate court reviewing a decision
      of a trial court sitting without a jury. Each party will pay its own attorneys
      fees and other costs incurred by their respective attorneys.

    

    Section
      9.10 Waiver.
      

     

    (a) No
      failure on the part of any Person to exercise any power, right, privilege or
      remedy under this Agreement, and no delay on the part of any Person in
      exercising any power, right, privilege or remedy under this Agreement, shall
      operate as a waiver of such power, right, privilege or remedy; and no single
      or
      partial exercise or waiver of any such power, right, privilege or remedy shall
      preclude any other or further exercise thereof or of any other power, right,
      privilege or remedy. 

     

    (b) No
      Person
      shall be deemed to have waived any claim arising out of this Agreement, or
      any
      power, right, privilege or remedy under this Agreement, unless the waiver of
      such claim, power, right, privilege or remedy is expressly set forth in a
      written instrument duly executed and delivered on behalf of such Person; and
      any
      such waiver shall not be applicable or have any effect except in the specific
      instance in which it is given. 

     

    Section
      9.11 Amendments.
      This
      Agreement may not be amended, modified, altered or supplemented other than
      by
      means of a written instrument duly executed and delivered on behalf of Buyer,
      the Company and the Stockholders. 

     

    Section
      9.12 Severability.
      In the
      event that any provision of this Agreement, or the application of any such
      provision to any Person or set of circumstances, shall be determined to be
      invalid, unlawful, void or unenforceable to any extent, the remainder of this
      Agreement, and the application of such provision to Persons or circumstances
      other than those as to which it is determined to be invalid, unlawful, void
      or
      unenforceable, shall not be impaired or otherwise affected and shall continue
      to
      be valid and enforceable to the fullest extent permitted by law. 

     

    Section
      9.13 Entire
      Agreement.
      The
      Transactional Agreements (including Schedules and Exhibits thereto) set forth
      the entire understanding of the parties relating to the subject matter thereof
      and supersede all prior agreements and understandings among or between any
      of
      the parties relating to the subject matter thereof. 

     

    Section
      9.14 Indemnification
      of Officers and Directors.
      All
      rights to indemnification existing in favor of those Persons who are officers
      and directors of the Company as of the date of this Agreement (the “Indemnified
      Officers and Directors”) for their acts and omissions occurring prior to the
      Closing Date (other than any obligations arising in connection with the Stock
      Purchase and this Agreement), as provided in the articles of incorporation
      or
      bylaws of the Company and as provided in the indemnification agreements between
      the Company and the Indemnified Officers and Directors (as in effect as of
      the
      Closing Date) in the forms disclosed by the Company to the Buyer, or adopted
      by
      agreement between the Company and the Buyer prior to Closing, shall survive
      the
      Closing and shall be observed by the Company, and the Buyer to the fullest
      extent available under Texas law for a period of twelve months from the Closing
      Date.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    Section
      9.15 Construction.
      

     

    (a) For
      purposes of this Agreement, whenever the context requires: the singular number
      shall include the plural, and vice versa; the masculine gender shall include
      the
      feminine and neuter genders; the feminine gender shall include the masculine
      and
      neuter genders; and the neuter gender shall include the masculine and feminine
      genders. 

     

    (b) The
      parties hereto agree that any rule of construction to the effect that
      ambiguities are to be resolved against the drafting party shall not be applied
      in the construction or interpretation of this Agreement. 

     

    (c) As
      used
      in this Agreement, the words “include” and “including,” and variations thereof,
      shall not be deemed to be terms of limitation, but rather shall be deemed to
      be
      followed by the words “without limitation.” 

     

    (d) Except
      as
      otherwise indicated, all references in this Agreement to “Sections,” “Exhibits”
and “Schedules” are intended to refer to Sections of this Agreement and Exhibits
      and Schedules to this Agreement. 

     

    [Signature
      page follows]

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, each of the parties to this Agreement has executed or caused
      this Agreement to be executed as of the date first above written.

     

    
      

        
          	
                  “BUYER”

                	 
	 	 
	
                  SHUMATE
                    INDUSTRIES, INC.,

                	 
	
                  a
                    Delaware corporation

                	 
	 	 
	 	 
	
                  By:

                	
                	 
	 	
                  

                	 
	 	 
	 	 
	
                  “COMPANY”

                	
                  “STOCKHOLDERS”

                
	 	 
	
                  SUNBELT
                    MACHINE WORKS CORPORATION,

                	
                  Signatures
                    Appear on Schedule
                    1

                
	
                  a
                    Texas corporation

                	 
	 	 
	 	 
	
                  By:

                	 	 
	 	
                  

                	 
	 	 
	
                  Solely
                    with respect to Section 9.14:

                	 
	 	 
	
                  

                	 
	
                  C.
                    Frank Scantlin, director

                	 
	 	 
	 	 
	
                  

                	 
	
                  Craig
                    Scantlin, President, Secretary, director

                	 
	 	 
	 	 
	
                  

                	 
	
                  J.
                    Brent Scantlin, Vice President ,Treasurer, director 

                	 

        

      

    

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      1

    

    STOCKHOLDERS

    

      
        	
                Signature
                  of Stockholder

              	
                Shares
                  Owned

              
	 	 
	 	 
	
                

              	 
	
                C.
                  Frank Scantlin

                Address:

              	
                437.5

              
	 	 
	
                C.
                  Craig Scantlin

                2001
                  Investment Trust

              	
                299.7

              
	 	 
	
                By:

              	 
	 	
                

              	 
	
                Name:
                  C. Craig Scantlin

                Title:
                  Trustee

                Address:

              	 
	 	 
	
                J.
                  Brent Scantlin 

                2001
                  Investment Trust

              	
                174.8

              
	 	 
	 	 
	
                By:

              	 
	 	
                

              	 
	
                Name:
                  J. Brent Scantlin

                Title:
                  Trustee

                Address:

              	 
	 	 
	 	 
	
                Tammy
                  Scantlin Erskine 

                2001
                  Investment Trust

              	
                88.0

              
	 	 
	 	 
	
                By:

              	 
	 	
                

              	 
	
                Name:
                  Tammy Scantlin Erskine

                Title:
                  Trustee

                Address:

              	 

      

    

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    INDEX
      OF EXHIBITS AND SCHEDULES 

     

    Exhibits: 

     

    
      	
              A.

            	
              Certain
                Definitions

            
	 	 
	
              B.

            	
              Form
                of Note

            
	 	 
	
              C.

            	
              Form
                of Letter of Transmittal

            
	 	 
	
              D.

            	
              Unaudited
                Interim Balance Sheet of the Company

            
	 	 
	
              E.

            	
              Form
                of Non-Competition Agreement

            
	 	 
	
              F.

            	
              Form
                of Employment Agreement

            
	 	 
	
              G.

            	
              Form
                of Lease

            
	 	 
	
              H.

            	
              Form
                of Opinion of Company Counsel

            
	 	 
	
              I.

            	
              Form
                of Escrow Agreement

            
	 	 
	
              J.

            	
              Working
                Capital Statement

            
	 	 

    

     

    Schedules: 

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A 

     

    CERTAIN
      DEFINITIONS 

     

    For
      purposes of the Agreement (including this Exhibit
      A):
      

     

     

    Agreement.
      “Agreement”
      shall mean the Stock Purchase Agreement to which this Exhibit
      A
      is
      attached (including the Company Disclosure Schedule and all Exhibits), as it
      may
      be amended from time to time. 

     

    Alternative
      Transaction.
      means
      any of the following: (i) a transaction pursuant to which any person (or group
      of persons) other than Buyer or its affiliates (a “Third
      Party”)
      seeks
      to acquire, directly or indirectly, more than ten percent (10%) of the
      outstanding shares of capital stock of the Company, whether from the Company
      or
      pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
      other business combination involving the Company pursuant to which any Third
      Party acquires more than ten percent (10%) of the outstanding equity securities
      of the Company or the entity surviving such merger or business combination,
      (iii) any other transaction pursuant to which any Third Party acquires control
      of all or substantially all of the assets of the Company (including for this
      purpose the outstanding equity securities of the Company’s subsidiaries), (iv)
      the adoption by the Company of a plan of liquidation, the declaration or payment
      by the Company of an extraordinary dividend on any of its shares of capital
      stock or the effectuation by the Company of a recapitalization or other type
      of
      transaction that would involve either a change in the Company’s outstanding
      capital stock or a distribution of assets of any kind to the holders of such
      capital stock, (v) the issuance by the Company of shares of capital stock to
      the
      public or (vi) the repurchase by the Company or any of its subsidiaries of
      shares of the Company’s capital stock representing at least ten percent (10%) or
      more of the aggregate voting power of all voting securities of the Company;
      provided, however, that the definition of “Alternative Transaction” shall not
      include a transaction completed for equity financing purposes.

    

    Buyer.“Buyer”
      shall have the meaning specified in the first paragraph of the Agreement.

     

    Closing.“Closing”
      shall have the meaning specified in Section 1.5 of the Agreement. 

      

    Closing
      Date.“Closing
      Date” shall have the meaning specified in Section 1.5 of the Agreement.

     

    Closing
      Date Balance Sheet.“Closing
      Date Balance Sheet” shall mean the unaudited balance sheet of the Company dated
      as of the Closing Date, that has been prepared in accordance with GAAP (except
      that the Closing Date Balance Sheet may omit footnotes and other presentation
      items that may be required by GAAP consistently applied on a basis consistent
      with the Company Audited Financial Statements (as defined in Section 2.4(a)
      hereof)) and shall be calculated in a manner consistent with the Working Capital
      Statement. 

     

    Code.
      The
      Internal Revenue Code of 1986, as amended. 

     

    Company.
      The
“Company” shall have the meaning specified in the first paragraph of the
      Agreement and shall also be deemed to include all predecessor entities,
      including, without limitation, Scantlin Machine Works, Ltd. which was merged
      with and into Sunbelt Machine Works Corporation on April 18, 2007. 

     

    Company
      Common Stock.“Company
      Common Stock” shall mean shares of Class A common stock, $1.00 par value per
      share, of the Company.

     

    Company
      Contract.“Company
      Contract” shall mean any Contract: 

     

    (a)
      to
      which Company is a party; 

     

    (b)
      by
      which the Company or any of its assets is or may become bound or under which
      the
      Company has, or may become subject to, any obligation; or 

     

    (c)
      under
      which the Company has or may acquire any right or interest. 

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    Company
      Disclosure Schedule. “Company
      Disclosure Schedule” shall have the meaning specified in Article 2 of the
      Agreement. 

     

    Company
      Material Adverse Effect.
      shall
      mean any change, event or effect that is materially adverse to the business,
      assets (whether tangible or intangible), liabilities, operations, results of
      operations, condition (financial or otherwise), or capitalization of the
      Company; provided, however, that any adverse change directly attributable to
      conditions affecting the industry in which the Company has material operations
      as a whole or the U.S. economy as a whole shall not be deemed a Company Material
      Adverse Effect so long as such conditions do not adversely affect the Company
      in
      a manner disproportionate to other companies in the same industry. 

    

    Company
      Returns. “Company
      Returns” shall have the meaning specified in Section 2.14(b) of the Agreement.

      

    Company
      Stock Options.
      shall
      mean all issued and outstanding options (including commitments to grant options,
      but excluding Company Warrants) to purchase or otherwise acquire Company Common
      Stock (whether or not vested) held by any person or entity.

     

    Company
      Warrants.
      shall
      mean any issued and outstanding warrants to purchase Company Common Stock that
      are not exercised or cancelled prior to the Closing Date.

     

    Confidentiality
      Agreement.“Confidentiality
      Agreement” means Section 12 of that certain Letter of Intent dated April 24,
      2007 executed between Buyer and the Company. 

     

    Consent.
      “Consent”
      shall mean any approval, consent, ratification, permission, waiver or
      authorization (including any Governmental Authorization). 

     

    Contract.
      “Contract”
      shall mean, with respect to any Person, any legally binding written, oral,
      implied or other agreement, contract, understanding, arrangement, instrument,
      note, guaranty, indemnity, representation, warranty, deed, assignment, power
      of
      attorney, certificate, purchase order, work order, insurance policy, benefit
      plan, commitment, covenant, assurance, obligation, promise or undertaking of
      any
      nature to which such Person is a party or by which its properties or assets
      maybe bound or affected or under which it or its business, properties or assets
      receive benefits. 

      

    Damages.
      “Damages”
      shall have the meaning specified in Section 7.1 of the Agreement. 

     

    Damages
      Cap. “Damages
      Cap” shall have the meaning specified in Section 7.1 of the Agreement.

    

    Damages
      Threshold. “Damages
      Threshold” shall have the meaning specified in Section 7.2 of the Agreement.

    

    Defined
      Benefit Plan. “Defined
      Benefit Plan” shall mean either a plan described in Section 3(35) of ERISA or a
      plan subject to the minimum funding standards set forth in Section 302 of ERISA
      and Section 412 of the Code. 

     

    Employee
      Benefit Plan. “Employee
      Benefit Plan” shall have the meaning specified in Section 3(3) of ERISA.

     

    Employment
      and Noncompetition Agreement.“Employment
      and Noncompetition Agreement” shall have the meaning specified in Section 5.9 of
      the Agreement. 

     

    Encumbrance.
      “Encumbrance”
      shall mean any lien, pledge, hypothecation, charge, mortgage, security interest,
      encumbrance, equity, trust, equitable interest, claim, preference, right of
      possession, lease, tenancy, licensee, encroachment, covenant, infringement,
      interference, Order, proxy, option, right of first refusal, preemptive right,
      community property interest, legend, defect, impediment, exception, reservation,
      limitation, impairment, imperfection of title, condition or restriction of
      any
      nature (including any restriction on the voting of any security, any restriction
      on the transfer of any security or other asset, any restriction on the receipt
      of any income derived from any asset, any restriction on the use of any asset
      and any restriction on the possession, exercise or transfer of any other
      attribute of ownership of any asset). 

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    Entity.
      “Entity”
      shall mean any corporation (including any non profit corporation), general
      partnership, limited partnership, limited liability partnership, joint venture,
      estate, trust, cooperative, foundation, society, political party, union, company
      (including any limited liability company or joint stock company), firm or other
      enterprise, association, organization or entity. 

     

    Environmental
      Law. “Environmental
      Law” shall mean any federal, state, local or foreign Legal Requirement relating
      to pollution or protection of human health or the environment. 

     

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

     

    ERISA
      Affiliate. “ERISA
      Affiliate” shall mean any Person that is, was or would be treated as a single
      employer with the Company under Section 4001 of ERISA or Section 414(b), (c),
      (m) or (o) of the Code. 

     

    Escrow
      Agent.
      shall
      mean Signature Bank, or another institution acceptable to Buyer and the
      Stockholders’ Agent

     

    Escrow
      Agreement. “Escrow
      Agreement” shall have the meaning specified in Section 6.2(h) of the Agreement.

     

    Escrow
      Fund. “Escrow
      Fund” shall have the meaning specified in Section 7.6 of the Agreement.

    

    Exchange
      Agent. “Exchange
      Agent” shall have the meaning specified in Section 1.3(a) of the Agreement.

     

    Expiration
      Date.“Expiration
      Date” shall have the meaning specified in Section 9.1 of the Agreement.

      

    GAAP.
      shall
      mean United States generally accepted accounting principles.

     

    Governmental
      Authorization. “Governmental
      Authorization” shall mean any: 

     

    (a)
      permit, license, certificate, franchise, concession, approval, consent,
      ratification, permission, clearance, confirmation, endorsement, waiver,
      certification, designation, rating, registration, qualification or authorization
      that is issued, granted, given or otherwise delivered by or under the authority
      of any Governmental Body or pursuant to any Legal Requirement; or 

     

    (b)
      right
      under any Contract with any Governmental Body. 

     

    Governmental
      Body.“Governmental
      Body” shall mean any: 

     

    (a)
      nation, principality, state, commonwealth, province, territory, county,
      municipality, district or other jurisdiction of any nature; 

     

    (b)
      federal, state, local, municipal, foreign or other government; 

     

    (c)
      governmental or quasi governmental authority of any nature (including any
      governmental division, subdivision, department, agency, bureau, branch, office,
      commission, council, board, instrumentality, officer, official, representative,
      organization, unit, body or Entity and any court or other tribunal);

     

    (d)
      multinational organization or body; or 

     

    (e)
      individual, Entity or body exercising, or entitled to exercise, any executive,
      legislative, Judicial, administrative, regulatory, police, military or taxing
      authority or power of any nature. 

     

    Hazardous
      Material. “Hazardous
      Material” shall mean any substance, chemical, waste or other material which is
      listed, defined or otherwise identified as hazardous, toxic or dangerous under
      any applicable law; as well as any petroleum, petroleum product or by-product,
      crude oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic
      gas useable for fuel, and “source,” “special nuclear,” and “by-product” material
      as defined in the Atomic Energy Act of 1954, 42 U.S.C. §§ 2011 et
      seq.
      

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    Leased
      Premises. “Leased
      Premises” shall have the meaning specified in Section 2.6(d) of the Agreement.
 

     

    Legal
      Requirement.“Legal
      Requirement” shall mean any federal, state, local, municipal, foreign or other
      law, statute, legislation, constitution, principle of common law, resolution,
      ordinance, code, edict, decree, proclamation, treaty, convention, rule,
      regulation, ruling, directive, pronouncement, requirement, specification,
      determination, decision, opinion or interpretation that is or has been issued,
      enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
      put into effect by or under the authority of any Governmental Body.

     

    Letter
      of Transmittal.“Letter
      of Transmittal” shall have the meaning specified in Section 1.3(c) of the
      Agreement. 

     

    Liability.
      “Liability”
      shall mean any debt, obligation, duty or liability of any nature including
      any
      unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect,
      conditional, implied, vicarious, derivative, joint, several or secondary
      liability, regardless of whether such debt, obligation, duty or liability would
      be required to be disclosed on a balance sheet prepared in accordance with
      GAAP
      and regardless of whether such debt, obligation, duty or liability is
      immediately due and payable. 

     

    Lien.
      shall
      mean any lien, pledge, charge, claim, mortgage, security interest or other
      encumbrance of any sort.

     

    Material
      Consents. “Material
      Consents” shall have the meaning specified in Section 6.2(c) of the Agreement.

     

    Multiemployer
      Plan. shall
      mean any Pension Plan (as defined herein) that is a “multiemployer plan,” as
      defined in Section 3(37) of ERISA.

     

    Order.
      “Order”
      shall mean any: 

     

    (a)
      order, judgment, injunction, edict, decree, ruling, pronouncement,
      determination, decision, opinion, verdict, sentence, subpoena, writ or award
      that is issued, made, entered, rendered or otherwise put into effect by or
      under
      the authority of any court, administrative agency or other Governmental Body
      or
      any arbitrator or arbitration panel; or 

     

    (b)
      Contract with any Governmental Body that is entered into in connection with
      any
      Proceeding. 

     

    Ordinary
      Course of Business. An
      action
      taken by or on behalf of the Company shall not be deemed to have been taken
      in
      the “Ordinary Course of Business” unless: 

     

    (a)
      such
      type of action is recurring in nature, consistent with the Company’s past
      practices and taken in the ordinary course of the Company’s normal day to day
      operations; 

     

    (b)
      such
      action is not required to be authorized by the Company’s Stockholders, the
      Company’s board of directors or any committee of the Company’s board of
      directors and does not require any other separate or special authorization
      of
      any nature; and 

     

    Person.
      “Person”
      shall mean any individual, Entity or Governmental Body. 

     

    Plans.“Plans”
      shall have the meaning specified in Section 2.16(a) of the Agreement.

    

    Proceeding.
      “Proceeding”
      shall mean any action, suit, litigation, arbitration, proceeding (including
      any
      civil, criminal, administrative, investigative or appellate proceeding and
      any
      informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit,
      examination or investigation, commenced, brought, conducted or heard by or
      before, or otherwise has involved, any Governmental Body or any arbitrator
      or
      arbitration panel. 

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    Proprietary
      Asset. “Proprietary
      Asset” shall mean any patent, patent application, trademark (whether registered
      or unregistered and whether or not relating to a published work), trademark
      application, trade name, fictitious business name, service mark (whether
      registered or unregistered), service mark application, copyright (whether
      registered or unregistered), copyright application, trade secret, know how,
      franchise, system, computer software, invention, design, blueprint, proprietary
      product, technology, proprietary right or other intellectual property right.
      

     

    Pro
      Rata Portion. shall
      mean, with respect to each Stockholder, the quotient obtained by dividing (i)
      the number of shares held by such Stockholder set forth opposite such
      Stockholder’s name on Schedule
      1
      hereto,
      by (ii) the total number of Shares.

     

    Related
      Party. Each
      of
      the following shall be deemed to be a “Related Party”: 

     

    (a)
      each
      individual who is, or who has at any time been, an officer of the Company or
      a
      predecessor thereto; 

     

    (b)
      each
      child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
      mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law,
      or
      sister-in-law of each of the individuals referred to in clause “(a)” above,
      including adoptive relationships; 

     

    (c)
      any
      Entity (other than the Company) in which any one of the Persons referred to
      in
      clauses “(a)” or “(b)” above holds (or in which more than one of such
      individuals collectively hold), beneficially or otherwise, a material voting,
      proprietary or equity interest. 

     

    Representatives.
      “Representatives”
      of a specified party shall mean officers, directors, employees, attorneys,
      accountants, advisors and representatives of such party. The Related Parties
      shall be deemed to be “Representatives” of Company. 

     

    Stockholder.
      shall
      have the meaning specified in the first paragraph of the Agreement.

     

    Stockholders’
      Agent. “Stockholders’
      Agent” shall have the meaning specified in Section 7.4(a) of the Agreement.

      

    Tax.
      “Tax”
      shall mean any tax (including any income tax, franchise tax, capital gains
      tax,
      estimated tax, gross receipts tax, value added tax, surtax, excise tax, ad
      valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
      tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll
      tax), levy, assessment, tariff, impost, imposition, toll, duty (including any
      customs duty), deficiency or fee, and any related charge or amount (including
      any fine, penalty or interest), (a) imposed, assessed or collected by or under
      the authority of any Governmental Body, or (b) payable pursuant to any tax
      sharing agreement or similar Contract. 

     

    Tax
      Return. “Tax
      Return” shall mean any return (including any information return), report,
      statement, declaration, estimate, schedule, notice, notification, form,
      election, certificate or other document or information that is, has been or
      may
      in the future be filed with or submitted to, or required to be filed with or
      submitted to, any Governmental Body in connection with the determination,
      assessment, collection or payment of any Tax or in connection with the
      administration, implementation or enforcement of or compliance with any Legal
      Requirement relating to any Tax. 

     

    Termination
      Date.“Termination
      Date” shall have the meaning specified in Section 8.1(b) of the Agreement.

     

    Total
      Consideration. “Total
      Consideration” shall have the meaning specified in Section 1.2(c) of the
      Agreement.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    Transactional
      Agreements. “Transactional
      Agreements” shall mean: 

     

    (a)
      the
      Agreement; 

     

    (b)
      the
      Note; 

     

    (c)
      the
      Letter of Transmittal; 

     

    (d)
      the
      Employment Agreements; 

     

    (e)
      the
      Lease; 

    

    (f) 
      the
      Escrow Agreement and

     

    (g)
      the
      Non Competition Agreement.

     

    Transactions.
      “Transactions”
      shall mean (a) the execution and delivery of the respective Transactional
      Agreements, and (b) all of the transactions contemplated by the respective
      Transactional Agreements, including, without limitation, the Stock Purchase,
      and
      the performance by Company, Buyer, the Stockholders, and the other parties
      to
      the Transactional Agreements of their respective obligations under the
      Transactional Agreements. 

     

    Unaudited
      Interim Balance Sheet. “Unaudited
      Interim Balance Sheet” shall have the meaning specified in Section 2.4(b) of the
      Agreement. 

     

    Working
      Capital Statement.
      “Working Capital Statement” shall have the meaning specified in Section 7.8 of
      the Agreement.

     

    
      
        
        

      

      
        43Execution
      Version

     

    
      
        
          
            AMENDED
              AND
              RESTATED
              CREDIT
              AGREEMENT

            

            DATED
              AS
              OF

            AUGUST
              20, 2007

            

            AMONG

             

            AURORA
              OIL&
              GAS
              CORPORATION,

            AS
              BORROWER,

             

            BNP
              PARIBAS,

            AS
              ADMINISTRATIVE
              AGENT,

            

            AND

            

            THE
              LENDERS
              PARTY
              HERETO

             

            SOLE
              LEAD
              ARRANGER
              AND
              SOLE
              BOOKRUNNER

             

            BNP
              PARIBAS

             

          

        

      

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

     

    
      TABLE
        OF CONTENTS

    

     

    
      
        	
                ARTICLE
                  I

              	 
	
                DEFINITIONS
                  AND ACCOUNTING MATTERS

              	 
	 	 	 	 	 
	
                Section
                  1.01 Terms Defined Above

              	 	 	
                1

              	 
	
                Section
                  1.02 Certain Defined Terms

              	 	 	
                1

              	 
	
                Section
                  1.03 Types of Loans and Borrowings

              	 	 	
                20

              	 
	
                Section
                  1.04 Terms Generally; Rules of Construction

              	 	 	
                20

              	 
	
                Section
                  1.05 Accounting Terms and Determinations; GAAP

              	 	 	
                21

              	 
	 	 
	
                ARTICLE
                  II

              	 
	
                THE
                  CREDITS

              	 
	 	 
	
                Section
                  2.01 Commitments

              	 	 	
                21

              	 
	
                Section
                  2.02 Loans and Borrowings

              	 	 	
                21

              	 
	
                Section
                  2.03 Requests for Borrowings

              	 	 	
                23

              	 
	
                Section
                  2.04 Interest Elections

              	 	 	
                24

              	 
	
                Section
                  2.05 Funding of Borrowings

              	 	 	
                25

              	 
	
                Section
                  2.06 Termination and Reduction of Aggregate Maximum Credit
                  Amounts

              	 	 	
                26

              	 
	
                Section
                  2.07 Borrowing Base

              	 	 	
                26

              	 
	
                Section
                  2.08 Letters of Credit

              	 	 	
                28

              	 
	 	 
	
                ARTICLE
                  III

              	 
	
                PAYMENTS
                  OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

              	 
	 	 
	
                Section
                  3.01 Repayment of Loans

              	 	 	
                33

              	 
	
                Section
                  3.02 Interest

              	 	 	
                33

              	 
	
                Section
                  3.03 Alternate Rate of Interest

              	 	 	
                34

              	 
	
                Section
                  3.04 Prepayments

              	 	 	
                35

              	 
	
                Section
                  3.05 Fees

              	 	 	
                36

              	 
	 	 
	
                ARTICLE
                  IV

              	 
	
                PAYMENTS;
                  PRO RATA TREATMENT; SHARING OF SET-OFFS

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

              	 	 	
                37

              	 
	
                Section
                  4.02 Presumption of Payment by the Borrower

              	 	 	
                38

              	 
	
                Section
                  4.03 Certain Deductions by the Administrative Agent

              	 	 	
                38

              	 
	
                Section
                  4.04 Disposition of Proceeds

              	 	 	
                39

              	 
	 	 
	
                ARTICLE
                  V

              	 
	
                INCREASED
                  COSTS; BREAK FUNDING PAYMENTS; TAXES

              	 
	 	 
	
                Section
                  5.01 Increased Costs

              	 	 	
                39

              	 
	
                Section
                  5.02 Break Funding Payments

              	 	 	
                40

              	 
	
                Section
                  5.03 Taxes.

              	 	 	
                40

              	 
	
                Section
                  5.04 Mitigation Obligations

              	 	 	
                41

              	 
	 	 
	
                ARTICLE
                  VI

              	 
	
                CONDITIONS
                  PRECEDENT

              	 
	 	 
	
                Section
                  6.01 Effective Date

              	 	 	
                42

              	 
	
                Section
                  6.02 Each Credit Event

              	 	 	
                44

              	 

        
          
            
            

          

          
            i

            
              

            

          

           

        

        TABLE
          OF CONTENTS

        
          (continued)

        

      

       

      
        	 	 	 	
                Page 

              	 
	 	 	 	 	 
	
                ARTICLE
                  VII

              	 
	
                REPRESENTATIONS
                  AND WARRANTIES

              	 
	 	 	 	 	 
	
                Section
                  7.01 Organization; Powers

              	 	 	
                45

              	 
	
                Section
                  7.02 Authority; Enforceability

              	 	 	
                45

              	 
	
                Section
                  7.03 Approvals; No Conflicts

              	 	 	
                46

              	 
	
                Section
                  7.04 Financial Condition; No Material Adverse Change

              	 	 	
                46

              	 
	
                Section
                  7.05 Litigation

              	 	 	
                46

              	 
	
                Section
                  7.06 Environmental Matters

              	 	 	
                47

              	 
	
                Section
                  7.07 Compliance with the Laws and Agreements; No Defaults

              	 	 	
                48

              	 
	
                Section
                  7.08 Investment Company Act

              	 	 	
                48

              	 
	
                Section
                  7.09 Taxes

              	 	 	
                48

              	 
	
                Section
                  7.10 ERISA

              	 	 	
                48

              	 
	
                Section
                  7.11 Disclosure; No Material Misstatements

              	 	 	
                49

              	 
	
                Section
                  7.12 Insurance

              	 	 	
                50

              	 
	
                Section
                  7.13 Restriction on Liens

              	 	 	
                50

              	 
	
                Section
                  7.14 Subsidiaries

              	 	 	
                50

              	 
	
                Section
                  7.15 Location of Business and Offices

              	 	 	
                50

              	 
	
                Section
                  7.16 Properties; Titles, Etc

              	 	 	
                51

              	 
	
                Section
                  7.17 Maintenance of Properties

              	 	 	
                52

              	 
	
                Section
                  7.18 Gas Imbalances, Prepayments

              	 	 	
                52

              	 
	
                Section
                  7.19 Marketing of Production

              	 	 	
                52

              	 
	
                Section
                  7.20 Swap Agreements

              	 	 	
                52

              	 
	
                Section
                  7.21 Use of Loans and Letters of Credit

              	 	 	
                53

              	 
	
                Section
                  7.22 Solvency

              	 	 	
                53

              	 
	 	 
	
                ARTICLE
                  VIII

              	 
	
                AFFIRMATIVE
                  COVENANTS

              	 
	 	 
	
                Section
                  8.01 Financial Statements; Other Information

              	 	 	
                53

              	 
	
                Section
                  8.02 Notices of Material Events

              	 	 	
                56

              	 
	
                Section
                  8.03 Existence; Conduct of Business

              	 	 	
                56

              	 
	
                Section
                  8.04 Payment of Obligations

              	 	 	
                57

              	 
	
                Section
                  8.05 Performance of Obligations under Loan Documents

              	 	 	
                57

              	 
	
                Section
                  8.06 Operation and Maintenance of Properties

              	 	 	
                57

              	 
	
                Section
                  8.07 Insurance

              	 	 	
                58

              	 
	
                Section
                  8.08 Books and Records; Inspection Rights

              	 	 	
                58

              	 
	
                Section
                  8.09 Compliance with Laws

              	 	 	
                58

              	 
	
                Section
                  8.10 Environmental Matters

              	 	 	
                58

              	 
	
                Section
                  8.11 Further Assurances

              	 	 	
                59

              	 
	
                Section
                  8.12 Reserve Reports

              	 	 	
                60

              	 
	
                Section
                  8.13 Title Information

              	 	 	
                61

              	 
	
                Section
                  8.14 Additional Collateral; Additional Guarantors

              	 	 	
                61

              	 
	
                Section
                  8.15 ERISA Compliance

              	 	 	
                63

              	 
	
                Section
                  8.16 Marketing Activities

              	 	 	
                63

              	 
	
                Section
                  8.17 Swap Agreements

              	 	 	
                64

              	 
	
                Section
                  8.18 Minimum Daily Production

              	 	 	
                64

              	 

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      

        TABLE
          OF CONTENTS

        
          (continued)

           

        

      

      
        	 	 	 	
                Page 

              	 
	 	 	 	 	 
	
                ARTICLE
                  IX

              	 
	
                NEGATIVE
                  COVENANTS

              	 
	 	 	 	 	 
	
                Section
                  9.01 Financial Covenants

              	 	 	
                64

              	 
	
                Section
                  9.02 Debt

              	 	 	
                64

              	 
	
                Section
                  9.03 Liens

              	 	 	
                65

              	 
	
                Section
                  9.04 Dividends, Distributions and Redemptions; Amendments of Second
                  Lien
                  Documents

              	 	 	
                66

              	 
	
                Section
                  9.05 Investments, Loans and Advances

              	 	 	
                67

              	 
	
                Section
                  9.06 Nature of Business; International Operations

              	 	 	
                68

              	 
	
                Section
                  9.07 Limitation on Leases

              	 	 	
                68

              	 
	
                Section
                  9.08 Proceeds of Notes

              	 	 	
                68

              	 
	
                Section
                  9.09 ERISA Compliance

              	 	 	
                69

              	 
	
                Section
                  9.10 Sale or Discount of Receivables

              	 	 	
                70

              	 
	
                Section
                  9.11 Mergers, Etc

              	 	 	
                70

              	 
	
                Section
                  9.12 Sale of Properties

              	 	 	
                70

              	 
	
                Section
                  9.13 Environmental Matters

              	 	 	
                71

              	 
	
                Section
                  9.14 Transactions with Affiliates

              	 	 	
                71

              	 
	
                Section
                  9.15 Subsidiaries

              	 	 	
                71

              	 
	
                Section
                  9.16 Negative Pledge Agreements; Dividend Restrictions

              	 	 	
                72

              	 
	
                Section
                  9.17 Gas Imbalances, Take-or-Pay or Other Prepayments

              	 	 	
                72

              	 
	
                Section
                  9.18 Swap Agreements

              	 	 	
                72

              	 
	 	 
	
                ARTICLE
                  X

              	 
	
                EVENTS
                  OF DEFAULT; REMEDIES

              	 
	 	 
	
                Section
                  10.01 Events of Default

              	 	 	
                72

              	 
	
                Section
                  10.02 Remedies

              	 	 	
                74

              	 
	 	 
	
                ARTICLE
                  XI

              	 
	
                THE
                  AGENTS

              	 
	 	 
	
                Section
                  11.01 Appointment; Powers

              	 	 	
                76

              	 
	
                Section
                  11.02 Duties and Obligations of Administrative Agent

              	 	 	
                76

              	 
	
                Section
                  11.03 Action by Administrative Agent

              	 	 	
                77

              	 
	
                Section
                  11.04 Reliance by Administrative Agent

              	 	 	
                77

              	 
	
                Section
                  11.05 Subagents

              	 	 	
                78

              	 
	
                Section
                  11.06 Resignation or Removal of Administrative Agent

              	 	 	
                78

              	 
	
                Section
                  11.07 Agents as Lenders

              	 	 	
                78

              	 
	
                Section
                  11.08 No Reliance

              	 	 	
                78

              	 
	
                Section
                  11.09 Administrative Agent May File Proofs of Claim

              	 	 	
                79

              	 
	
                Section
                  11.10 Authority of Administrative Agent to Release Collateral and
                  Liens

              	 	 	
                80

              	 
	
                Section
                  11.11 The Arranger and other Agents

              	 	 	
                80

              	 

      

       

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

      

        TABLE
          OF CONTENTS

        
          (continued)

        

      

       

      
        	 	 	 	
                Page

              	 
	 	 
	
                ARTICLE
                  XII

              	 
	
                MISCELLANEOUS

              	 
	 	 	 	 	 
	
                Section
                  12.01 Notices

              	 	 	
                80

              	 
	
                Section
                  12.02 Waivers; Amendments

              	 	 	
                81

              	 
	
                Section
                  12.03 Expenses, Indemnity; Damage Waiver.

              	 	 	
                82

              	 
	
                Section
                  12.04 Successors and Assigns

              	 	 	
                85

              	 
	
                Section
                  12.05 Survival; Revival; Reinstatement

              	 	 	
                87

              	 
	
                Section
                  12.06 Counterparts; Integration; Effectiveness

              	 	 	
                88

              	 
	
                Section
                  12.07 Severability

              	 	 	
                89

              	 
	
                Section
                  12.08 Right of Setoff

              	 	 	
                89

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

              	 	 	
                89

              	 
	
                Section
                  12.10 Headings

              	 	 	
                90

              	 
	
                Section
                  12.11 Confidentiality

              	 	 	
                90

              	 
	
                Section
                  12.12 Interest Rate Limitation

              	 	 	
                91

              	 
	
                Section
                  12.13 EXCULPATION PROVISIONS

              	 	 	
                92

              	 
	
                Section
                  12.14 Collateral Matters; Swap Agreements

              	 	 	
                92

              	 
	
                Section
                  12.15 No Third Party Beneficiaries

              	 	 	
                93

              	 
	
                Section
                  12.16 USA Patriot Act Notice

              	 	 	
                93

              	 

      

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

     

    ANNEXES,
      EXHIBITS AND SCHEDULES

     

    
      
        	
                Annex
                  I

              	 	
                List
                  of Maximum Credit Amounts

              
	 	 	 
	
                Exhibit
                  A

              	 	
                Form
                  of Note

              
	
                Exhibit
                  B

              	 	
                Form
                  of Borrowing Request

              
	
                Exhibit
                  C

              	 	
                Form
                  of Interest Election Request

              
	
                Exhibit
                  D

              	 	
                Form
                  of Compliance Certificate

              
	
                Exhibit
                  E-1

              	 	
                Security
                  Instruments

              
	
                Exhibit
                  E-2

              	 	
                Form
                  of Guaranty and Collateral Agreement

              
	
                Exhibit
                  F

              	 	
                Form
                  of Assignment and Assumption

              
	 	 	 
	
                Schedule
                  7.05

              	 	
                Litigation

              
	
                Schedule
                  7.14

              	 	
                Subsidiaries
                  and Partnerships

              
	
                Schedule
                  7.18

              	 	
                Gas
                  Imbalances

              
	
                Schedule
                  7.19

              	 	
                Marketing
                  Contracts

              
	
                Schedule
                  7.20

              	 	
                Swap
                  Agreements

              
	
                Schedule
                  9.05

              	 	
                Investments

              
	
                Schedule
                  9.12

              	 	
                Other
                  Property

              

      

    

     

    
      
        
        

      

      
        i

        
          

        

      

       

    

    THIS
      AMENDED AND RESTATED CREDIT AGREEMENT
      dated as
      of August 20, 2007, is among: Aurora Oil & Gas Corporation, a corporation
      duly formed and existing under the laws of the State of Utah (the “Borrower”);
      each
      of the Lenders from time to time party hereto; and BNP Paribas, as
      administrative agent for the Lenders (in such capacity, together with its
      successors in such capacity, the “Administrative
      Agent”).

     

    RECITALS

     

    A. On
      January 31, 2006, Aurora Antrim North, L.L.C., a Michigan limited liability
      company, together with the Borrower and Aurora Energy, Ltd., a Nevada
      corporation, as guarantors, entered into that certain Credit Agreement with
      the
      Administrative Agent (the “Existing
      Credit Agreement”).

     

    B. The
      Borrower has requested, and the Lenders have agreed, to amend and restate the
      Existing Credit Agreement with Aurora Oil & Gas Corporation as the Borrower,
      subject to the terms and conditions of this Agreement. 

     

    C. 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.

     

    “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.

     

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

     

    “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 greatest 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 Loan or Eurodollar 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

            	 	
              <25.0%

            	 	
              325.0%
                <50.0%

            	 	
              350.0%
                <75.0%

            	 	
              375.0%

            	 
	
              Eurodollar
                Loans

            	 	 	
              1.250

            	
              %

            	 	
              1.500

            	
              %

            	 	
              1.750

            	
              %

            	 	
              2.000

            	
              %

            
	
              ABR
                Loans

            	 	 	
              0.000

            	
              %

            	 	
              0.000

            	
              %

            	 	
              0.000

            	
              %

            	 	
              0.000

            	
              %

            

    

    

    Each
      change in the Applicable Margin shall apply during the period commencing on
      the
      effective date of a change in the Borrowing Base Utilization Percentage and
      ending on the date immediately preceding the effective date of the next such
      change, provided, however, that if at any time the Borrower fails to deliver
      a
      Reserve Report pursuant to Section
      8.12(a),
      then
      the “Applicable
      Margin”
means
      the rate per annum set forth on the grid when the Borrowing Base Utilization
      Percentage is at its highest level.

     

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

     

    “Approved
      Counterparty”
means
      (a) any Lender or any Affiliate of a Lender or (b) any other Person whose long
      term senior unsecured debt rating is A-/A3 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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Approved
      Petroleum Engineers”
means
      (a) Netherland, Sewell & Associates, Inc., (b) Ryder Scott Company Petroleum
      Consultants, L.P., (c) Schlumberger Holditch Reservoir Technology and (d) any
      other independent petroleum engineers reasonably acceptable to the
      Administrative Agent.

     

    “Arranger”
means
      BNP
      Paribas,
      in its
      capacities as the sole lead arranger and sole 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 F or any other
      form
      approved by the Administrative Agent.

     

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

     

    “Bach
      Services”
means
      Bach Services & Manufacturing Company, L.L.C., a Michigan limited liability
      company, a wholly-owned subsidiary of the Borrower.

     

    “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, 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
      8.13(c)
      or
Section
      9.12(e).

     

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

     

    “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
      a
      request by the Borrower for a Borrowing 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 or Houston, Texas 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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “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 $500,000.

     

    “Change
      in Control”
means
      the occurrence of any of the following events: (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 25%
      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 the Issuing Bank
      (or,
      for purposes of Section
      5.01(b)),
      by any
      lending office of such Lender or by such Lender’s or the 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.

     

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

     

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

     

    “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
      Consolidated Subsidiary 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 a Consolidated
      Subsidiary, 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 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; (e) non-cash gains or losses under FAS 133 resulting
      from the net change in Borrower’s mark-to-market portfolio of commodity price
      risk management activities during that period; (f) any gains or losses
      attributable to writeups or writedowns of assets, including ceiling test
      writedowns and (g) non-cash stock-based compensation under FAS Statement No.
      123R; and provided further that if the Borrower or any Consolidated Subsidiary
      shall acquire or dispose of any Property with a fair market value of over
      $1,000,000 during such period, then Consolidated Net Income shall be calculated
      after giving pro
      forma
      effect
      to such acquisition or disposition as if such acquisition or disposition had
      occurred on the first day of such period.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “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.

     

    “EBITDAX”
means,
      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 in such period: interest, income taxes, depreciation, depletion,
      amortization, exploration expenses and other similar noncash charges, minus
      all
      noncash income added to Consolidated Net Income.

     

    “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 Subsidiary
      is
      conducting or at any time has conducted business, or where any Property of
      the
      Borrower or any Subsidiary 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
      mean those waste that are excluded from the definition of “hazardous
      waste”
      pursuant to 40 C.F.R. Section 261.4(b)(5) (“Section
      261.4(b)(5)”);
      provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section
      261.4(b)(5) 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 Subsidiary is located establish a
      meaning for “oil,”
      “hazardous
      substance,”
      “release,”
      “solid
      waste,”
      “disposal”
or
      “oil
      and gas waste”
which
      is broader than that specified in either OPA, CERCLA, RCRA or Section
      261.4(b)(5), such broader meaning shall apply.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Environmental
      Permit”
means
      any permit, registration, license, approval, consent, exemption, variance,
      or
      other authorization required under or issued pursuant to applicable
      Environmental Laws.

     

    “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 a Subsidiary 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, a Subsidiary 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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “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 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 Subsidiary 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
      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
      Subsidiary 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, that do not secure
      any monetary obligations and 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 Subsidiary 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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    “Excluded
      Taxes”
means,
      with respect to the Administrative Agent, any Lender, the 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 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 the Recitals.

     

    “Existing
      Second Lien Agreement”
means
      that certain First Amended and Restated Note Purchase Agreement dated as of
      December 8, 2005 among Aurora Antrim North, L.L.C., as the borrower, Aurora
      Energy, Ltd. and the Borrower, as guarantors, TCW Asset Management Company,
      as
      administrative agent and in the other capacities described therein, and the
      other purchasers party thereto, as amended by that certain First Amendment
      to
      First Amended and Restated Note Purchase Agreement dated as January 31, 2006,
      and as from time to time renewed, extended, amended, supplemented, or
      restated.

     

    “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 means 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).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    “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, any Subsidiary, any of their Properties, any Agent, the Issuing Bank
      or any Lender.

     

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

     

    (a) Aurora
      Energy, Ltd., a corporation duly formed and existing under the laws of the
      State
      of Nevada;

     

    (b) Aurora
      Antrim North, L.L.C., a limited liability company duly formed and existing
      under
      the laws of the State of Michigan;

     

    (c) Hudson
      Pipeline & Processing Co., LLC, a limited liability company duly formed and
      existing under the laws of the State of Michigan; and

     

    (d) each
      other Material Domestic Subsidiary or other Domestic Subsidiary that guarantees
      the Indebtedness pursuant to Section
      8.14(b),
      provided, that for as long as Bach Services has an outstanding line of credit
      pursuant to that certain Business Loan Agreement by and between Bach Services
      and Northwestern Bank, dated April 5, 2007 or any replacement (but not increase)
      or extension thereof, Bach Services and Kingsley Development Company, L.L.C.
      shall not be required to become Guarantors.

    

    “Guaranty
      Agreement”
means
      an agreement executed by the Guarantors in substantially the form of Exhibit
      E-2
      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.

     

    “Hazardous
      Material”
means
      any substance regulated or as to which liability might arise under any
      applicable Environmental Law and including, without limitation: (a) any
      chemical, compound, material, product, byproduct, substance or waste defined
      as
      or included in the definition or meaning of “hazardous substance,” “hazardous
      material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous
      substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar
      meaning or import found in any applicable Environmental Law; (b) petroleum
      hydrocarbons, petroleum products, petroleum substances, natural gas, oil, oil
      and gas waste, crude oil, and any components, fractions, or derivatives thereof;
      and (c) radioactive materials, asbestos containing materials, polychlorinated
      biphenyls, or radon.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    “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 Subsidiary 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, the 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.

     

    “Intercreditor
      Agreement”
      means
      that certain Intercreditor Agreement by and among the Borrower, the
      Administrative Agent and the lenders or agents party to the Second Lien
      Documents, dated as of the date hereof, as the same may from time to time be
      amended, modified, supplemented or restated in accordance with the provisions
      of
      Section 9.04(b).

     

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

     

    “Interest
      Expense”
means,
      for any period, the sum (determined without duplication) of (a) all cash
      dividends paid on the Borrower’s preferred Equity Interests and (b) the
      aggregate gross interest expense of the Borrower and the Consolidated
      Subsidiaries for such period, including to the extent included in interest
      expense under GAAP: (i) amortization of debt discount, (ii) capitalized interest
      and (iii) the portion of any payments or accruals under Capital Leases allocable
      to interest expense, plus the portion of any payments or accruals under
      Synthetic Leases allocable to interest expense whether or not the same
      constitutes interest expense under GAAP.

     

    
      
        
        

      

      
        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 (or, with the consent of each
      Lender, nine or twelve 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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    “Issuing
      Bank”
      means BNP
      Paribas,
      in its
      capacity as the issuer of Letters of Credit hereunder, and its successors in
      such capacity as provided in Section
      2.08(i).
      The
      Issuing Bank may, in its discretion, arrange for one or more Letters of Credit
      to be issued by Affiliates of the Issuing Bank, in which case the term
“Issuing
      Bank”
shall
      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 the Issuing Bank pursuant to a Letter of Credit.

     

    “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 Persons listed on Annex I and any Person that shall have become a party
      hereto pursuant to an Assignment and Assumption, other than any such Person
      that
      ceases to be a party hereto pursuant to an Assignment and
      Assumption.

     

    “Letter
      of Credit”
means
      any letter of credit issued pursuant to this Agreement.

     

    “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 the Issuing Bank relating to any Letter
      of
      Credit.

     

    “LIBO
      Rate”
means,
      with respect to any Eurodollar Borrowing for any Interest Period, the rate
      appearing on Reuters Screen LIBOR01 (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
      (rounded upwards, if necessary, to the next 1/16th of 1%) 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 it has
      acquired or holds subject to a 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.

     

    
      
        
        

      

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

     

    “Loan
      Parties”
means
      the Borrower and each Guarantor.

     

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

     

    “Majority
      Lenders”
means,
      at any time while no Loans or LC Exposure is outstanding, Lenders having more
      than fifty percent (50%) of the Aggregate Maximum Credit Amounts; and at any
      time while any Loans or LC Exposure is outstanding, Lenders holding more than
      fifty percent (50%) of the outstanding aggregate principal amount of the Loans
      or participation interests in Letters of Credit (without regard to any sale
      by a
      Lender of a participation in any Loan under Section
      12.04(c)).

     

    “Material
      Adverse Effect”
means
      a
      material adverse change in, or material adverse effect on (a) the business,
      operations, Property, condition (financial or otherwise) or prospects of the
      Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower,
      any Subsidiary or any Guarantor to perform any of its obligations under any
      Loan
      Document, (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, the Issuing Bank or any Lender under any Loan
      Document.

     

    “Material
      Domestic Subsidiary”
means,
      as of any date, any Domestic Subsidiary that (a) is a Wholly-Owned Subsidiary
      and (b) together with its Subsidiaries, owns Property having a fair market
      value
      of $500,000
      or
      more.

     

    “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 Subsidiary in respect of any Swap Agreement
      at any time shall be the Swap Termination Value.

     

    “Maturity
      Date”
means
      January
      31, 2010.

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    “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.

     

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

     

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

     

    “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 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.

     

    “Organizational
      Documents”
means,
      (a) with respect to any corporation, the certificate or articles of
      incorporation and the bylaws (or equivalent or comparable constitutive documents
      with respect to any non-U.S. jurisdiction); (b) with respect to any limited
      liability company, the certificate or articles of formation or organization
      and
      operating agreement; and (c) with respect to any partnership, joint venture,
      trust or other form of business entity, the partnership, joint venture or other
      applicable agreement of formation or organization and any agreement, instrument,
      filing or notice with respect thereto filed in connection with its formation
      or
      organization with the applicable Governmental Authority in the jurisdiction
      of
      its formation or organization and, if applicable, any certificate or articles
      of
      formation or organization of such entity.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    “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.

     

    “Permitted
      Refinancing Debt”
means
      Debt (for purposes of this definition, “new
      Debt”)
      incurred in exchange for, or proceeds of which are used to refinance, all of
      any
      other Debt (the “Refinanced
      Debt”);
      provided that (a) such new Debt is in an aggregate principal amount not in
      excess of the sum of (i) the aggregate principal amount then outstanding of
      the Refinanced Debt (or, if the Refinanced Debt is exchanged or acquired for
      an
      amount less than the principal amount thereof to be due and payable upon a
      declaration of acceleration thereof, such lesser amount) and (ii) an amount
      necessary to pay any fees and expenses, including premiums, related to such
      exchange or refinancing; (b) such new Debt has a stated maturity no earlier
      than the stated maturity of the Refinanced Debt and an average life no shorter
      than the average life of the Refinanced Debt; (c) such new Debt does not
      have a stated interest rate in excess of the stated interest rate of the
      Refinanced Debt; (d) such new Debt does not contain any covenants which are
      materially more onerous to the Borrower and its Subsidiaries than those imposed
      by the Refinanced Debt and (e) such new Debt (and any guarantees thereof)
      is subordinated in right of payment to the Indebtedness (or, if applicable,
      the
      Guaranty Agreement) to at least the same extent as the Refinanced Debt and
      is
      otherwise subordinated on terms substantially reasonably satisfactory to the
      Administrative Agent and the Majority Lenders.

     

    “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, a Subsidiary 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 or a Subsidiary or an ERISA
      Affiliate.

     

    “Prime
      Rate”
means
      the rate of interest per annum publicly announced from time to time by
the
      Administrative Agent 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 the Administrative
      Agent as a general reference rate of interest, taking into account such factors
      as the Administrative Agent may deem appropriate; it being understood that
      many
      of the Administrative Agent’s commercial or other loans are priced in relation
      to such rate, that it is not necessarily the lowest or best rate actually
      charged to any customer and that the Administrative Agent may make various
      commercial or other loans at rates of interest having no relationship to such
      rate.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    “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).

     

    “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).

     

    “Refinanced
      Debt”
has
      the
      meaning assigned such term in the definition of “Permitted Refinancing
      Debt”.

     

    “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.

     

    “Release”
means
      any depositing, spilling, leaking, pumping, pouring, placing, emitting,
      discarding, abandoning, emptying, discharging, migrating, injecting, escaping,
      leaching, dumping, or disposing.

     

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

     

    “Required
      Lenders”
means,
      at any time while no Loans or LC Exposure is outstanding, Lenders having at
      least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit
      Amounts; and at any time while any Loans or LC Exposure is outstanding, Lenders
      holding at least sixty-six and two-thirds percent (66-2/3%)of the outstanding
      aggregate principal amount of the Loans or participation interests in such
      Letters of Credit (without regard to any sale by a Lender of a participation
      in
      any Loan under Section
      12.04(c)).

     

    “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 the 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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    “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.

     

    “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.

     

    “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.

     

    “Second
      Lien Agreement”
means
      that certain Second Lien Term Loan Agreement dated as of even date herewith
      among the Borrower, as borrower, and BNP Paribas, as the administrative agent,
      together with all other amendments, modifications and supplements thereto
      permitted by the Intercreditor Agreement.

     

    “Second
      Lien Documents”
means
      the Second Lien Agreement, the Second Lien Notes and any “Loan Documents” (as
      defined therein), in each case, together with all amendments, modifications
      and
      supplements thereto permitted by the Intercreditor Agreement.

     

    “Second
      Lien Notes”
means
      the $50,000,000 Notes issued pursuant to the Second Lien Agreement, together
      with all amendments, modifications, replacements, extensions and rearrangements
      thereof permitted by the Intercreditor Agreement.

     

    “Security
      Instruments”
means
      the Guaranty Agreement, mortgages, deeds of trust and other agreements,
      instruments or certificates described or referred to in Exhibit E-1, 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 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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    “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 interest 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 the
      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.

     

    
      
        
        

      

      
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    “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.

     

    “Termination
      Date”
means
      the earliest of (a) the Maturity Date, (b) the date of termination of the
      Commitments and (c) 91 days prior to the maturity of the Second Lien
      Notes.

     

    “Transactions”
means,
      with respect to (a) the Borrower, the execution, delivery and performance by
      the
      Borrower of this Agreement and each other Loan Document to which it is a party,
      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 to which it is a party, 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.

     

    “Transferee”
means
      any Assignee or Participant.

     

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

     

    Section
      1.04  Terms
      Generally;
      Rules of Construction.
      The
      definitions of terms herein shall apply equally to the singular and plural
      forms
      of the terms defined. Whenever the context may require, any pronoun shall
      include the corresponding masculine, feminine and neuter forms. The words
“include”, “includes” and “including” shall be deemed to be followed by the
      phrase “without limitation”. The word “will” shall be construed to have the same
      meaning and effect as the word “shall”. Unless the context requires otherwise
      (a) any definition of or reference to any agreement, instrument or other
      document herein shall be construed as referring to such agreement, instrument
      or
      other document as from time to time amended, supplemented or otherwise modified
      (subject to any restrictions on such amendments, supplements or modifications
      set forth 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.

     

    
      
        
        

      

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

     

    Section
      2.02  Loans
      and Borrowings

     

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

     

    
      
        
        

      

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

     

    (c)  Minimum
      Amounts; Limitation on Number of Borrowings.
      At the
      commencement of each Interest Period for any Eurodollar Borrowing, such
      Borrowing shall be in an aggregate amount that is an integral multiple of
      $100,000
      and not
      less than $1,000,000. At the time that each ABR Borrowing is made, such
      Borrowing shall be in an aggregate amount that is an integral multiple of
      $100,000
      and not
      less than $1,000,000;
      provided that an ABR Borrowing may be in an aggregate amount that is equal
      to
      the entire unused balance of the total 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 six
      (6)
      Eurodollar Borrowings outstanding. Notwithstanding any other provision of this
      Agreement, the Borrower shall not be entitled to request, or to elect to convert
      or continue, any Borrowing if the Interest Period requested with respect thereto
      would end after the Maturity Date.

     

    (d)  Notes.
      The
      Loans made by each Lender shall be evidenced by a single promissory note of
      the
      Borrower in substantially the form of Exhibit A, dated, in the case of (i)
      any
      Lender party hereto as of the date of this Agreement, as of the date of this
      Agreement, or (ii) any 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 Credit Amount as in effect on such date, and otherwise duly
      completed. In the event that any Lender’s Maximum Credit Amount increases or
      decreases for any reason (whether pursuant to Section
      2.06,
      Section
      12.04(b)
      or
      otherwise), the Borrower shall deliver or cause to be delivered on the effective
      date of such increase or decrease, a new Note payable to the order of such
      Lender in a principal amount equal to its Maximum Credit Amount after giving
      effect to such increase or decrease, and otherwise duly completed. The date,
      amount, Type, interest rate and, if applicable, Interest Period of each Loan
      made by each Lender, and all payments made on account of the principal thereof,
      shall be recorded by such Lender on its books for its Note, and, prior to any
      transfer, may be endorsed by such Lender on a schedule attached to such Note
      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 Note. 

     

    (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;

     

    
      
        
        

      

      
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    (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 Loan or Eurodollar
      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 Administrative Agent as soon
      as
      practicable after the Effective Date the Note issued by the previous 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 superseded
      by
      this Agreement and such commitments shall terminate.

     

    Section
      2.03  Requests
      for Borrowings

     

    To
      request a Borrowing, the Borrower shall notify the Administrative Agent of
      such
      request by telephone (a) in the case of a Eurodollar Borrowing, not later than
      11:00 a.m., Houston, Texas time, three Business Days before the date of the
      proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00
      noon, Houston, Texas time, on the Business Day 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 in substantially 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;

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    Section
      2.04  Interest
      Elections.

     

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

     

    (b)  Interest
      Election Requests.
      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 were requesting a Borrowing of the Type resulting from such election
      to
      be made on the effective date of such election. Each such telephonic Interest
      Election Request shall be irrevocable and shall be confirmed promptly by hand
      delivery or telecopy to the Administrative Agent of a written Interest Election
      Request in
      substantially the form of Exhibit C 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

     

    
      
        
        

      

      
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    (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 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 to be made by it hereunder on the proposed date
      thereof by wire transfer of immediately available funds by 12:00 noon, Houston,
      Texas 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.
      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 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.

     

    
      
        
        

      

      
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    Section
      2.06  Termination
      and Reduction of Aggregate Maximum Credit Amounts.

     

    (a)  Scheduled
      Termination of Commitments.
      Unless
      previously terminated, the Commitments shall terminate on the Maturity Date.
      If
      at any time the Aggregate Maximum Credit Amounts or the Borrowing Base is
      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 Credit Amounts; provided that (A)
      each
      reduction of the Aggregate Maximum Credit Amounts shall be in an amount that
      is
      an integral multiple of $1,000,000
      and
      not
      less than $5,000,000 and (B)
      the
      Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts
      if,
      after giving effect to any concurrent prepayment of the Loans in accordance
      with
Section
      3.04(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 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
      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 Credit
      Amounts shall be permanent and may not be reinstated. Each reduction of the
      Aggregate Maximum Credit Amounts shall be made ratably among the Lenders in
      accordance with each Lender’s Applicable Percentage.

     

    Section
      2.07  Borrowing
      Base.

     

    (a)  Initial
      Borrowing Base.
      For the
      period from and including the Effective Date to but excluding the first
      Redetermination Date, the amount of the Borrowing Base shall be $70,000,000.
      Notwithstanding the foregoing, the Borrowing Base may be subject to further
      adjustments from time to time pursuant to Section
      8.13(c)
      or
Section
      9.12.

     

    (b)  Scheduled
      and Interim Redeterminations.
      The
      Borrowing Base shall be redetermined semi-annually
      in accordance with this Section
      2.07
      (a
“Scheduled
      Redetermination”),
      and,
      subject to Section
      2.07(d),
      such
      redetermined Borrowing Base shall become effective and applicable to the
      Borrower, the Agents, the Issuing Bank and the Lenders on April 1st and October
      1st of each
      year,
      commencing October
      1,
      2007.
      In
      addition, the Borrower may, by notifying the
      Administrative Agent thereof, and the Administrative Agent may, at the direction
      of the Required Lenders, by notifying the Borrower thereof, one time during
      any
      12-month period, each elect to cause the Borrowing Base to be redetermined
      between Scheduled Redeterminations (an “Interim
      Redetermination”)
      in
      accordance with this Section
      2.07.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (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 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 its reasonable discretion, propose a new Borrowing Base
      (the “Proposed
      Borrowing Base”)
      based
      upon such information and such other information (including, without limitation,
      the status of title information with respect to the Oil and Gas Properties
      as
      described in the Engineering 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 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 Lenders as
      provided in this Section
      2.07(c)(iii);
      and any
      Proposed Borrowing Base that would decrease or maintain the Borrowing Base
      then
      in effect must be approved or be deemed to have been approved by the Required
      Lenders as provided in this Section
      2.07(c)(iii).
      Upon
      receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen
      (15) days to agree with the Proposed Borrowing Base or disagree with the
      Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the
      end
      of such fifteen (15) days, any Lender has not communicated its approval or
      disapproval in writing to the Administrative Agent, such silence shall be deemed
      to be an approval of the Proposed Borrowing Base. If, at the end of such 15-day
      period, all of the Lenders, in the case of a Proposed Borrowing Base that would
      increase the Borrowing Base then in effect, or the Required 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 Borrowing Base shall become the new Borrowing Base, effective on the
      date specified in Section
      2.07(d).
      If,
      however, at the end of such 15-day period, all of the Lenders or the Required
      Lenders, as applicable, have not approved or deemed to have approved, as
      aforesaid, then the Administrative Agent shall poll the Lenders to ascertain
      the
      highest Borrowing Base then acceptable to a number of Lenders sufficient to
      constitute the Required 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).

     

    
      
        
        

      

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

     

    (i)  in
      the
      case of a Scheduled Redetermination, (A) 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 (B) 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

     

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

     

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

     

    Section
      2.08  Letters
      of Credit.

     

    (a)  General.
      Subject
      to the terms and conditions set forth herein, the Borrower may request the
      issuance of dollar denominated Letters of Credit for its own account or for
      the
      account of any of its Subsidiaries, in a form reasonably acceptable to the
      Administrative Agent and the 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, the Issuing Bank relating to any Letter of Credit, the terms
      and conditions of this Agreement shall control.

     

    
      
        
        

      

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

     

    If
      requested by the Issuing Bank, the Borrower also shall submit a letter of credit
      application on the 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.

     

    
      
        
        

      

      
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    (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 or the Lenders, the Issuing Bank hereby grants to each Lender, and each
      Lender hereby acquires from the 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 Lender hereby absolutely and unconditionally
      agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
      such Lender’s Applicable Percentage of each LC Disbursement made by the 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 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 the
      Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit,
      the Borrower shall reimburse such LC Disbursement by paying to the
      Administrative Agent an amount equal to such LC Disbursement not later than
      12:00 noon, Houston, Texas time, on the date that such LC Disbursement is made,
      if the Borrower shall have received notice of such LC Disbursement prior to
      10:00 a.m., Houston, Texas 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
      12:00 noon, Houston, Texas time, on (i)
      the
      Business Day that the Borrower receives such notice, if such notice is received
      prior to 10:00 a.m., Houston, Texas 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 such Lender’s Applicable Percentage thereof. Promptly
      following receipt of such notice, each 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 Lenders), and the Administrative Agent shall promptly
      pay to the Issuing Bank the amounts so received by it from the 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 or,
      to
      the extent that Lenders have made payments pursuant to this Section
      2.08(e)
      to
      reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their
      interests may appear.
      Any
      payment made by a Lender pursuant to this Section
      2.08(e)
      to
      reimburse the 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.

     

    
      
        
        

      

      
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    (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 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 the Issuing Bank under a Letter of Credit 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 Lenders nor the 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 the Issuing Bank; provided
      that the foregoing shall not be construed to excuse the 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 the 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 the Issuing Bank (as
      finally determined by a court of competent jurisdiction), the 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 Bank may, in its sole discretion, either accept and make payment upon
      such documents without responsibility for further investigation, regardless
      of
      any notice or information to the contrary, or refuse to accept and make payment
      upon such documents if such documents are not in strict compliance with the
      terms of such Letter of Credit.

     

    (g)  Disbursement
      Procedures.
      The
      Issuing Bank shall, promptly following its receipt thereof, examine all
      documents purporting to represent a demand for payment under a Letter of Credit.
      The Issuing Bank shall promptly notify the Administrative Agent and the Borrower
      by telephone (confirmed by telecopy) of such demand for payment and whether
      the
      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 the Issuing Bank and the Lenders with
      respect to any such LC Disbursement. 

     

    
      
        
        

      

      
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    (h)  Interim
      Interest.
      If the
      Issuing Bank shall make any LC Disbursement, then, until the Borrower shall
      have
      reimbursed the 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 the Issuing Bank, except that interest accrued on and after
      the date of payment by any Lender pursuant to Section
      2.08(e)
      to
      reimburse the Issuing Bank shall be for the account of such Lender to the extent
      of such payment.

     

    (i)  Replacement
      of the Issuing Bank.
      The
      Issuing Bank may be replaced at any time by written agreement among the
      Borrower, the Administrative Agent, the replaced Issuing Bank and the successor
      Issuing Bank. The Administrative Agent shall notify the Lenders of any such
      replacement of the Issuing Bank. At the time any such replacement shall become
      effective, the Borrower shall pay all unpaid fees accrued for the account of
      the
      replaced Issuing Bank pursuant to Section
      3.05(b).
      From
      and after the effective date of any such replacement, (i)
      the
      successor Issuing Bank shall have all the rights and obligations of the Issuing
      Bank under this Agreement with respect to Letters of Credit to be issued
      thereafter and (ii)
      references herein to the term “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 replacement of the
      Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto
      and shall continue to have all the rights and obligations of the Issuing Bank
      under this Agreement with respect to Letters of Credit issued by it prior to
      such 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 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 Administrative Agent and for the benefit of the 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 Subsidiary described in Section
      10.01(h)
      or
Section
      10.01(i).
      The
      Borrower hereby grants to the Administrative Agent, for the benefit of the
      Issuing Bank and the 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, the Issuing
      Bank, the Administrative Agent, the 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. Other than any interest earned on the investment of such
      deposits, which investments shall be made at the option and sole discretion
      of
      the Administrative Agent and at the Borrower’s risk and expense, such deposits
      shall not bear interest. 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 the 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. 

     

    
      
        
        

      

      
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    ARTICLE
      III

    Payments
      of Principal and Interest; Prepayments; Fees

     

    Section
      3.01  Repayment
      of Loans.
      The
      Borrower hereby unconditionally promises to pay to the Administrative Agent
      for
      the account of each Lender the then unpaid principal amount of each Loan on
      the
      Termination Date.

     

    Section
      3.02  Interest.

     

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

     

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

     

    (c)  Post-Default
      Rate 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 as provided in Section
      3.02(a),
      but in
      no event to exceed the Highest Lawful Rate, and (ii) 
      during any Borrowing Base Deficiency, all Loans outstanding at such time shall
      bear interest, after as well as before judgment, at the rate then applicable
      to
      such Loans, plus the Applicable Margin, if any, plus an additional two percent
      (2%), but in no event to exceed the Highest Lawful Rate. 

     

    
      
        
        

      

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

     

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

     

    Section
      3.03  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 12:00 noon, Houston, Texas time, three
      Business Days before the date of prepayment, or (ii) in the case of prepayment
      of an ABR Borrowing, not later than 12:00 noon, Houston, Texas 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 Credit
      Amounts pursuant to Section
      2.06(b),
      the
      total Revolving Credit Exposures exceeds the total Commitments, then the
      Borrower shall (A)
      prepay
      the 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 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)  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 Borrowings in three, equal monthly installments within 90 days following
      the
      receipt of the New Borrowing Base Notice in accordance with Section 2.07(d)
      or
      the date the adjustment occurs, 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).
      The
      Borrower shall be obligated to make such prepayment and/or deposit of cash
      collateral within ninety (90) days following the later of its receipt of the
      New
      Borrowing Base Notice in accordance with Section
      2.07(d)
      or the
      date the adjustment occurs; provided that all payments required to be made
      pursuant to this Section
      3.04(c)(ii)
      must be
      made on or prior to the Termination Date.

     

    (iii)  Upon
      any
      adjustments to the Borrowing Base pursuant to Section
      9.12,
      if the
      total Revolving Credit Exposures exceeds the Borrowing Base as adjusted, then
      the Borrower shall (A)
      prepay
      the Borrowings 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).
      The
      Borrower shall be obligated to make such prepayment and/or deposit of cash
      collateral on the date it or any Subsidiary receives cash proceeds as a result
      of such disposition; provided that all payments required to be made pursuant
      to
      this Section
      3.04(c)(iii)
      must be
      made on or prior to the Termination Date.

     

    
      
        
        

      

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

     

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

     

    (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
      Lender a commitment fee, which shall accrue at the rate per annum of 0.375%
      on
      the average daily amount of the unused amount of the Commitment of such Lender
      during the period from and including the date of this Agreement to but excluding
      the 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
      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
      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 Loans on the average daily amount of
      such
      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
      Commitment terminates and the date on which such Lender ceases to have any
      LC
      Exposure, (ii) to the Issuing Bank a fronting fee, which shall accrue at the
      rate of 0.125% per annum on the average daily amount of the 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 of termination of the Commitments and the date on which
      there ceases to be any LC Exposure, provided that in no event shall such fee
      be
      less than $500 during any quarter, and (iii) to the Issuing Bank, for its own
      account, its standard fees with respect to the issuance, amendment, renewal
      or
      extension of any Letter of Credit or processing of drawings thereunder.
      Participation fees and fronting 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; provided that all such fees shall be
      payable on the Termination Date and any such fees accruing after the Termination
      Date shall be payable on demand. Any other fees payable to the 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).

     

    
      
        
        

      

      
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    (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.

     

    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 12:00 noon, Houston, Texas 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 the 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.

     

    
      
        
        

      

      
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    (c)  Sharing
      of Payments by Lenders.
      If any
      Lender shall, by exercising any right of set-off or counterclaim or otherwise,
      obtain payment in respect of any principal of or interest on any of its Loans
      or
      participations in LC Disbursements resulting in such Lender 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, then the Lender receiving such greater proportion shall
      purchase (for cash at face value) participations in the Loans and participations
      in LC Disbursements of other Lenders to the extent necessary so that the benefit
      of all such payments shall be shared by the Lenders ratably in accordance with
      the aggregate amount of principal of and accrued interest on their respective
      Loans 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 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 the 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 the 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 the 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 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.

     

    
      
        
        

      

      
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    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 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 such Subsidiaries.

     

    ARTICLE
      V

    Increased
      Costs; Break Funding Payments; Taxes

     

    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 the Issuing Bank determines in good faith 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 the Issuing Bank’s capital or on the capital of
      such Lender’s or the 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 the Issuing Bank, to a
      level
      below that which such Lender or the Issuing Bank or such Lender’s or the Issuing
      Bank’s holding company could have achieved but for such Change in Law (taking
      into consideration such Lender’s or the Issuing Bank’s policies and the policies
      of such Lender’s or the Issuing Bank’s holding company with respect to capital
      adequacy), then from time to time the Borrower will pay to such Lender or the
      Issuing Bank, as the case may be, such additional amount or amounts as will
      compensate such Lender or the Issuing Bank or such Lender’s or the Issuing
      Bank’s holding company for any such reduction suffered.

     

    
      
        
        

      

      
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    (c)  Certificates.
      A
      certificate of a Lender or the Issuing Bank setting forth in good faith the
      amount or amounts necessary to compensate such Lender or the 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 the 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 the Issuing Bank to demand compensation
      pursuant to this Section
      5.01
      shall
      not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand
      such compensation; provided that the Borrower shall not be required to
      compensate a Lender or the Issuing Bank pursuant to this Section
      5.01
      for any
      increased costs or reductions incurred more than 365 days prior to the date
      that
      such Lender or the Issuing Bank, as the case may be, notifies the Borrower
      of
      the Change in Law giving rise to such increased costs or reductions and of
      such
      Lender’s or the Issuing Bank’s intention to claim compensation therefor;
      provided further that, if the Change in Law giving rise to such increased costs
      or reductions is retroactive, then the 365-day period referred to above shall
      be
      extended to include the period of retroactive effect thereof.

     

    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 in good faith 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.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    (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 the 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 the 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 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 the Issuing Bank as to
      the
      amount of such payment or liability under this Section
      5.03
      shall be
      delivered in good faith 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  Mitigation
      Obligations.
      If any
      Lender requests compensation under Section
      5.01,
      or
      if the Borrower is required to pay any additional amount to any Lender or
      any Governmental Authority for the account of any Lender pursuant to
Section
      5.03,
      then
      such Lender shall use reasonable efforts to designate a different lending office
      for funding or booking its Loans hereunder or to assign its rights and
      obligations hereunder to another of its offices, branches or affiliates, if,
      in
      the judgment of such Lender, 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 to any
      unreimbursed cost or expense and would not otherwise be disadvantageous to
      such
      Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
      incurred by any Lender in connection with any such designation or
      assignment.

     

    
      
        
        

      

      
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    ARTICLE
      VI

    Conditions
      Precedent

     

    Section
      6.01  Effective
      Date.
      The
      obligations of the Lenders to amend and restate the Existing Credit Agreement
      and to make Loans and of the 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
      Administrative Agent, the Arranger and the Lenders shall have received all
      commitment, facility and agency fees and all other fees and 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 (including, without limitation, the fees
      and
      expenses of Vinson & Elkins L.L.P., counsel to the Administrative Agent).

     

    (b)  The
      Administrative Agent shall have received a certificate of the Secretary or
      an
      Assistant Secretary of the Borrower and each Guarantor setting forth
(i)
      resolutions of its board of directors with respect to the authorization of
      the
      Borrower or such Guarantor to execute and deliver the Loan Documents to which
      it
      is a party and to enter into the transactions contemplated in those documents,
      (ii)
      the
      officers of the Borrower or such Guarantor (y) who are authorized to sign the
      Loan Documents to which the Borrower or such Guarantor is a party and (z) who
      will, until replaced by another officer or officers duly authorized for that
      purpose, act as its representative for the purposes of signing documents and
      giving notices and other communications in connection with this Agreement and
      the transactions contemplated hereby, (iii)
      specimen
      signatures of such authorized officers, and (iv)
      the
      Organizational Documents of the Borrower and such Guarantors, certified as
      being
      true and complete. The Administrative Agent and the Lenders may conclusively
      rely on such certificate until the Administrative Agent receives notice in
      writing from the Borrower to the contrary.

     

    (c)  The
      Administrative Agent shall have received certificates of the appropriate State
      agencies with respect to the existence, qualification and good standing of
      the
      Borrower and each Guarantor.

     

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

     

    (e)  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.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    (f)  The
      Administrative Agent shall have received duly executed Notes payable to the
      order of each Lender in a principal amount equal to its Maximum Credit Amount
      dated as of the date hereof.

     

    (g)  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, including the Guaranty Agreement and the other
      Security Instruments described on Exhibit E-1. In connection with the execution
      and delivery of the Security Instruments, the Administrative Agent
      shall:

     

    (i)  be
      reasonably satisfied that the Security Instruments create first priority,
      perfected Liens (subject only to Excepted Liens identified in clauses (a) to
      (d)
      and (f) of the definition thereof, but subject to the provisos at the end of
      such definition) on at least 80% of the total value of the Oil and Gas
      Properties evaluated in the Reserve Report most recently delivered to the
      Administrative Agent; and 

     

    (ii)  have
      received stock or membership interest certificates, together with undated,
      blank
      stock powers for each such certificate, representing all of the issued and
      outstanding Equity Interests of each Subsidiary.

     

    (iii)  be
      reasonably satisfied that all Property constituting security for the Second
      Lien
      Agreement is subject to a first priority, perfected Lien in favor of the
      Administrative Agent under the Security Instruments.

     

    (h)  The
      Administrative Agent shall have received an opinion of Fraser,
      Trebilcock, Davis & Dunlap, P.C.,
      special
      counsel to the Borrower, in form and substance acceptable to the Administrative
      Agent.

     

    (i)  The
      Administrative Agent shall have received a certificate of insurance coverage
      of
      the Borrower evidencing that the Borrower is carrying insurance in accordance
      with Section
      7.12.

     

    (j)  The
      Administrative Agent shall have received title information as the Administrative
      Agent may reasonably require satisfactory to the Administrative Agent setting
      forth the status of title to at least 80% of the total value of the Oil and
      Gas
      Properties evaluated in the Reserve Report most recently delivered to the
      Administrative Agent. 

     

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

     

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

     

    (m)  The
      Administrative Agent shall have received appropriate UCC search certificates
      reflecting no prior Liens encumbering the Properties of the Borrower and the
      Subsidiaries for each of the following jurisdictions: Utah, Nevada, Michigan and
      any
      other jurisdiction requested by the Administrative Agent;
      other
      than those being assigned or released on or prior to the Effective Date or
      Liens
      permitted by Section
      9.03.

     

    
      
        
        

      

      
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    (n)  The
      Administrative Agent shall be satisfied that there is no litigation seeking
      to
      enjoin or prevent the financing contemplated hereby or by the Second Lien
      Agreement.

     

    (o)  The
      Administrative Agent shall have received (i) a payoff letter evidencing of
      the
      payment in full of all amounts due under any the Existing Second Lien Loan
      Agreement, the termination of all commitments to lend thereunder and (ii)
      documents evidencing the release of all Liens securing the obligations under
      the
      Existing Second Lien Term Loan Agreement and any other obligations secured
      thereby.

     

    (p)  The
      Intercreditor Agreement, in form and content satisfactory to the Administrative
      Agent shall be in full force and effect.

     

    (q)  The
      Administrative Agent shall have received evidence that the Borrower has
      purchased one or more commodity price floors or collars (i)
      with one
      or more Approved Counterparties, (ii)
      which
      have prices and aggregate notional volumes satisfactory to the Administrative
      Agent for the period commencing with the Effective Date and ending on
September
      30, 2011. 

     

    (r)  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 the 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 2:00 p.m., Houston, Texas time, on August
      31, 2007
      (and, in
      the event such conditions are not so satisfied or waived, the Commitments shall
      terminate at such time).

     

    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 the 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
      event, development or circumstance has occurred or shall then exist that has
      resulted in, or could reasonably be expected to have, a Material Adverse
      Effect.

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    (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
      the 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 request for the 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 hereby represents and warrants to the Lenders that:

     

    Section
      7.01  Organization;
      Powers.
      Each
      Loan Party 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
      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 each Loan Party’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 such Loan Party or any other Person, whether interested or
      disinterested, in order to ensure the due authorization of the Transactions).
      Each Loan Document to which each Loan Party is a party has been duly executed
      and delivered by such Loan Party and constitutes a legal, valid and binding
      obligation of such Loan Party, 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.

     

    
      
        
        

      

      
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    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, whether interested or disinterested,
      of
      any Loan Party or any other Person), 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 other than the recording and filing of the Security Instruments
      as required by this Agreement, (b)
      will not
      violate any applicable law or regulation or the Organizational Documents of
      any
      Loan Party or any Subsidiary 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 any Loan Party or any Subsidiary or its Properties,
      or
      give rise to a right thereunder to require any payment to be made by such Loan
      Party or such Subsidiary and (d)
      will not
      result in the creation or imposition of any Lien on any Property of any Loan
      Party or any Subsidiary (other than the Liens created by the Loan
      Documents).

     

    Section
      7.04  Financial
      Condition; No Material Adverse Change.

     

    (a)  The
      Loan
      Parties have heretofore furnished to the Lenders their consolidated balance
      sheet and statements of income, stockholders’ equity and cash flows (i)
      as of
      and for the fiscal year ended December
      31, 2006,
      reported on by independent public accountants, and (ii)
      as of
      and for the fiscal quarter and the portion of the fiscal year ended March
      31,
      2007,
      certified by its chief financial officer. Such financial statements present
      fairly, in all material respects, the financial position and results of
      operations and cash flows of the Borrower and its Consolidated Subsidiaries
      as
      of such dates and for such periods in accordance with GAAP, subject to year-end
      audit adjustments and the absence of footnotes in the case of the unaudited
      quarterly financial statements.

     

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

     

    (c)  Neither
      the Borrower nor any Subsidiary 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, except as referred to or reflected or provided for
      in
      the Financial Statements.

     

    Section
      7.05  Litigation.
      

     

    (a)  Except
      as
      set forth on Schedule 7.05, there are no actions, suits, investigations or
      proceedings by or before any arbitrator or Governmental Authority pending
      against or, to the knowledge of the Loan Parties, threatened against or
      affecting the Loan Parties or any Subsidiary (i)
      not
      fully covered by insurance (except for normal deductibles) 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, or (ii)
      that
      involve any Loan Document or the Transactions.

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    (b)  Since
      the
      date of this Agreement, there has been no change in the status of the matters
      disclosed in Schedule 7.05 that, individually or in the aggregate, has
      resulted in, or materially increased the likelihood of, a Material Adverse
      Effect.

     

    Section
      7.06  Environmental
      Matters.
      Except
      for such matters as set forth on Schedule 7.06 or that, individually or in
      the
      aggregate, could not reasonably be expected to have a Material Adverse Effect
      on
      the Borrower:

     

    (a)  the
      Borrower and its Subsidiaries and each of their respective Properties and
      operations thereon are, and within all applicable statute of limitation periods
      have been, in compliance with all applicable Environmental Laws;

     

    (b)  the
      Borrower and its Subsidiaries have obtained all Environmental Permits required
      for their respective operations and each of their Properties, with all such
      Environmental Permits being currently in full force and effect, and none of
      Borrower or its Subsidiaries has received any written notice or otherwise has
      knowledge that any such existing Environmental Permit will be revoked or that
      any application for any new Environmental Permit or renewal of any existing
      Environmental Permit will be protested or denied;

     

    (c)  there
      are
      no claims, demands, suits, orders, inquiries, or proceedings concerning any
      violation of, or any liability (including as a potentially responsible party)
      under, any applicable Environmental Laws that is pending or threatened against
      the Borrower or its Subsidiaries or any of their respective Properties or as
      a
      result of any operations at the Properties;

     

    (d)  none
      of
      the Properties contain or have contained any: (i) underground storage tanks;
      (ii) asbestos-containing materials; or (iii) landfills or dumps; (iv) hazardous
      waste management units as defined pursuant to RCRA or any comparable state
      law;
      or (v) sites on or nominated for the National Priority List promulgated pursuant
      to CERCLA or any state remedial priority list promulgated or published pursuant
      to any comparable state law;

     

    (e)  there
      has
      been no Release or threatened Release, of Hazardous Materials at, on, under
      or
      from any of Borrower’s or its Subsidiaries’ Properties, there are no
      investigations, remediations, abatements, removals, or monitorings of Hazardous
      Materials required under applicable Environmental Laws at such Properties and
      none of such Properties are adversely affected by any Release or threatened
      Release of a Hazardous Material originating or emanating from any other real
      property,

     

    (f)  neither
      the Borrower nor its Subsidiaries has received any written notice asserting
      an
      alleged liability or obligation under any applicable Environmental Laws with
      respect to the investigation, remediation, abatement, removal, or monitoring
      of
      any Hazardous Materials at, under, or Released or threatened to be Released
      from
      any real properties offsite the Borrower’s or its Subsidiaries’ Properties and
      there are no conditions or circumstances that would reasonably be expected
      to
      result in the receipt of such written notice.

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

    (g)  there
      has
      been no exposure of any Person or property to any Hazardous Materials as a
      result of or in connection with the operations and businesses of any of the
      Borrower’s or its Subsidiaries’ Properties that would reasonably be expected to
      form the basis for a claim for damages or compensation and there are no
      conditions or circumstances that would reasonably be expected to result in
      the
      receipt of notice regarding such exposure; and

     

    (h)  the
      Borrower and its Subsidiaries have provided to Lenders complete and correct
      copies of all environmental site assessment reports, investigations, studies,
      analyses, and correspondence on environmental matters (including matters
      relating to any alleged non-compliance with or liability under Environmental
      Laws) that are in any of the Borrower’s or its Subsidiaries’ possession or
      control and relating to their respective Properties or operations
      thereon.

     

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

     

    (a)  Each
      Loan
      Party 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)  No
      Loan
      Party 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 a Loan Party to Redeem or make
      any
      offer to Redeem all or any portion of any Debt outstanding under any indenture,
      note, credit agreement or instrument pursuant to which any Material Indebtedness
      is outstanding or by which a Loan Party or any of their Properties is
      bound.

     

    (c)  No
      Default has occurred and is continuing.

     

    Section
      7.08  Investment
      Company Act.
      No Loan
      Party 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
      Loan Party 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 each Loan Party, 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
      Loan Parties in respect of Taxes and other governmental charges are, in the
      reasonable opinion of the Borrower, adequate. No Tax Lien has been filed and,
      to
      the knowledge of the Loan Parties, no claim is being asserted with respect
      to
      any such Tax or other such governmental charge.

     

    Section
      7.10  ERISA.
      

     

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

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    (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 which could result in imposition on any
      Loan Party 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
      any
      Loan Party or any ERISA Affiliate has been or is expected by any Loan Party
      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 any Loan Party 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 most recently
      ended fiscal year of each Loan Party, 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
      any Loan Party 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, a
      Subsidiary or any ERISA Affiliate in its sole discretion at any time without
      any
      material liability.

     

    (h)  Neither
      any Loan Party 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.

     

    (i)  Neither
      any Loan Party 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
      Loan Parties have disclosed to the Administrative Agent and the Lenders all
      agreements, instruments and corporate or other restrictions to which they or
      any
      of their Subsidiaries are subject, and all other matters known to them, that,
      individually or in the aggregate, could reasonably be expected to result in
      a
      Material Adverse Effect. None of the other reports, financial statements,
      certificates or other information furnished by or on behalf of the Loan Parties
      to the Administrative 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 Loan Parties which 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 or the Lenders by or on behalf of the Loan Parties
      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.

     

    
      
        
        

      

      
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    Section
      7.12  Insurance.
      The
      Loan Parties 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 Loan Parties. 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 with respect
      to Property loss insurance.

     

    Section
      7.13  Restriction
      on Liens.
      No Loan
      Party is a party to any material agreement or arrangement (other than Capital
      Leases creating Liens permitted by Section
      9.03(c),
      but
      then only on the Property subject of such Capital Lease), 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 and the Borrower
      has no Foreign Subsidiaries. Each Subsidiary on such schedule is a Wholly-Owned
      Subsidiary, unless otherwise noted therein. 

     

    Section
      7.15  Location
      of Business and Offices.
      The
      Borrower’s jurisdiction of organization is Utah;
      the
      name of the Borrower as listed in the public records of its jurisdiction of
      organization is Aurora
      Oil & Gas Corporation;
      and the
      organizational identification number of the Borrower in its jurisdiction of
      organization is 608892-0142
      (or, in each case, as set forth in a notice delivered to the Administrative
      Agent pursuant to Section
      8.01(n)
      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(n)
      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 are stated on Schedule 7.14 (or as set
      forth
      in a notice delivered pursuant to Section
      8.01(n)).

     

    
      
        
        

      

      
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    Section
      7.16  Properties;
      Titles, Etc.
      

     

    (a)  Each
      of
      the Loan Parties 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 Loan Parties 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 such
      Loan Party to bear the costs and expenses relating to the maintenance,
      development and operations of each such Property in an amount in excess of
      the
      working interest of each Property set forth in the most recently delivered
      Reserve Report that is not offset by a corresponding proportionate increase
      in
      the such Loan Party’s net revenue interest in such Property.

     

    (b)  All
      material leases and agreements necessary for the conduct of the business of
      the
      Loan Parties 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 Loan Parties,
      including, without limitation, all easements and rights of way, include all
      rights and Properties necessary to permit the Loan Parties to conduct their
      business in all material respects in the same manner as its business has been
      conducted prior to the date hereof.

     

    (d)  All
      of
      the Properties of the Loan Parties which are reasonably necessary for the
      operation of their businesses are in good working condition and are maintained
      in accordance with prudent business standards.

     

    (e)  Each
      Loan
      Party owns, or is licensed to use, all trademarks, tradenames, copyrights,
      patents and other intellectual Property material to its business, and the use
      thereof by such Loan Party does not infringe upon the 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 Loan Parties 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.

     

    
      
        
        

      

      
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    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) of the Loan Parties have been maintained, operated and developed
      in a
      good and workmanlike manner and in conformity with all Governmental 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 of the Borrower and
      its
      Subsidiaries. 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 of any Loan Party 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) of the Loan Parties is deviated from the vertical more
      than
      the maximum permitted by Governmental 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) of such Loan Party. All pipelines, wells,
      gas processing plants, platforms and other material improvements, fixtures
      and
      equipment owned in whole or in part by any Loan Party 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 Loan Parties, in a manner consistent with the Loan Parties’ past
      practices (other than those the failure of which to maintain in accordance
      with
      this Section
      7.17
      could
      not reasonably be expected to have a Material Adverse Effect).

     

    Section
      7.18  Gas
      Imbalances,
      Prepayments.
      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 any Loan Party 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 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 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 Loan Parties’
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.
      Schedule 7.20, as of the date hereof, and after the date hereof, 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
      Subsidiary, 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.

     

    
      
        
        

      

      
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    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 working
      capital for exploration and production operations, to refinance existing debt,
      the acquisition, exploration and development of additional Oil and gas
      Properties, and for general corporate purposes. The Loan Parties 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 Loan Parties, taken as a whole, will exceed the
      aggregate Debt of the Loan Parties on a consolidated basis, as the Debt becomes
      absolute and matures, (b)
      each of
      the Loan Parties 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
      Loan Parties 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 Loan Parties will not have (and will have no reason to believe that it
      will
      have thereafter) unreasonably small capital for the conduct of its
      business.

     

    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; 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 Loan Parties, their
      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 (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
      Loan
      Parties on a consolidated basis in accordance with GAAP consistently
      applied.

     

    
      
        
        

      

      
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    (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 Loan Parties, their consolidated balance sheet and
      related statements of operations, consolidating financial statements for each
      of
      the Loan Parties, 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 Loan Parties 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 D 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
      8.13(b)
      and
Section
      9.01
      and
(iii)
      stating
      whether any change in GAAP or in the application thereof has occurred since
      the
      date of the audited financial statements referred to in Section
      7.04
      and, if
      any such change has occurred, specifying the effect of such change on the
      financial statements accompanying such certificate.

     

    (d)  [Reserved].

     

    (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 satisfactory to the
      Administrative Agent, setting forth as of the last Business Day of such fiscal
      quarter or fiscal year, a true and complete list of all Swap Agreements of
      the
      Borrower and each Subsidiary, the material terms thereof (including the type,
      term, effective date, termination date and notional amounts or volumes), the
      net
      mark-to-market value therefor, any new credit support agreements relating
      thereto not listed on Schedule 7.19, 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 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 any Loan Party by independent accountants in connection with any annual,
      interim or special audit made by them of the books of such Loan Party, and
      a
      copy of any response by such Loan Party, or the Board of Directors of such
      Loan
      Party, to such letter or report.

     

    
      
        
        

      

      
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    (h)  SEC
      and Other Filings; Reports to Shareholders.
      Promptly after the same become publicly available, copies of all periodic and
      other reports, proxy statements and other materials filed by any Loan Party
      with
      the SEC, or with any national securities exchange, or distributed by the
      Borrower to its shareholders generally, as the case may be.

     

    (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 Hydrocarbons from any Loan Party.

     

    (k)  Notice
      of Sales of Oil and Gas Properties.
      In the
      event any Loan Party intends to sell, transfer, assign or otherwise dispose
      of
      any Oil or Gas Properties or any Equity Interests in any Subsidiary in
      accordance with Section
      9.12,
      prior
      written notice of such disposition, the price thereof and 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)  Issuance
      of Permitted Refinancing Debt.
      In the
      event the Borrower intends to refinance any Debt with the proceeds of Permitted
      Refinancing Debt as contemplated by Section
      9.02(b)
      or
Section
      9.02(i),
      prior
      written notice of such intended offering therefor, the amount thereof and the
      anticipated date of closing and will furnish a copy of the preliminary offering
      memorandum (if any) and the final offering memorandum (if any).

     

    (n)  Information
      Regarding Borrower and Guarantors.
      Prompt
      written notice (and in any event within thirty (30) days prior thereto) of
      any
      change (i) any
      Loan Party’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 any Loan Party’s chief executive office or principal place of
      business, (iii) in
      any Loan Party’s identity or corporate structure or in the jurisdiction in which
      such Person is incorporated or formed, (iv)
      in any
      Loan Party’s jurisdiction of organization or such Person’s organizational
      identification number in such jurisdiction of organization, and (v) in
      any Loan Party’s federal taxpayer identification number.

     

    (o)  Production
      Report and Lease Operating Statements.
      Within
      60 days after the end of each fiscal quarter, a report setting forth, for each
      calendar month 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 calendar
      month 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 calendar month.

     

    
      
        
        

      

      
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    (p)  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 any preferred
      stock designation or any Organizational Document of any Loan Party.

     

    (q)  Other
      Requested Information.
      Promptly following any request therefor, such other information regarding the
      operations, business affairs and financial condition of any Loan Party
      (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.

     

    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;

     

    (b)  the
      filing or commencement of, or the threat in writing of, any action, suit,
      proceeding, investigation or arbitration by or before any arbitrator or
      Governmental Authority against or affecting any Loan Party thereof not
      previously disclosed in writing to the Lenders 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 $250,000,
      not fully covered by insurance, subject to normal deductibles;

     

    (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 Loan Parties 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 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 Subsidiary 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 its Oil and Gas Properties
      is
      located or the ownership of its Properties requires such qualification, except
      where the failure to so qualify could not reasonably be expected to have a
      Material Adverse Effect; provided that the foregoing shall not prohibit any
      merger, consolidation, liquidation or dissolution permitted under Section
      9.11.

     

    
      
        
        

      

      
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    Section
      8.04  Payment
      of Obligations.
      The
      Borrower will, and will cause each Subsidiary to, pay its obligations, including
      Tax liabilities of the Loan Parties 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 Loan
      Parties have 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
      Property of any Loan Party.

     

    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 will cause each Subsidiary 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, at its own expense, will, and will cause each Subsidiary
      to:

     

    (a)  operate
      their 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, 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 their business in good working
      order and condition, ordinary wear and tear excepted 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 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 their 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, the obligations required by each and all
      of
      the assignments, deeds, leases, sub-leases, contracts and agreements affecting
      its interests in their Oil and Gas Properties and other material
      Properties.

     

    (e)  operate
      their 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.
      

     

    
      
        
        

      

      
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    (f)  to
      the
      extent the Borrower or one of its Subsidiaries is not the operator of any
      Property, the Borrower or such Subsidiary 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 Subsidiary 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 Subsidiary 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 Subsidiary to, permit any representatives 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 Subsidiary 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
      at
      its sole expense: (i) comply, and shall cause its Properties and operations
      and
      each Subsidiary 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 Subsidiary 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
      Subsidiary 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 Subsidiary to establish and implement, such policies of environmental
      audit
      and compliance 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.

     

    
      
        
        

      

      
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    (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 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 Subsidiary 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 Subsidiary 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 any Loan Party, 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 sole
      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. 

     

    
      
        
        

      

      
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    Section
      8.12  Reserve
      Reports.

     

    (a)  On
      or
      before March 1st and September 1st of each year, commencing September
      1,
      2007,
      the
      Borrower shall furnish to the Administrative Agent and the Lenders a Reserve
      Report evaluating the Oil and Gas Properties of the Borrower and its
      Subsidiaries as of the immediately preceding January 1st and July 1st. The
      Reserve Report as of January 1 of each year shall be prepared by one or more
      Approved Petroleum Engineers, 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 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
      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 its Oil and Gas Properties evaluated in such Reserve Report which
      would require the Borrower or any Subsidiary 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
      which 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 in
      compliance with Section
      8.14(a).

     

    
      
        
        

      

      
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    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 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 sole discretion from time to time, and
      any failure to so exercise this remedy at any time shall not be a waiver as
      to
      future exercise of the remedy by the Administrative Agent or the Lenders. To
      the
      extent that the Administrative Agent or the Majority Lenders are not satisfied
      in good faith 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 Required 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. 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 80% 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 80% of such total value, then the Borrower
      shall, and shall cause its Subsidiaries to, grant, within thirty (30) days
      of
      delivery of the certificate required under Section
      8.12(c),
      to the
      Administrative Agent as security for the Indebtedness a first-priority Lien
      interest (provided that 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 80% 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. In order to
      comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas
      Properties and such Subsidiary is not a Guarantor, then it shall become a
      Guarantor and comply with Section
      8.14(b).

     

    
      
        
        

      

      
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    (b)  In
      the
      event that (i)
      the
      Borrower determines that any Subsidiary is a Material Domestic Subsidiary or
      (ii)
      any
      Domestic Subsidiary incurs or guarantees any Debt, the Borrower shall promptly
      cause such Subsidiary to guarantee the Indebtedness pursuant to the Guaranty
      Agreement. In connection with any such guaranty, the Borrower shall, or shall
      cause such Domestic Subsidiary to, promptly, but in any event no later than
      15
      days after the formation or acquisition (or similar event) of such Domestic
      Subsidiary to, (A)
      execute
      and deliver a supplement to the Guaranty Agreement executed by such Subsidiary,
      (B)
      pledge
      all of the Equity Interests of such new 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 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)  The
      Borrower shall cause any Person that must guarantee the Indebtedness in order
      for the Borrower to be in compliance with Section
      9.04(b)(ii)(D)
      to
      guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection
      with any such guaranty, the Borrower shall, or shall cause such Person to,
      promptly, but in any event no later than 15 days after the date required
      thereby, (i)
      execute
      and deliver a supplement to the Guaranty Agreement executed by such Person
      and
(ii)
      execute
      and deliver such other additional closing documents, certificates and legal
      opinions as shall reasonably be requested by the Administrative Agent. If at
      any
      time such Person is not otherwise required to guarantee the Indebtedness
      hereunder (whether pursuant to the other provisions of this Section
      8.14
      or
      otherwise) or under any other Loan Document, then upon receipt by the
      Administrative Agent of evidence satisfactory to it that such Person has been
      fully and finally released from its guarantee obligations in respect of the
      Second Lien Notes, such Person shall be released from its guarantee obligations
      with respect to the Indebtedness and the Administrative Agent shall, at the
      sole
      cost and expense of the Borrower, execute such further documents and do all
      such
      further acts so as to reasonably evidence such release

     

    (d)  The
      Borrower agree that they will not, and will not permit any Subsidiary to, grant
      a Lien on any Property to secure the Second Lien Notes without first
(i)
      giving
      fifteen (15) days’ prior written notice to the Administrative Agent thereof and
      (ii) granting to the Administrative Agent to secure the Indebtedness a
      first-priority, perfected Lien on this same Property pursuant to Security
      Instruments in form and substance satisfactory to the Administrative Agent.
      In
      connection therewith, the Borrower shall, or shall cause the Subsidiaries to,
      execute and deliver such other additional closing documents, certificates and
      legal opinions as shall reasonably be requested by the Administrative
      Agent.

     

    
      
        
        

      

      
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    Section
      8.15  ERISA
      Compliance.
      The
      Borrower will promptly furnish and will cause the 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,
      the
      Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature
      thereof, what action the Borrower, the Subsidiary 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 will
      cause each Subsidiary and ERISA Affiliate 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  Marketing
      Activities.
      

     

    (a)  The
      Borrower will not, and will not permit any Subsidiary 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. 

     

    (b)  The
      Borrower will not, and will not permit any Subsidiary to, amend in any material
      respect the written Hydrocarbon Marketing Policy delivered to the Lenders
      without the prior written consent of the Administrative Agent and the Required
      Lenders.

     

    
      
        
        

      

      
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    Section
      8.17  Swap
      Agreements.
      The
      Borrower shall maintain the hedge position established by the Swap Agreements
      required under Section
      6.01(q)
      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.

     

    Section
      8.18  Minimum
      Daily Production.
      The
      Borrower shall achieve production of at least (a) 9.5 MMcfe/d as of June 30,
      2007, (b) 10.5 MMcfe/d as of September 30, 2007 and (c) 12 MMcfe/d as of
      December 31, 2007 and as of the last day of each quarter
      thereafter.

    

    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)  Interest
      Coverage Ratio.
      The
      Borrower, on a consolidated basis, will not, as of the last day of any fiscal
      quarter, permit its ratio of EBITDAX for the fiscal quarter then ending to
      Interest Expense for such period to be (i) less than 2.0 to 1.0 for the quarters
      ending on June 30, 2007 and September 30, 2007, (ii) less than 2.25 to 1.0
      for
      the fiscal quarter ending December 31, 2007 and (iii) less than 2.5 to 1.0
      for
      all fiscal quarters ending on or after March 31, 2008. For purposes of
      this Section
      9.01(a),
      any
      termination fees, prepayment fees, make-whole fees or Penalty Interest paid
      to
      the lenders pursuant to the Existing Second Lien Agreement shall not be included
      in Interest Expense. “Penalty
      Interest”
means
      any interest paid by the Borrower to the lenders under the Existing Second
      Lien
      Agreement attributable to the period after the Borrower has repaid all principal
      amounts outstanding thereunder. 

     

    (b)  Current
      Ratio.
      The
      Borrower, on a consolidated basis, will not permit, as of the last day of any
      fiscal quarter, their 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
      and current maturities under this Agreement) to be less than 1.0 to 1.0.

     

    Section
      9.02  Debt.
      The
      Loan Parties will not, and will not permit any Subsidiary 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.

     

    (b)  Debt
      of
      the Borrower and its Subsidiaries existing on the date hereof that is reflected
      in the Financial Statements, and any Permitted Refinancing Debt in respect
      thereof.

     

    
      
        
        

      

      
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    (c)  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 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.

     

    (d)  Debt
      under Capital Leases not to exceed $1,000,000.

     

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

     

    (f)  intercompany
      Debt by and among the Borrower, any Guarantor or any Subsidiary (or between
      Guarantors or Subsidiaries) to the extent permitted by Section
      9.05(g);
      provided that such Debt (excluding any accounts payable to Bach Services) is
      not
      held, assigned, transferred, negotiated or pledged to any Person other than
      the
      Borrower or one of the Guarantors, 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.

     

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

     

    (h)  Debt
      of
      the Borrower under that certain promissory note dated October 15, 2006 with
      Northwestern Bank or any replacement (but not increase) or extension thereof,
      the principal amount of which Debt does not exceed $7,500,000.

     

    (i)  Debt
      under the Second Lien Notes and any guarantees thereof and any Permitted
      Refinancing Debt thereof, the principal amount of which Debt does not exceed
      $50,000,000 in the aggregate.

     

    (j)  Debt
      associated with the mortgage in Section
      9.03(e),
      which
      Debt shall not exceed $3,000,000, until the underlying property is sold pursuant
      to Section
      9.12(e).

     

    (k)  Debt
      not
      to exceed $1,000,000 incurred pursuant to that certain Business Loan Agreement
      made by Northwestern Bank to Bach Services, dated April 5, 2007, or any
      replacement (but not increase) or extension thereof, provided that such Debt
      is
      non-recourse to the Borrower or any of its Subsidiaries other than Bach Services
      and Kingsley Development Company, L.L.C.

     

    (l)  other
      Debt of the Borrower and its Subsidiaries not to exceed $5,000,000
      in the aggregate at any one time outstanding.

     

    Section
      9.03  Liens.
      The
      Borrower will not, and will not permit any Subsidiary 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.

     

    
      
        
        

      

      
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    (b)  Excepted
      Liens.

     

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

     

    (d)  Liens
      securing any Permitted Refinancing Debt provided that any such Permitted
      Refinancing Debt is not secured by any additional or different Property not
      securing the Refinanced Debt.

     

    (e)  the
      Lien
      securing the mortgage dated September 19, 2005, filed for record in Grand
      Traverse County, Michigan on 9/23/05 and record number 2005R-21793, provided
      that such Lien shall not exceed $3,000,000, until the underlying property is
      sold pursuant to Section
      9.12(e).

     

    (f)  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(f)
      shall
      not exceed $500,000 at any time.

     

    (g)  Liens
      on
      Property securing the Second Lien Notes and any guaranties thereof as permitted
      by Section
      9.02(i);
      provided, however, that (i)
      such
      Liens securing such Debt are subordinate to the Liens securing the Indebtedness,
      this Agreement and the other Loan Documents pursuant to the Intercreditor
      Agreement and (ii)
      both
      before and after giving effect to the incurrence of any such Lien, the Borrower
      is in compliance with Section
      8.14(d).

     

    Section
      9.04  Dividends,
      Distributions and Redemptions; Amendments of Second Lien
      Documents.

     

    (a)  Restricted
      Payments.
      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 its Property
      to its Equity Interest holders, except (a) the Borrower may declare and pay
      dividends with respect to its Equity Interests payable solely in additional
      shares of its Equity Interests (other than Disqualified Capital Stock), (b)
      Subsidiaries may declare and pay dividends to the Borrower ratably with respect
      to their Equity Interests and (c) the Borrower may make Restricted Payments
      pursuant to and in accordance with stock option plans or other benefit plans
      for
      management or employees of the Borrower and its Subsidiaries.

     

    (b)  Redemption
      of Second Lien Notes; Amendment of Second Lien Documents.
      The
      Borrower will not, and will not permit any Subsidiary to: (i)
      prior to
      the date that is ninety-one (91) days after the Maturity Date, call, make or
      offer to make any optional or voluntary Redemption of or otherwise optionally
      or
      voluntarily Redeem (whether in whole or in part) the Second Lien Notes, provided
      that the Borrower may make scheduled payments (including repayments on the
      maturity date thereof) in accordance with the terms of the Intercreditor
      Agreement; and (ii)
      amend,
      modify, waive or otherwise change, consent or agree to any amendment,
      modification, waiver or other change to, any of the terms of any Second Lien
      Document if (A)
      the
      effect thereof would be to shorten the maturity of the Second Lien Notes or
      shorten the average life or increase the amount of any payment of principal
      thereof or increase the rate or add call or pre-payment premiums or shorten
      any
      period for payment of interest thereon, (B) such
      action requires the payment of a consent fee (howsoever described), (C)
      such
      action adds additional Property as collateral to secure the Second Lien Notes
      unless the Borrower complies with Section
      8.14(d)
      or
(D)
      such
      action adds any covenants or defaults without this Agreement being
      contemporaneously amended to add substantially similar covenants or defaults,
      provided that the foregoing shall not prohibit the execution of supplemental
      agreements to add guarantors if required by the terms thereof provided that
      any
      such guarantor also guarantees the Indebtedness pursuant to the Guaranty
      Agreement and each of the Borrower and such guarantor otherwise complies with
      Section
      8.14.

     

    
      
        
        

      

      
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    Section
      9.05  Investments,
      Loans and Advances.
      The
      Borrower will not, and will not permit any Subsidiary 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 or which are disclosed to the Lenders
      in
      Schedule 9.05.

     

    (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 $100,000,000 (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
      or, in
      the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which
      the Foreign Subsidiary conducts operations having assets in excess of
      $500,000,000 (or its equivalent in another currency).

     

    (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
      in or to the Borrower or any Guarantor.

     

    (h)  subject
      to the limits in Section
      9.06,
      Investments (including, without limitation, capital contributions) in general
      or
      limited partnerships or other types of entities (each a “venture”)
      entered into by the Borrower or a Subsidiary with others in the ordinary course
      of business; provided that (i) any such venture is engaged exclusively in oil
      and gas exploration, development, production, processing and related activities,
      including transportation, (ii) the interest in such venture is acquired in
      the
      ordinary course of business and on fair and reasonable terms and (iii) such
      venture interests acquired and capital contributions made (valued as of the
      date
      such interest was acquired or the contribution made) do not exceed, in the
      aggregate at any time outstanding an amount equal to $500,000.

     

    
      
        
        

      

      
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    (i)  Investments
      in direct ownership interests in additional Oil and Gas Properties and gas
      gathering systems related thereto or related to farm-out, farm-in, joint
      operating, joint venture or area of mutual interest agreements, gathering
      systems, pipelines or other similar arrangements which are usual and customary
      in the oil and gas exploration and production business located within the
      geographic boundaries of the United States of America.

     

    (j)  loans
      or
      advances to employees, officers or directors in the ordinary course of business
      of the Borrower or any of its Subsidiaries, in each case only as permitted
      by
      applicable law, including Section 402 of the Sarbanes Oxley Act of 2002, but
      in
      any event not to exceed $100,000
      in the
      aggregate at any time.

     

    (k)  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 Subsidiary 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(k)
      exceeds
      $500,000.

     

    (l)  other
      Investments not to exceed $500,000
      in the
      aggregate at any time.

     

    Section
      9.06  Nature
      of Business;
      International Operations.
      The
      Borrower will not, and will not permit any Subsidiary to, allow any material
      change to be made in the character of its business as an independent oil and
      gas
      exploration and production company. From and after the date hereof, the Borrower
      and its Domestic Subsidiaries will not acquire or make any other expenditure
      (whether such expenditure is capital, operating or otherwise) in or related
      to,
      any Oil and Gas Properties not located within the geographical boundaries of
      the
      United States. The Borrower shall not have any Foreign
      Subsidiaries.

     

    Section
      9.07  Limitation
      on Leases.
      The
      Borrower will not, and will not permit any Subsidiary 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 Capital Leases and leases
      of
      Hydrocarbon Interests), under leases or lease agreements which would cause
      the
      aggregate amount of all payments made by the Borrower and the Subsidiaries
      pursuant to all such leases or lease agreements, including, without limitation,
      any residual payments at the end of any lease, to exceed $1,000,000
      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.

     

    
      
        
        

      

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

     

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

     

    (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 a
      Subsidiary or with respect to any ERISA Affiliate of the Borrower or a
      Subsidiary 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.

     

    
      
        
        

      

      
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    (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, a Subsidiary 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 Subsidiary 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 Subsidiary to, discount or sell (with or without recourse)
      any of its notes receivable or accounts receivable.

     

    Section
      9.11  Mergers,
      Etc.
      The
      Borrower will not, and will not permit any Subsidiary to, merge into or with
      or
      consolidate with any other Person, or permit any other Person to merge into
      or
      consolidate with it, or sell, transfer, 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 (whether now owned or hereafter acquired)
      (any
      such transaction, a “consolidation”), or liquidate or dissolve; provided
      that
      the
      Borrower or any Subsidiary may participate in a consolidation with any other
      Person; provided that: 

     

    (a)  (i)
      no
      Default is continuing, (ii)
      any such
      consolidation would not cause a Default hereunder, (iii)
      if the
      Borrower consolidates with any Person, the Borrower shall be the surviving
      Person, (iv)
      if any
      Subsidiary consolidates with any Person (other than the Borrower or a
      Subsidiary) and such Subsidiary is not the surviving Person, such surviving
      Person shall expressly assume in writing (in form and substance satisfactory
      to
      the Administrative Agent) all obligations of such Subsidiary under the Loan
      Documents and (v)
      the
      Borrowing Base will be redetermined using the procedures for an Interim
      Redetermination in accordance with Section
      2.07;
      and

     

    (b)  any
      Subsidiary (including a Foreign Subsidiary) may participate in a consolidation
      with the Borrower (provided that the Borrower shall be the continuing or
      surviving corporation) or any other Subsidiary that is a Domestic Subsidiary
      (provided that if one of such parties to the consolidation is a Foreign
      Subsidiary, such Domestic Subsidiary shall be the continuing or surviving
      Person) and if one of such Subsidiaries is a Wholly-Owned Subsidiary, then
      the
      surviving Person shall be a Wholly-Owned Subsidiary.

     

    Section
      9.12  Sale
      of Properties.
      The
      Borrower will not, and will not permit any Subsidiary 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
      in the ordinary course of business of undeveloped acreage or undrilled depths
      and assignments in connection with such farmouts; (c)
      the sale
      or transfer of equipment that is no longer necessary for the business of the
      Borrower or such Subsidiary or is replaced by equipment of at least comparable
      value and use; (d)
      the sale
      or other disposition (including Casualty Events) of any Oil and Gas Property
      or
      any interest therein or any Subsidiary owning Oil and Gas Properties; provided
      that (i)
      100% 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 in excess of $1,000,000
      (as determined by the Administrative Agent, individually or in the aggregate,
      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
      in
      the most recently delivered Reserve Report 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; (e)
      sale of
      the Borrower’s office suite at 4110 Copper Ridge, Traverse City, MI 49684,
(f)
      those
      properties listed on Schedule 9.12 and (g)
      sales
      and other dispositions of Properties not regulated by Section
      9.12(a)
      to
      (f) having a fair market value not to exceed $1,000,000
      during
      any 6-month period.

     

    
      
        
        

      

      
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    Section
      9.13  Environmental
      Matters.
      The
      Borrower will not, and will not permit any Subsidiary 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 Subsidiary 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 will not, and will not permit any Subsidiary 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 Subsidiary to, sell, assign or
      otherwise dispose of any Equity Interests in any Subsidiary except in compliance
      with Section
      9.12(d).
      Neither
      the Borrower nor any Subsidiary shall have any Foreign
      Subsidiaries.

     

    
      
        
        

      

      
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    Section
      9.16  Negative
      Pledge Agreements; Dividend Restrictions.
      The
      Borrower will not, and will not permit any Subsidiary to, create, incur, assume
      or suffer to exist any contract, agreement or understanding (other than this
      Agreement, the Security Instruments, the Second Lien Documents or Capital Leases
      creating Liens permitted by Section
      9.03(c))
      which
      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 Subsidiary to, allow gas imbalances,
      take-or-pay or other prepayments with respect to the Oil and Gas Properties
      of
      the Borrower or any Subsidiary 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 one
      half
      bcf
      of gas
      (on an mcf equivalent basis) in the aggregate.

     

    Section
      9.18  Swap
      Agreements.
      The
      Borrower will not, and will not permit any Subsidiary 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 Oil and Gas Properties 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 85% of the then outstanding principal amount of the
      Borrower’s Debt for borrowed money which bears interest at a floating rate. Swap
      Agreements may contain contingent requirements, agreements or covenants for
      the
      Borrower or a Subsidiary to post collateral or margin to secure their
      obligations under such Swap Agreement or to cover market exposures, provided
      that the Borrower is in compliance with Section 9.03.

     

    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”:

     

    (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 five Business
      Days.

     

    
      
        
        

      

      
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    (c)  any
      representation or warranty made or deemed made by or on behalf of any Loan
      Party
      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 Subsidiary shall fail to observe or perform any covenant,
      condition or agreement contained in Section
      8.01(i),
      Section
      8.01(n),
      Section
      8.02,
      Section
      8.03,
      Section
      8.15
      or in
ARTICLE
      IX.

     

    (e)  the
      Borrower or any Subsidiary 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 such Subsidiary otherwise becoming aware
      of such default.

     

    (f)  the
      Borrower or any Subsidiary 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 any Material
      Indebtedness or any trustee or agent on its or their behalf to cause any
      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 Subsidiary 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 Subsidiary 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 Subsidiary or for a substantial part of its assets, and, in
      any
      such case, such proceeding or petition shall continue undismissed for 60 days
      or
      an order or decree approving or ordering any of the foregoing shall be
      entered.

     

    (i)  the
      Borrower or any Subsidiary 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 Subsidiary
      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.

     

    
      
        
        

      

      
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    (j)  the
      Borrower or any Subsidiary 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
      of
      the highest claims paying rating or financial strength 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 Subsidiary 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
      Subsidiary 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
      collateral purported to be covered thereby, except to the extent permitted
      by
      the terms of this Agreement, or the Borrower or any Subsidiary or any of their
      Affiliates 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 (i)
      $250,000
      in any
      year or (ii)
      $500,000
      for all
      periods.

     

    (n)  the
      Intercreditor Agreement, 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 its terms against the
      Borrower or any party thereto or holder of the Debt subordinated thereby or
      shall be repudiated by any of them, or cause the payment of the obligations
      of
      the Second Lien Notes to be senior or pari passu in right to the payment of
      obligations of this Agreement, or any payment by the Borrower or any Guarantor
      in violation of the terms of the Intercreditor Agreement.

     

    (o)  a
      Change
      in Control shall occur.

     

    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.

     

    
      
        
        

      

      
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    (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 Loans; 

     

    (iv)  fourth,
      pro
      rata to payment of principal outstanding on the 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
      Agents

     

    Section
      11.01  Appointment;
      Powers.
      Each of
      the Lenders and the 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 not have any duties or obligations except those
      expressly set forth in the Loan Documents. Without limiting the generality
      of
      the foregoing, (a)
      the
      Administrative Agent shall not be subject to any fiduciary or other implied
      duties, regardless of whether a Default has occurred and is continuing (the
      use
      of the term “agent” herein and in the other Loan Documents with reference to the
      Administrative Agent is not intended to connote any fiduciary or other implied
      (or express) obligations arising under agency doctrine of any applicable law;
      rather, such term is used merely as a matter of market custom, and is intended
      to create or reflect only an administrative relationship between independent
      contracting parties), (b)
      the
      Administrative Agent shall 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 not have any
      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 or as to those conditions precedent
      expressly required to be to the Administrative Agent’s satisfaction,
(vi)
      the
      existence, value, perfection or priority of any collateral security or the
      financial or other condition of the 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 written notice from such Lender prior
      to the proposed closing date specifying its objection thereto.

     

    
      
        
        

      

      
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    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. If a Default
      has occurred and is continuing, no Agent other than the Administrative Agent
      shall have any obligation to perform any act in respect thereof. 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 the 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
      assignment or transfer thereof permitted hereunder shall have been filed with
      the Administrative Agent. 

     

    
      
        
        

      

      
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    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 Administrative 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, the
      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 Agent gives notice of its
      resignation or removal of the retiring Agent, then the retiring Agent may,
      on
      behalf of the Lenders and the Issuing Bank, appoint a successor Agent. Upon
      the
      acceptance of its appointment as Agent hereunder by a successor, such successor
      shall succeed to and become vested with all the rights, powers, privileges
      and
      duties of the retiring Agent, and the retiring Agent shall be discharged from
      its duties and obligations hereunder. The fees payable by the Borrower to a
      successor Agent shall be the same as those payable to its predecessor unless
      otherwise agreed between the Borrower and such successor. After the Agent’s
      resignation hereunder, the provisions of this ARTICLE
      XI
      and
Section
      12.03
      shall
      continue in effect for the benefit of such retiring 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 Agent.

     

    Section
      11.07  Agents
      as Lenders.
      Each
      bank serving as an 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 an 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 an Agent
      hereunder.

     

    Section
      11.08  No
      Reliance.
      

     

    (a)  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
      taking or not taking action under or based upon this Agreement, any other Loan
      Document, any related agreement or any document furnished hereunder or
      thereunder. The Agents shall not be required to keep themselves informed as
      to
      the performance or observance by the 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, no Agent or the Arranger shall have any 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 such 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.

     

    
      
        
        

      

      
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    (b)  The
      Lenders acknowledge that the Administrative Agent and the Arranger are acting
      solely in administrative capacities with respect to the structuring and
      syndication of this facility and have no duties, responsibilities or liabilities
      under this Agreement and the other Loan Documents other than their
      administrative duties, responsibilities and liabilities specifically as set
      forth in the Loan Documents and in their capacity as Lenders hereunder. In
      structuring, arranging or syndicating this facility, each Lender acknowledges
      that the Administrative Agent and/or Arranger may be an agent or lender under
      these Notes, the Second Lien Notes, other loans or other securities and waives
      any existing or future conflicts of interest associated with the their role
      in
      such other debt instruments. If in its administration of this facility or any
      other debt instrument, the Administrative Agent determines (or is given written
      notice by any Lender that a conflict exists), then it shall eliminate such
      conflict within 90 days or resign pursuant to Section
      11.06
      and
      shall have no liability for action taken or not taken while such conflict
      existed.

     

    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

     

    
      
        
        

      

      
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    (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 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 the 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 the 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 and other Agents.
      The
      Arranger and all other Agents other than the Administrative Agent shall have
      no
      duties, responsibilities or liabilities under this Agreement and the other
      Loan
      Documents other than their duties, responsibilities and liabilities in their
      capacity as Lenders hereunder.

     

    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 4110 Copper Ridge, Suite 110, Traverse City, MI 49684,
      Attention: Chief Financial Officer; 

     

    (ii)  if
      to the
      Administrative Agent, to it at 919 Third Avenue, New York, New York 10022,
      Attention: Dina Wilson, Loan Assistant (Telecopy No. (212) 841-2683), with
      a
      copy to 1200 Smith Street, Suite 3100, Houston, Texas 77002, Attention: Betsy
      Jocher (Telecopy No. (713) 659-6915);

     

    
      
        
        

      

      
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    (iii)  if
      to the
      Issuing Bank, to it at 919 Third Avenue, New York, New York 10022, Attention:
      Johnny Etheridge, Loan Assistant (Telecopy No. (212) 471-6996), with a copy
      to
      1200 Smith Street, Suite 3100, Houston, Texas 77002, Attention: Betsy Jocher
      (Telecopy No. (713) 659-6915; and

     

    (iv)  if
      to any
      other Lender, 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 or the Borrower 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, the 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, the 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 waiver of any Default, regardless of whether the Administrative
      Agent, any other Agent, any Lender or the 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 Maximum Credit Amount of any Lender without the written consent of such
      Lender, (ii)
      increase
      the Borrowing Base without the written consent of all Lenders, decrease or
      maintain the Borrowing Base without the consent of the Required Lenders, or
      modify Section
      2.07
      in any
      manner without the consent of each 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
      Termination Date without the written consent of each 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, (vi)
      waive or
      amend Section
      3.04(c),
      Section
      6.01,
      Section
      8.14,
      Section
      10.02(c)
      or
Section
      12.14
      or
      change the definition of the terms “Domestic Subsidiary”, “Foreign Subsidiary”,
“Material Domestic 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 80%, without the written consent of each Lender, or (viii)
      change
      any of the provisions of this Section
      12.02(b)
      or the
      definitions of “Required Lenders” or “Majority Lenders” or any other provision
      hereof specifying the number or percentage of Lenders 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; provided further that no such
      agreement shall amend, modify or otherwise affect the rights or duties of the
      Administrative Agent, any other Agent, or the Issuing Bank hereunder or under
      any other Loan Document without the prior written consent of the Administrative
      Agent, such other Agent or the 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.

     

    
      
        
        

      

      
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    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 for the Administrative Agent, the reasonable travel,
      photocopy, mailing, courier, telephone and other similar expenses, including
      all
Intralinks
      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
      reasonable costs, expenses, Taxes, assessments and other charges incurred by
      any
      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 the Issuing Bank in connection
      with the issuance, amendment, renewal or extension of any Letter of Credit
      or
      any demand for payment thereunder, (iv)
      all
      out-of-pocket expenses incurred by any Agent, the Issuing Bank or any Lender,
      including the reasonable fees, charges and disbursements of any counsel for
      any
      Agent, the 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.

     

    
      
        
        

      

      
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    (b)  THE
      BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER, THE 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 SUBSIDIARY 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 THE ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
      CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY
      COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, 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 ANY SUBSIDIARY 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 SUBSIDIARY WITH ANY
      ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (x)
      THE PAST
      OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY 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 SUBSIDIARY 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.

    
      
        
        

      

      
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    (c)  To
      the
      extent that the Borrower fails to pay any amount required to be paid by it
      to
      any Agent, the Arranger or the Issuing Bank under Section
      12.03(a)
      or
(b),
      each
      Lender severally agrees to pay to such Agent, the Arranger or the 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 such Agent, the Arranger or the 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.

     

    
      
        
        

      

      
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    (e)  All
      amounts due under this Section
      12.03
      shall be
      payable promptly after 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 the 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 the 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, the 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 if such
      assignment is 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.

     

    (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
      or Loans, the amount of the Commitment or Loans 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 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;

     

    
      
        
        

      

      
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    (B)  each
      partial assignment shall be made as an assignment of a proportionate part of
      all
      the assigning Lender’s rights and obligations 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 Credit Amount 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, the 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, the
      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 necessary, the Administrative
      Agent will reflect the revisions on Annex I and forward a copy of such revised
      Annex I to the Borrower, the 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
      and, if required hereunder, applicable tax forms (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).

     

    
      
        
        

      

      
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    (c)  

     

    (i)  Any
      Lender may, without the consent of the Borrower, the Administrative Agent or
      the
      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, the 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
      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; 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.

     

    (e)  Notwithstanding
      any other provisions of this Section
      12.04,
      no
      transfer or assignment of the interests or obligations of any Lender or any
      grant of participations therein shall be permitted if such transfer, assignment
      or grant would require the Borrower and the Guarantors to file a registration
      statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any
      state.

     

    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, the 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 Commitments have not expired
      or terminated. 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.

     

    
      
        
        

      

      
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    (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 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.

     

    
      
        
        

      

      
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    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 Subsidiary against
      any of and all the obligations of the Borrower or any Subsidiary 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. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
      REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT
      APPLY
      TO THIS AGREEMENT OR THE NOTES.

     

    (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 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.

     

    
      
        
        

      

      
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    (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, the 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 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 to comply with the provisions of this Section, to any actual
      or
      prospective Transferee or any direct or indirect counterparty to any Swap
      Agreement (or any professional advisor to such counterparty), (g)
      with the
      consent of the Borrower, (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, the Issuing Bank or any Lender on a
      nonconfidential basis from a source other than the Borrower or (i)
      to the
      National Association of Insurance Commissioners or any similar organization
      or
      any nationally recognized rating agency that requires access to information
      about a Lender’s investment portfolio in connection with ratings issued with
      respect to such Lender. For the purposes of this Section
      12.11,
      “Information”
means
      all information received from the Borrower or any Subsidiary relating to the
      Borrower or any Subsidiary and their businesses, other than any such information
      that is available to the Administrative Agent, the Issuing Bank or any Lender
      on
      a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary;
      provided that, in the case of information received from the Borrower or any
      Subsidiary 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.
      

     

    
      
        
        

      

      
        90

        
          

        

      

      
        
        

      

    

     

    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 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.

     

    
      
        
        

      

      
        91

        
          

        

      

      
        
        

      

    

     

    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 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.

     

    
      
        
        

      

      
        92

        
          

        

      

      
        
        

      

    

     

    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.

     

    [SIGNATURES
      BEGIN NEXT PAGE]

     

    
      
        
        

      

      
        93

        
          

        

      

      
        
        

      

    

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

    
      	 	 	 
	BORROWER:	AURORA
              OIL &
              GAS CORPORATION
	 
 	 
 	 
 
	
            	By:  	
              /s/
                William W. Deneau

            
	 	
              

              William
                W. Deneau, Chief Executive Officer

            

    

     

    
      
        
        

      

      
        Signature
          Page - Amended and Restated Credit Agreement - 1

        
          

        

      

      
        
        

      

       

    

    
      	 	 	 
	ADMINISTRATIVE
              AGENT:	
              BNP
                PARIBAS,

              as Administrative Agent and Lender

            
	 
 	 
 	 
 
	 	By:  	
              /s/
                Betsy Jocher

            
	 	
              
Name: Betsy
              Jocher
Title: Director
	 	 

    

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	
              /s/
                Russell Otts

            
	 	
              
Name: Russell
              Otts
	 	
              Title:
                Vice
                President

            

    

     

    
      
        
        

      

      
        Signature
          Page - Amended and Restated Credit Agreement - 2

        
          

        

      

      
        
        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	LENDERS: 	 	 
	 	
              COMERICA
                BANK

            
	 
 	 
 	 
 
	 	By:  	/s/
              Peter L. Sefzik
	 	
              
Name:
              Peter L. Sefzik
Title: Vice President 
	 	 

    

    
          

    

    
      	 	 	 
	 	
              KEYBANK
                NATIONAL ASSOCIATION

            
	 
 	 
 	 
 
	 	By:  	/s/
              Thomas Rajan
	 	
              
Name:
              Thomas Rajan
Title: Director
	 	 

    

     

    
      	 	 	 
	 	
              CIT
                CAPITAL USA INC.

            
	 
 	 
 	 
 
	 	By:  	/s/
              George E. McKean
	 	
              
Name:
              George E. McKean 
Title:
              Vice
              President
	 	 

    

     

    
      
        
        

      

      
        Signature
          Page - Amended and Restated Credit Agreement - 3

        
          

        

      

      
        
        

      

       

    

    ANNEX
      I

    

    LIST
      OF
      MAXIMUM CREDIT AMOUNTS

    

    
      	
              Name
                of Lender

            	 	
              Applicable
                Percentage

            	 	
              Maximum
                Credit Amount

            	 
	
              BNP
                Paribas

            	 	 	
              35.71

            	
              %

            	
              $

            	
              35,714,285.71

            	 
	
              Comerica
                Bank

            	 	 	
              25.00

            	
              %

            	
              $

            	
              25,000,000.00

            	 
	
              KeyBank
                National Association

            	 	 	
              25.00

            	
              %

            	
              $

            	
              25,000,000.00

            	 
	
              CIT
                Capital USA Inc.

            	 	 	
              14.29

            	
              %

            	
              $

            	
              14,285,714.29

            	 
	
              TOTAL

            	 	 	
              100.00

            	
              %

            	
              $

            	
              100,000,000.00

            	 

    

     

    
      
        
        

      

      
        Annex
          I
          -1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    FORM
      OF NOTE

     

    
      	$[          ]	
              [          ],
                200[     ]

            

    

     

    FOR
      VALUE
      RECEIVED, Aurora
      Oil & Gas Corporation, a Utah corporation
      (the
“Borrower”)
      hereby
      promises to pay to the order of [          ]
      (the
“Lender”),
      at
      the principal office of BNP
      Paribas
      (the
“Administrative
      Agent”),
      the
      principal sum of [          ]
      Dollars
      ($[          ])
      (or
      such lesser amount as shall equal the aggregate unpaid principal amount of
      the
      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 Loan, at such office, in like money and funds, for the period
      commencing on the date of such Loan until such 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 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 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 Loans or
      affect the validity of such transfer by any Lender of this Note.

     

    This
      Note
      is one of the Notes referred to in the Credit Agreement dated as of August
      20, 2007
      among
      the Borrower, the Administrative Agent, and the other agents and lenders
      signatory thereto (including the Lender), and evidences Loans made by the Lender
      thereunder (such Amended and Restated Credit Agreement as the same may be
      amended, supplemented or restated from time to time, the “Credit
      Agreement”).
      Capitalized terms used in this Note have the respective meanings assigned to
      them in the Credit Agreement.

     

    This
      Note
      is issued pursuant to, and is subject to the terms and conditions set forth
      in,
      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 Note upon the occurrence of certain events,
      for prepayments of Loans upon the terms and conditions specified therein and
      other provisions relevant to this Note.

     

    
      
        
        

      

      
        
          Exhibit
            A
            -1

        

        
          

        

      

      
        
        

      

    

     

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

     

    
      	
            	 	 	
              
                
                  
                    
                      AURORA
                        OIL & GAS CORPORATION

                    

                  

                

              

            
	 	 	 	 
	
            	 	 	
            
	
            	 	 	
              By:   

              
                

              
Name:
Title:

    

     

    
      
        
        

      

      
        Exhibit
          A
          -2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    FORM
      OF BORROWING REQUEST

     

    [                   ],
      200[   ]

     

    Aurora
      Oil & Gas Corporation, a Utah corporation
      (the
“Borrower”),
      pursuant to Section 2.03 of the Amended and Restated Credit Agreement dated
      as
      of August 20, 2007 (together with all amendments, restatements, supplements
      or
      other modifications thereto, the “Credit
      Agreement”)
      among
      the Borrower, BNP Paribas, as Administrative Agent and the other agents and
      lenders (the “Lenders”)
      which
      are or become parties thereto (unless otherwise defined herein, each capitalized
      term used herein is defined in the Credit Agreement), hereby requests a
      Borrowing as follows:

     

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

     

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

     

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

     

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

     

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

     

    (vi) Total
      Revolving Credit Exposures on the date hereof (i.e., outstanding principal
      amount of Loans 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:

    

    [__________________]

    
      [__________________]

        [__________________]

          [__________________]

            [__________________]

          

        

      

    

     

    
      
        
        

      

      
        
          Exhibit
            B
            -1

        

        
          

        

      

      
        
        

      

    

     

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

     

    
      	
            	 	 	
              
                
                  
                    
                      AURORA
                        OIL & GAS CORPORATION

                    

                  

                

              

            
	 	 	 	 
	
            	 	 	
            
	
            	 	 	
              By:   

              
                

              
Name:
Title:

    

     

    
      
        
        

      

      
        
          Exhibit
            B
            -2

        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      C

    FORM
      OF INTEREST ELECTION REQUEST

     

    [                ],
      200[   ]

     

    Aurora
      Oil & Gas Corporation, a Utah corporation
      (the
“Borrower”),
      pursuant to Section 2.04 of the Amended and Restated Credit Agreement dated
      as
      of August 20, 2007 (together with all amendments, restatements, supplements
      or
      other modifications thereto, the “Credit
      Agreement”)
      among
      the Borrower, BNP Paribas, as Administrative Agent and the other agents and
      lenders (the “Lenders”)
      which
      are or become parties thereto (unless otherwise defined herein, each capitalized
      term used herein is defined in the Credit Agreement), hereby makes an Interest
      Election Request as follows:

     

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

     

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

     

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

     

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

     

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

    
       

      
        	
              	 	 	
                
                  
                    
                      
                        
                          AURORA
                            OIL & GAS CORPORATION

                        

                      

                    

                  

                

              
	 	 	 	 
	
              	 	 	
              
	
              	 	 	
                By:   

                
                  

                
Name:
Title:

      

       

      
        
          
          

        

        
          
            Exhibit
              C
              -1

          

          
            

          

        

        
          
          

        

         

      

    

    EXHIBIT
      D

    FORM
      OF

    COMPLIANCE
      CERTIFICATE

     

    The
      undersigned hereby certifies that he/she is the [          ]
      of
Aurora
      Oil & Gas Corporation, a Utah 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 20, 2007 (together with all amendments, restatements, supplements
      or
      other modifications thereto being the “Agreement”)
      among
      the Borrower, BNP
      Paribas,
      as
      Administrative Agent, and the other agents 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 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 the Majority 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, 2006, no change has occurred, either in any case or in the
      aggregate, in the condition, financial or otherwise, of the Borrower or any
      Subsidiary which 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 [          ].

     

    EXECUTED
      AND DELIVERED this [          ]
      day of
[          ].

    
       

      
        	
              	 	 	
                
                  
                    
                      
                        
                          
                            AURORA
                              OIL & GAS
                              CORPORATION

                          

                        

                      

                    

                  

                

              
	 	 	 	 
	
              	 	 	
              
	
              	 	 	
                By:   

                
                  

                
Name:
Title:

      

       

    

    
      
        
        

      

      
        
          Exhibit
            E-1 - 1

        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      E-1

    SECURITY
      INSTRUMENTS

     

    
      	
              1)

            	
              Amended
                and Restated Guaranty and Collateral Agreement dated as of August
                20, 2007
                by
                the Borrower and the Guarantors, in favor of the Administrative Agent
                and
                the Lenders.

            

      	 	 

      	2) 	Financing Statements in respect of item 1, by
              

    

     

    a) the
      Borrower

     

    b) Aurora
      Energy, Ltd.

     

    c) Aurora
      Antrim North, L.L.C.

    
      	
            	 

      	3) 	Stock Powers delivered in respect of item
              1.

       

    

    a) Aurora
      Energy, Ltd.

     

    b) Hudson
      Pipeline & Processing Co., LLC

     

    
      	
              4)

            	
              Deed
                of Trust, Mortgage, Assignment of As-Extracted Collateral, Security
                Agreement and Financing Statement dated as of January
                31, 2006
                by
                the Borrower, as mortgagor, in favor of Betsy
                Jocher,
                as
                Trustee, for the benefit the Administrative Agent, the Lenders and
                others.

            

    

     

    
      	
              5)

            	
              Amended
                and Restated Deed of Trust, Mortgage, Assignment of As-Extracted
                Collateral, Security Agreement and Financing Statement dated as of
                August
                20, 2007
                by
                the Borrower, as mortgagor, in favor of Betsy
                Jocher,
                as
                Trustee, for the benefit the Administrative Agent, the Lenders and
                others.

            

      	 	 

      	6) 	Financing Statement in respect of item
              5.

      	 	 

      	7)	Fee Letter with Administrative
              Agent

    

     

    
      
        
        

      

      
        Exhibit
          E-2 - 1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      E-2

    FORM
      OF GUARANTY AND COLLATERAL AGREEMENT

     

    
      
        
        

      

      
        Exhibit
          F-1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      F

    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 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 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]]

            
	 	 
	3. Borrower:	Aurora Oil & Gas Corporation
	 	 
	
              4. Administrative
                Agent:

            	BNP Paribas, as the administrative agent
              under the Credit Agreement
	 	 
	
              5. Credit
                Agreement: 

            	
              The
                Amended and Restated Credit Agreement dated as of August 20, 2007
                among
                the
                Borrower, 

              the
                Lenders parties thereto, BNP Paribas, as Administrative Agent, and
                the
                other agents parties thereto

            

    

     

    
      
        
        

      

      
        Exhibit
          F
          - 1

        
          

        

      

      
        
        

      

    

     

    6. 
      Assigned
      Interest:

    

    
      	
              Commitment
                Assigned

            	 	
              Aggregate
                Amount of Commitment/Loans for all Lenders

            	 	
              Amount
                of Commitment/Loans Assigned

            	 	
              Percentage
                Assigned of Commitment/Loans

            	 
	
            	 	
              $

            	 	 	
              $

            	
               

            	 	 	
               

            	
              %

            
	 	 	
              $

            	 	 	
              $

            	
            	
               

            	 	 	
              %

            
	 	 	
              $

            	 	 	
              $

            	
            	
            	 	 	
              %

            

    

     

    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:

              

      

       

    

    
      
        
        

      

      
        Exhibit
          F
          - 2

        
          

        

      

      
        
        

      

    

     

    
      	
              Consented
                to and Accepted:

            	 	 	 
	 	 	 	 
	
              BNP
                Paribas, as 

              Administrative
                Agent

            	 	 	 
	 	 	 	 
	 	 	 	 
	By	 	 	
            
	
              
                

              

              Title:

            	 	 	
            

    

     

    
      
        	 	 	 	 
	By	 	 	
              
	
                
                  

                

                Title:

              	 	 	
              

      

       

    

    
      
        	
                
                  Consented
                    to: 

                

              	 	 	 
	 	 	 	 
	
                AURORA
                  OIL & GAS CORPORATION

              	 	 	 
	 	 	 	 
	 	 	 	 
	By:	 	 	
              
	
                
                  

                

                
                  Name:

                

                Title:

              	 	 	
              

      

       

      
        
          
          

        

        
          Exhibit
            F
            - 3

          
            

          

        

        
          
          

        

         

      

    

    ANNEX
      1

    

    AURORA
      OIL & GAS CORPORATION AMENDED AND RESTATED CREDIT AGREEMENT

    

    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 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.

    

    
      
        
        

      

      
        
          Exhibit
            F
            - 4

        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      7.05

    LITIGATION

     

    None

     

    
      
        
        

      

      
        
          Schedule
            7.05 - 1

        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      7.14

    SUBSIDIARIES
      AND PARTNERSHIPS

    

    
      	
              Name
                of Subsidiary

            	 	
              Jurisdiction
                and entity

            	 	
              Entity
                number

            
	
              Aurora
                Oil & Gas Corporation

            	 	
              Utah
                Corporation

            	 	
              608892-0142

            
	 	 	 	 	 
	
              Aurora
                Energy, Ltd.

            	 	
              Nevada
                corporation

            	 	
              C7051-1991

            
	 	 	 	 	 
	
              Celebration
                Mining Company

            	 	
              Washington
                corporation

            	 	
              601525229

            
	 	 	 	 	 
	
              Bach
                Services & Manufacturing Company, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              D0798X

            
	 	 	 	 	 
	
              Kingsley
                Development Company, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              B81092

            
	 	 	 	 	 
	
              Aurora
                Antrim North, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              B80030

            
	 	 	 	 	 
	
              Aurora
                Operating, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              B71015

            
	 	 	 	 	 
	
              Hudson
                Pipeline & Processing Co., LLC

              (Aurora
                Antrim North, L.L.C. owns 93.6%)

            	 	
              Michigan
                limited liability company

            	 	
              B0008T
                

            
	 	 	 	 	 
	
              Indiana
                Royalty Trustory, L.L.C.

              (Aurora
                Energy, Ltd. owns 51%)

            	 	
              Michigan
                limited liability company

            	 	
              B24031

            
	 	 	 	 	 
	
              Aurora
                Holding, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              B83167

            
	 	 	 	 	 
	
              Consolidated
                Exploration, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              LC1804

            
	 	 	 	 	 
	
              Indigas
                Energy, L.L.C.

            	 	
              Indiana
                limited liability company

            	 	
              1995111315

            
	 	 	 	 	 
	
              BFG
                Holding, L.L.C.

            	 	
              Michigan
                limited liability company

            	 	
              B0361G

            

    

     

    
      
        
        

      

      
        
          Schedule
            7.14 - 1

        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      7.18

    GAS
      IMBALANCE

    

    None

     

    
      
        
        

      

      
        
          Schedule
            7.18 - 1

        

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      7.19

    MARKETING
      CONTRACTS

     

    None.

     

    
      
        
        

      

      
        
          Schedule
            7.19 - 1

        

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      7.20

    SWAP
      AGREEMENTS

    

      
        	
                Period

              	
                 

              	
                 Type
                  of Contract

              	
                 

              	
                Natural
                  Gas Volume per Day

              	
                 

              	
                Price
                  per mmbtu

              	 
	
                April
                  2007—December 2008

              	 	 	
                Swap

              	 	 	
                5,000
                  mmbtu

              	 	
                $

              	
                9.00

              	 
	
                 

                April
                  2007—December 2008

              	 	 	
                Collar

              	 	 	
                2,000
                  mmbtu

              	 	
                $

              	
                7.55/$9.00

              	 
	
                 

                January
                  2008—December 2008

              	 	 	
                Swap

              	 	 	
                2,000
                  mmbtu

              	 	
                $

              	
                8.41

              	 
	
                 

                January
                  2009—December 2009

              	 	 	
                Swap

              	 	 	
                7,000
                  mmbtu

              	 	
                $

              	
                8.72

              	 
	
                 

                January
                  2010—March 2011

              	 	 	
                Swap

              	 	 	
                7,000
                  mmbtu

              	 	
                $

              	
                8.68

              	 
	
                 

                April
                  2011 -- September 2011

              	 	 	
                Swap

              	 	 	
                7,000
                  mmbtu

              	 	
                $

              	
                7.62

              	 

      

    

     

    
      
        
        

      

      
        
          Schedule
            7.20 - 1

        

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      9.05

    INVESTMENTS

     

    None

     

    
      
        
        

      

      
        Schedule
          9.05 - 1

        
          

        

      

      
        
        

      

    

    SCHEDULE
      9.12

    OTHER
      PROPERTY

     

    
      	 	
              PROJECT
                NAME

            	 	
              Type

            	 	
              Project
                Location

            
	 	 	 	 	 	 	
              (Parts
                of the Following Counties/States)

            
	 	 	 	 	 	 	 
	
              I.
                Oil and Gas Properties - Leasehold interests (not reflected in reserve
                report)

            
	
              A.

            	
              Oak
                Tree Leasehold Interests/AOK Energy, LLC

            	 	 
	 	
              .

            	
              J.V.
                Partner/Project Financing

            	 	
              Other

            	 	
              Cleveland,
                Pottawatomie, McClain Counties, OK

            
	
              B.

            	
              Rex
                - NAS Option Acreage

            	 	 	 	 
	 	
              1)

            	
              Lawrence
                Cty (30% pending)

            	 	
              New
                Albany 

            	 	
              Lawrence
                County, Indiana

            
	
              C.

            	
              Geopetra
                Investment - Various Gulf of Mexico Projects

            	 	 
	 	
              1)

            	
              Mustang
                Island 

            	 	
              Other

            	 	
              Gulf
                of Mexico, Offshore, Texas

            
	 	
              2)

            	
              Bayou
                de Glaises

            	 	
              Other

            	 	
              St.
                Martin Parish, Louisiana

            
	 	 	 	 	 	 	 
	
              II.
                Other Oil and Gas related Property and Equipment

            	 	 	 	 
	
              A.

            	
              CO2
                Plant

            	 	
              Michigan

            	 	
              Charlevoix
                County, Michigan

            

    

     

    
      
        
        

      

      
        Schedule
          9.12-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]