Document:

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT dated as of                   ,
        , between Bank of Manhattan,
N.A. (the “Bank”) and Jeffrey M. Watson (“Executive”).

W I T N E S S E T H

WHEREAS, the Bank is a proposed national banking association;

WHEREAS, the Bank desires to avail itself of the skill,
knowledge and experience of Executive in order to insure the successful
management of its business;

WHEREAS, the parties hereto desire to specify the terms
controlling Executive’s employment by the Bank;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending to be legally bound, it is agreed that the following
terms and conditions shall apply to Executive’s said employment:

A.                                    TERM
OF EMPLOYMENT

The
term of this Agreement (“Term”) shall
commence on the date the Bank opens for business (the “Effective
Date”) and end three (3) years thereafter, subject, however, to
prior termination of this Agreement as hereinafter provided.  Where used herein, “Term” shall refer to the
entire period of employment of Executive by the Bank hereunder, whether for the
period provided above, or whether terminated earlier as hereinafter provided.

B.                                    DUTIES
OF EXECUTIVE 

1.                                       Duties.  Executive
shall perform the duties of President and Chief Executive Officer of the Bank, reporting
directly to the Board of Directors (the “Board”) of the
Bank, and subject, at all times, to the powers vested by law in the Board and
the Bank’s shareholders.  Executive shall
also serve as a member of the Board throughout the Term.  During the Term, Executive shall perform the
services herein contemplated to be performed by Executive faithfully,
diligently and to the best of Executive’s ability, consistent with the highest
and best standards of the banking industry and in compliance with all
applicable laws and the Bank’s Articles of Association, Bylaws and internal
written policies.

2.                                       Conflicts of Interest.  Except as
permitted by the prior written consent of the Board, Executive shall devote
Executive’s entire productive time, ability and attention to the business of
the Bank during the Term and Executive shall not directly or indirectly render
any services of a business, commercial or professional nature, to any other
person, firm or corporation, whether for compensation or otherwise, which are
in conflict with the Bank’s interests.  Notwithstanding
the foregoing, Executive may make investments of a passive nature

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in any business or venture, provided that such
business or venture is not in competition, directly or indirectly, in any
manner with the Bank.

C.                                    COMPENSATION

1.                                       Salary.  For Executive’s
services hereunder, the Bank shall pay or cause to be paid as annual base
salary (the “Base Salary”) to Executive not
less than Two Hundred Thousand Dollars ($200,000) for the first year of the
Term, with annual increases in the discretion of the Board or the Bank’s
Compensation Committee.  Base Salary
shall be payable in equal installments in conformity with the Bank’s normal
payroll period.

2.                                       Bonuses.  Any bonuses
shall be as determined by the Board, in its sole discretion.

D.                                    EXECUTIVE
BENEFITS 

1.                                       Vacation.  Executive
shall be entitled to vacation during each year of the Term consistent with the
Bank’s approved vacation schedule and policy, which shall provide Executive
with not less than four (4) weeks vacation for each year of the Term.  Executive is encouraged to use all accrued
vacation benefits and will be expected to take vacation in the year it is
earned.  Accrual of any unused vacation
shall be determined in accordance with the Bank’s Personnel Policyas in effect from time to time and shall
be subject to any limitations set forth therein.

2.                                       Group Medical and Other
Insurance Benefits.  The Bank shall provide for Executive, at the
Bank’s expense, group medical and other insurance benefits in accordance with
the Bank’s Personnel Policy as in effect from time to time.  All coverage under this paragraph shall be in
existence or shall take effect as of the Effective Date hereof.  The Bank’s liability to Executive for any
breach of this paragraph shall be limited to the amount of premiums required
hereunder to be payable by the Bank to obtain or maintain, as applicable, the
coverage contemplated herein.

3.                                       Stock Option.  The Bank will cause
its holding company, Manhattan Bancorp (“Bancorp”) to
grant to Executive not later than the Effective Date an option to purchase a
number of shares of the Bancorp’s authorized but unissued Common Stock equal to
five percent (5.0%) of the amount of shares of Bancorp’s Common Stock issued
and outstanding immediately prior to the Effective Date, at the fair market
value of the stock on the date of grant which shall equal the price at which
such shares were sold by Bancorp prior to the Effective Date.  The Bank and Executive agree that such option
shall be for a term of ten (10) years and shall vest in three installments of 33.33%
per year over a period of three (3) years, with the first such installment to
vest one year from the date of grant, and with subsequent installments vesting two
and three years thereafter.  The Bank and
Executive also agree that, to the maximum extent permitted by law, the option
will qualify as an “incentive stock option” within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended.  Such stock option will be granted to
Executive, pursuant to Bancorp’s Stock Option Plan (the “Plan”)
and an agreement between Bancorp and Executive containing the terms set forth
herein and all other terms as

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specified in the form Stock Option Agreement approved by
the Board of Directors of Bancorp in connection with its adoption of the Plan.

In addition to the foregoing option, the Bank agrees to cause Bancorp
to grant to Executive options (the “Additional Options”)
to purchase a number of shares of the Bancorp’s authorized but unissued Common
Stock equal to five percent (5.0%) of the amount of the Bancorp’s Common Stock
sold in the Bancorp’s first subsequent non-underwritten public offering
following its initial public offering at the fair market value of such stock at
the time of the closing of such subsequent offering.  The right of Executive to receive Additional
Options upon the closing of such non-underwritten public offering shall
terminate on the commencement of an offering underwritten pursuant to a firm commitment.  Each Additional Option shall be for a term of
ten (10) years, and will vest in three installments of 331⁄3% per year over
a period of three (3) years, with the first such installment to vest one year
from the date of grant, and with subsequent installments vesting two and three
years thereafter.  As used herein the
term “non-underwritten public offering” shall include a public offering in
which all underwriters participate on a best efforts basis only.

4.                                       Auto Allowance.  During the
Term, Executive shall be entitled to receive One Thousand Dollars ($1,000) per
month as a car allowance.

5.                                       Club Membership.  Executive
shall be provided with an executive membership at Palos Verdes Country Club at
the Bank’s expense.  The Bank shall pay
or reimburse Executive for all dues associated with such membership and
reimburse Executive for all business expenses in accordance with Bank’s
reimbursement policies.

E.                                      REIMBURSEMENT
FOR BUSINESS EXPENSES

Executive
shall be entitled to reimbursement by the Bank for any ordinary and necessary
business expenses incurred by Executive in the performance of Executive’s duties
in accordance with the Bank’s reimbursement policies in effect from time to
time, provided that each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of the Bank as a
business expense and not as deductible compensation to Executive; and Executive
furnishes to the Bank adequate records and other documentary evidence required
by federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such expenditures as deductible business
expenses of the Bank and not as deductible compensation to Executive.

F.                                      TERMINATION

1.                                       Termination for Cause.  The Bank may
terminate this Agreement at any time by action of the Board for cause (“Cause”).  For purposes
of this Agreement termination for “Cause” shall mean termination because of
Executive’s personal dishonesty, incompetence, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order or
material breach of any provision of this Agreement.  For purposes of this Agreement, no act, or
the failure to act, on Executive’s part shall be considered “willful” unless
done, or omitted to be done, not in good faith and without

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reasonable belief that the action or omission was in
the best interests of the Bank. 
Termination under this Paragraph shall not prejudice any remedy that the
Bank may have at law, in equity, or under this Agreement.

2.                                       Death or Disability.  In the event
of Executive’s death or if Executive is found to be physically or mentally
disabled (as hereinafter defined) by the Board in good faith, this Agreement shall
terminate without any further liability or obligation by the Bank to Executive.  For purposes of this Agreement only, physical
or mental disability shall be defined as Executive having been unable to fully
perform under this Agreement for a continuous period of ninety (90) days or a
cumulative period of one-hundred eighty (180) days in any calendar year, or, if
applicable, such other periods as may be defined in the Bank’s Personnel Policy
or in applicable disability insurance policies as in effect from time to time.  If there should be a dispute between the Bank
and Executive as to Executive’s physical or mental disability for purposes of
this Agreement, the question shall be settled by the opinion of an impartial
reputable physician or psychiatrist agreed upon by the parties or their
representatives, or if the parties cannot agree within ten (10) days after a
request for designation of such party, then by a physician or psychiatrist
designated by the Los Angeles County Medical Association.  The certification of such physician or
psychiatrist as to the question in dispute shall be final and binding upon the
parties hereto.  The Bank shall bear the
costs of such physician or psychiatrist selected to determine such matter.

3.                                       Supervisory Matters.  If Executive
is suspended and/or temporarily prohibited from participating in the conduct of
the Bank’s affairs by notice served under Section 8(e)(3) or 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the
Bank’s obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed,
the Bank may in its discretion:  (i) pay
Executive all or part of the compensation withheld while its obligations under
this Agreement were suspended; and (ii) reinstate (in whole or in part) any of
its obligations which were suspended.  If
Executive is removed and/or permanently prohibited from participating in the conduct
of the Bank’s affairs by an order issued under Section 8(e)(3) or i(g)(1) of
the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) or (g)(1)), all
obligations of the Bank under this Agreement shall terminate as of the
effective date of the order, but vested rights of the parties shall not be
affected.  If the Bank is in default (as
defined in Section 3(x)(1) of the Federal Deposit Insurance Act (12 U.S.C.
Section 1813(x)(1)), all obligations under this Agreement shall terminate as of
the date of default, but vested rights of the parties shall not be
affected.  All obligations under this
Agreement shall be terminated, except to the extent that it is determined that
continuation of the Agreement is necessary for the continued operation of the
Bank; (i) by the Federal Deposit Insurance Corporation at the time that the
Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
11 of the Federal Deposit Insurance Act (12 U.S.C. Section 1821); or (ii) by
the Federal Deposit Insurance Corporation or the United States Comptroller of
the Currency or his or her designee, at the time that the Federal Deposit
Insurance Corporation or the United States Comptroller of the Currency or his
or her designee approves a supervisory merger to resolve problems related to
the operation of the Bank or when the Bank is in an unsafe or unsound
condition.  All rights of the parties
that have already vested, however, shall not be affected by such action.

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4.                                       Termination by Bank Without
Cause.  Notwithstanding
anything to the contrary contained herein, it is agreed by the parties hereto
that the Bank may at any time without Cause and for any reason immediately terminate
this Agreement and Executive’s employment by the Bank by action of the Board.  Upon such termination by the Bank all benefits
provided by the Bank hereunder to Executive shall thereupon cease, except as
provided in this Subparagraph, and Executive shall be deemed to have resigned as
a director, officer and employee of the Bank and any corporation, partnership,
venture, limited liability company or other entity controlled by, controlling
or under common control with the Bank.  Notwithstanding
the foregoing, it is agreed that in the event of such termination without Cause
by the Bank upon the delivery to the Bank by the Executive of a waiver and
release in substantially the form of Attachment “A” to this Agreement,
and Executive’s compliance with the terms thereof, Executive shall be entitled
to, upon the effective date of termination, payment of a lump sum equivalent to
twelve (12) months’ base salary as such base salary is in effect on the date of
termination of employment, plus continuation of Executive’s medical benefits
for a period of twelve (12) months following such termination, with Bank
continuing to pay Executive’s share of premiums and associated costs as if
Executive continued to be employed with the Bank; provided, however,
that the Bank’s obligation to provide such coverage shall be terminated if the
Executive is eligible to receive comparable substitute coverage from another
employer at any time during such twelve-month period.  Executive agrees to advise the Bank
immediately if such comparable substitute coverage is available from another
employer.  The Executive shall be
entitled at the expiration of the twelve-month period, to elect to continue
coverage under the Bank’s medical benefit plans pursuant to the terms of
COBRA.  Notwithstanding any
provision to the contrary in this Subparagraph F.4, no severance benefits shall
be payable to Executive hereunder if Executive’s employment is terminated for
any of the reasons delineated in Subparagraphs F.1, F.2 or F.3 hereof or while
grounds for termination under such Subparagraphs exist.

G.                                    GENERAL
PROVISIONS

1.                                       Trade Secrets.  During the
Term, Executive will have access to and become acquainted with what Executive
and the Bank acknowledge are trade secrets, to wit, knowledge or data
concerning the Bank, including its operations and methods of doing business,
and the identity of customers of the Bank, including knowledge of their
financial condition and their financial needs. 
Executive shall not disclose any of the aforesaid trade secrets,
directly or indirectly, or use them in any way either during the Term or thereafter,
except as required in the course of Executive’s employment with the Bank.

2.                                       Indemnification.  To the extent
permitted by law, applicable statutes and the Bylaws or resolutions of the Bank
in effect from time to time, the Bank shall indemnify Executive against
liability or loss arising out of Executive’s actual or asserted misfeasance or
non-feasance in the performance of Executive’s duties or out of any actual or
asserted wrongful act against, or by, the Bank including but not limited to
judgments, fines, settlements and legal and other expenses incurred in the
defense of actions, proceedings and appeals therefrom.  However, the Bank shall have no duty to
indemnify Executive with respect to any claim, issue or matter as to which
Executive has been adjudged to be liable to the Bank in the performance of his
duties, unless and only to the extent that the court in which such action was
brought shall determine upon application that, in view of all of the
circumstances of the case, Executive is

 5
 

fairly and reasonably entitled to indemnification for
the expenses which such court shall determine. 
The Bank shall endeavor to apply for and obtain Directors and Officers
Liability Insurance to indemnify and insure the Bank and Executive from and against
the aforesaid liabilities.  The
provisions of this paragraph shall apply to the estate, executor,
administrator, heirs, legatees or devisees of Executive.  The obligations of the Bank under this Subparagraph
G.2 shall continue through and after the Term of this Agreement.

3.                                       Return of Documents.  Executive
expressly agrees that all manuals, documents, files, reports, studies,
instruments or other materials used and/or developed by Executive during the
Term are solely the property of the Bank, and that Executive has no right,
title or interest therein.  Upon
termination of this Agreement, Executive or Executive’s representative shall
promptly deliver possession of all of said property to the Bank in good
condition.

4.                                       Non-solicitation.  During the
Term and for a period of one year thereafter, Executive shall not, directly or
indirectly, engage or participate in the solicitation or any attempt to solicit
employees of the Bank to work for any person, firm or business.

5.                                       Controlling Law.  This Agreement
is to be governed by and construed in accordance with the laws of the United
States and, to the extent not inconsistent therewith, the laws of the State of
California.

6.                                       Invalid Provisions.  Should any
provision of this Agreement for any reason be declared invalid, void, or
unenforceable by a court of competent jurisdiction, the validity and binding
effect of any remaining portion shall not be affected, and the remaining
portions of this Agreement shall remain in full force and effect as if this
Agreement had been executed with said provision eliminated.

7.                                       Entire Agreement.  This Agreement
contains the entire agreement of the parties. 
It supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Executive by the
Bank.  Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement,
or promise not contained in this Agreement shall be valid or binding.  This Agreement may not be modified or amended
by oral agreement, but only by an agreement in writing signed by both the Bank
and Executive.

8.                                       Notice.  For the purposes
of this Agreement, notices, demands and all other communications provided for
in this Agreement shall be in writing and shall be personally delivered or
(unless otherwise specified) mailed by United States mail, or sent by facsimile,
provided that the facsimile cover sheet contains a notation of the date and
time of transmission, and shall be deemed received:  (i) if personally delivered, upon the date of
delivery to the address of the person to receive such notice, (ii) if mailed in
accordance with the provisions of this Subparagraph G.8, three (3) business
days after the date placed in the United States mail, or (iii) if given by
facsimile, when sent.  Notices shall be
addressed to the Bank at its main office and to Executive at the address then
maintained by the Bank in its records for Executive, or to such other
respective addresses as the parties hereto shall designate to the other by like
notice.

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9.                                       Arbitration. 
Any
dispute or controversy arising under or in connection with this Agreement, the
inception or termination of the Executive’s employment, or any alleged
discrimination or statutory or tort claim related to such employment, including
issues raised regarding the Agreement’s formation, interpretation or breach,
shall be settled exclusively by binding arbitration in Los Angeles, California
in accordance with the National Rules for the Resolution of Employment Disputes
of the American Arbitration Association (“AAA”).  Without limiting the foregoing, the following
potential claims by the Executive could be subject to arbitration under the
Arbitration Agreement:  claims for wages
or other compensation due; claims for breach of any contract or covenant
(express or implied) under which the Executive believes he would be entitled to
compensation or benefits; tort claims related to such employment; claims for
discrimination and harassment (including, but not limited to, race, sex,
religion, national origin, age, marital status or medical condition,
disability, sexual orientation, or any other characteristic protected by
federal, state or local law); claims for benefits (except where an employee
benefit or pension plan specifies that its claims procedure shall culminate in
an arbitration or other procedure different from this one); and claims for
violation of any public policy, federal, state or other governmental law,
statute, regulation or ordinance.  The
arbitration will be conducted in Los Angeles County.  The arbitration shall provide for written
discovery and depositions adequate to give the parties access to documents and
witnesses that are essential to the dispute. 
The arbitrator shall have no authority to add to or to modify this
Agreement, shall apply all applicable law, and shall have no lesser and no
greater remedial authority than would a court of law resolving the same claim
or controversy.  The arbitrator shall
issue a written decision that includes the essential findings and conclusions
upon which the decision is based, which shall be signed and dated.  Executive and the Bank shall each bear his or
its own costs and attorneys’ fees incurred in conducting the arbitration and,
except in such disputes where Executive assets a claim otherwise under a state
or federal statute prohibiting discrimination in employment (“a Statutory Claim”),
or unless required otherwise by applicable law, shall split equally the fees
and administrative costs charged by the arbitrator and AAA.  In disputes where Executive asserts a
Statutory Claim against the Bank, Executive shall be required to pay only the
AAA filing fee to the extent such filing fee does not exceed the fee to file a
complaint in state or federal court. 
Executive shall pay the balance of the arbitrator’s fees and
administrative costs.  Judgment may be
entered on the arbitrator’s award in any court having jurisdiction.

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

	
  

  	
   

  	
  BANK OF MANHATTAN, N.A. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jeffrey
  M. Watson

  (“Executive”)

  	
   

  	
   

  
						

 

 8

WAIVER AND RELEASE
AGREEMENT

This Waiver and Release Agreement (the “Waiver Agreement”) is entered into by and between Jeffrey M.
Watson (“Employee”) and Bank of
Manhattan, N.A. on its behalf and on behalf of its parents, subsidiaries,
affiliates and successors-in-interest (collectively, the “Bank”).

RECITALS

A.            Employee and the
Bank have entered into an Employment Agreement dated as of                       ,
        (the “Agreement”).

B.            A condition
precedent to certain of Bank’s obligations under the Agreement is the execution
of this Waiver Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties, intending to be legally bound, agree and covenant as follows:

RELEASE

In consideration for the payment of severance and other compensation
under the Agreement, Employee agrees unconditionally and forever to release and
discharge the Bank its parents, subsidiaries, affiliates,
successors-in-interest, and their respective officers, directors, managers,
employees, members, shareholders, representatives, attorneys, agents and
assigns from any and all claims, actions, causes of action, demands, rights or
damages of any kind or nature which Employee may now have, or ever have,
whether known or unknown, that arise out of or in any way relate to Employee’s
employment with, or separation from, the Bank on or before the date of
execution of this Waiver Agreement. 
Employee also confirms his resignation as a director, officer and
employee of the Bank and any corporation, partnership, venture, limited
liability company or other entity controlled by, controlling or under common
control with the Bank.

This release specifically includes, but is not limited to, any claims
for discrimination and/or violation of any statutes, rules, regulations or
ordinances, whether federal, state or local, including, but not limited to,
Title VII of the Civil Rights Act of 1964, as amended, age claims under the Age
Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefits Protection Act of 1990, the Employee Retirement Income Security Act of
1974, as amended, the California Fair Employment and Housing Act, the
California Labor Code, the Equal Pay Act, the Americans With Disabilities Act,
the Rehabilitation Act of 1973, the Racketeer Influenced and Corrupt
Organizations Act, the Financial Reform Recovery and Enforcement Act of 1989,
and/or Section 1981 of Title 42 of the United State Code.

Employee further agrees knowingly to waive the provisions and
protections of Section 1542 of the California Civil Code, which reads:

Attachment A

A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which, if known by him, must have materially affected
his settlement with the debtor.

REPRESENTATIONS OF
EMPLOYEE

Employee represents and agrees that, prior to the execution of this Waiver
Agreement, Employee has had the opportunity to discuss the terms of this Waiver
Agreement with legal counsel of Employee’s choosing.

Employee affirms that no promise or inducement was made to cause
Employee to enter into this Waiver Agreement other than the inducements
provided in the Agreement.  Employee
further confirms that Employee has not relied upon any other statement or
representation by anyone other than what is in this Waiver Agreement as a basis
for Employee’s agreement.

MISCELLANEOUS

Except for the Agreement and any other employee benefit plans expressly
referred to in the Agreement as continuing following Employee’s termination of
employment with the Bank, this Waiver Agreement sets forth the entire agreement
between Employee and the Bank, and shall be binding on both party’s heirs,
representatives and successors.  This
Waiver Agreement shall be construed under the laws of the State of California,
both procedurally and substantively.  If
any portion of this Waiver Agreement is found to be illegal or unenforceable,
such action shall not affect the validity or enforceability of the remaining
paragraphs or subparagraphs of this Waiver Agreement.

Employee acknowledges that Employee has been advised that Employee has
twenty-one (21) days to consider this Waiver Agreement, and that Employee was
informed that Employee has the right to consult with counsel regarding this
Waiver Agreement.  To the extent Employee
has taken less than twenty-one (21) days to consider this Waiver Agreement,
Employee acknowledges that Employee has had sufficient time to consider the
Waiver Agreement and to consult with counsel, and that Employee does not desire
additional time.

This Waiver Agreement is revocable by Employee for a period of seven
(7) days following Employee’s execution of this Waiver Agreement. The
revocation by Employee of this Waiver Agreement must be in writing, must
specifically revoke this Waiver Agreement and must be received by the Bank
prior to the eighth (8th) day following the execution of this Waiver Agreement
by Employee.  This Waiver Agreement
becomes effective, enforceable and irrevocable on the eighth (8th) day
following Employee’s execution of the Waiver Agreement.  No payment will be made to the undersigned
until such date.

The undersigned agree to the terms of this Waiver Agreement and
voluntarily enters into it with the intent to be bound hereby.

 

	
  DATED:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Jeffrey M. Watson

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Bank of Manhattan, N.A.

  	
   

  
	
  DATED:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:Exhibit 4.1

  Execution Version
 

 

 

$750,000,000

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

Among

EDGE
PETROLEUM CORPORATION

as Borrower,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

and

UNION BANK OF CALIFORNIA, N.A.

as Administrative
Agent and as Issuing Lender

January 31, 2007

 

 

 

 

   
 
  
  
 UNION BANK OF CALIFORNIA, N.A.
 as Sole Book Runner and Lead Arranger

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I

  	
  DEFINITIONS AND ACCOUNTING TERMS

  	
   

  	
  2

  
	
  Section 1.01

  	
   

  	
  Certain Defined Terms

  	
   

  	
  2

  
	
  Section 1.02

  	
   

  	
  Accounting Terms; Changes in GAAP

  	
   

  	
  19

  
	
  Section 1.03

  	
   

  	
  Types

  	
   

  	
  20

  
	
  Section 1.04

  	
   

  	
  Miscellaneous

  	
   

  	
  20

  
	
  ARTICLE II

  	
  CREDIT FACILITIES

  	
   

  	
  21

  
	
  Section 2.01

  	
   

  	
  Commitments

  	
   

  	
  21

  
	
  Section 2.02

  	
   

  	
  Borrowing Base

  	
   

  	
  21

  
	
  Section 2.03

  	
   

  	
  Method of Borrowing

  	
   

  	
  24

  
	
  Section 2.04

  	
   

  	
  Commitments

  	
   

  	
  27

  
	
  Section 2.05

  	
   

  	
  Prepayment of Advances

  	
   

  	
  27

  
	
  Section 2.06

  	
   

  	
  Repayment of Advances

  	
   

  	
  29

  
	
  Section 2.07

  	
   

  	
  Letters of Credit

  	
   

  	
  29

  
	
  Section 2.08

  	
   

  	
  Fees

  	
   

  	
  34

  
	
  Section 2.09

  	
   

  	
  Interest

  	
   

  	
  34

  
	
  Section 2.10

  	
   

  	
  Payments and Computations

  	
   

  	
  36

  
	
  Section 2.11

  	
   

  	
  Sharing of Payments, Etc

  	
   

  	
  37

  
	
  Section 2.12

  	
   

  	
  Breakage Costs

  	
   

  	
  37

  
	
  Section 2.13

  	
   

  	
  Increased Costs

  	
   

  	
  38

  
	
  Section 2.14

  	
   

  	
  Taxes

  	
   

  	
  39

  
	
  Section 2.15

  	
   

  	
  Mitigation Obligations; Replacement of Lenders

  	
   

  	
  41

  
	
  Section 2.16

  	
   

  	
  Extension of Maturity Date

  	
   

  	
   

  
	
  ARTICLE III

  	
  CONDITIONS PRECEDENT

  	
   

  	
  42

  
	
  Section 3.01

  	
   

  	
  Conditions Precedent to Effectiveness

  	
   

  	
  42

  
	
  Section 3.02

  	
   

  	
  Conditions Precedent to All Borrowings

  	
   

  	
  46

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  46

  
	
  Section 4.01

  	
   

  	
  Existence; Subsidiaries

  	
   

  	
  46

  
	
  Section 4.02

  	
   

  	
  Power

  	
   

  	
  46

  
	
  Section 4.03

  	
   

  	
  Authorization and Approvals

  	
   

  	
  47

  
	
  Section 4.04

  	
   

  	
  Enforceable Obligations

  	
   

  	
  47

  
						

 

 

	
  Section 4.05

  	
   

  	
  Financial Statements

  	
   

  	
  47

  
	
  Section 4.06

  	
   

  	
  True and Complete Disclosure

  	
   

  	
  48

  
	
  Section 4.07

  	
   

  	
  Litigation; Compliance with Laws

  	
   

  	
  48

  
	
  Section 4.08

  	
   

  	
  Use of Proceeds

  	
   

  	
  49

  
	
  Section 4.09

  	
   

  	
  Investment Company Act

  	
   

  	
  49

  
	
  Section 4.10

  	
   

  	
  Holding Company Act

  	
   

  	
  49

  
	
  Section 4.11

  	
   

  	
  Taxes

  	
   

  	
  49

  
	
  Section 4.12

  	
   

  	
  Pension Plans

  	
   

  	
  50

  
	
  Section 4.13

  	
   

  	
  Condition of Property; Casualties

  	
   

  	
  50

  
	
  Section 4.14

  	
   

  	
  No Burdensome Restrictions; No Defaults

  	
   

  	
  51

  
	
  Section 4.15

  	
   

  	
  Environmental Condition

  	
   

  	
  51

  
	
  Section 4.16

  	
   

  	
  Permits, Licenses, Etc

  	
   

  	
  52

  
	
  Section 4.17

  	
   

  	
  Gas Contracts

  	
   

  	
  52

  
	
  Section 4.18

  	
   

  	
  Liens; Titles, Leases, Etc

  	
   

  	
  52

  
	
  Section 4.19

  	
   

  	
  Solvency and Insurance

  	
   

  	
  52

  
	
  Section 4.20

  	
   

  	
  Hedging Agreements

  	
   

  	
  52

  
	
  Section 4.21

  	
   

  	
  Material Agreements

  	
   

  	
  53

  
	
  ARTICLE V

  	
  AFFIRMATIVE COVENANTS

  	
   

  	
  53

  
	
  Section 5.01

  	
   

  	
  Compliance with Laws, Etc

  	
   

  	
  53

  
	
  Section 5.02

  	
   

  	
  Maintenance of Insurance

  	
   

  	
  54

  
	
  Section 5.03

  	
   

  	
  Preservation of Corporate Existence, Etc

  	
   

  	
  55

  
	
  Section 5.04

  	
   

  	
  Payment of Taxes, Etc

  	
   

  	
  55

  
	
  Section 5.05

  	
   

  	
  Visitation Rights

  	
   

  	
  55

  
	
  Section 5.06

  	
   

  	
  Reporting Requirements

  	
   

  	
  56

  
	
  Section 5.07

  	
   

  	
  Maintenance of Property

  	
   

  	
  60

  
	
  Section 5.08

  	
   

  	
  Agreement to Pledge

  	
   

  	
  60

  
	
  Section 5.09

  	
   

  	
  Use of Proceeds

  	
   

  	
  60

  
	
  Section 5.10

  	
   

  	
  Title

  	
   

  	
  60

  
	
  Section 5.11

  	
   

  	
  Further Assurances; Cure of Title Defects

  	
   

  	
  60

  
	
  Section 5.12

  	
   

  	
  Notice Regarding Early Termination of Hedge
  Contracts

  	
   

  	
  61

  
	
  Section 5.13

  	
   

  	
  Required Hedge Contracts

  	
   

  	
   

  
	
  ARTICLE VI

  	
  NEGATIVE COVENANTS

  	
   

  	
  61

  
	
  Section 6.01

  	
   

  	
  Liens, Etc

  	
   

  	
  61

  

 

 ii
 

 

	
  Section 6.02

  	
   

  	
  Debts, Guaranties, and Other Obligations

  	
   

  	
  63

  
	
  Section 6.03

  	
   

  	
  Agreements Restricting Liens and Distributions

  	
   

  	
  63

  
	
  Section 6.04

  	
   

  	
  Merger or Consolidation; Asset Sales

  	
   

  	
  64

  
	
  Section 6.05

  	
   

  	
  Restricted Payments

  	
   

  	
  64

  
	
  Section 6.06

  	
   

  	
  Investments

  	
   

  	
  65

  
	
  Section 6.07

  	
   

  	
  Affiliate Transactions

  	
   

  	
  66

  
	
  Section 6.08

  	
   

  	
  Compliance with ERISA

  	
   

  	
  66

  
	
  Section 6.09

  	
   

  	
  Sale-and-Leaseback

  	
   

  	
  67

  
	
  Section 6.10

  	
   

  	
  Change of Business

  	
   

  	
  67

  
	
  Section 6.11

  	
   

  	
  Organizational Documents, Name Change

  	
   

  	
  67

  
	
  Section 6.12

  	
   

  	
  Use of Proceeds; Letters of Credit

  	
   

  	
  67

  
	
  Section 6.13

  	
   

  	
  Gas Imbalances, Take-or-Pay or Other Prepayments

  	
   

  	
  67

  
	
  Section 6.14

  	
   

  	
  Limitation on Speculative Hedging

  	
   

  	
  68

  
	
  Section 6.15

  	
   

  	
  Additional Subsidiaries

  	
   

  	
  68

  
	
  Section 6.16

  	
   

  	
  Account Payables

  	
   

  	
  68

  
	
  Section 6.17

  	
   

  	
  Leverage Ratio

  	
   

  	
  68

  
	
  Section 6.18

  	
   

  	
  Working Capital Ratio

  	
   

  	
  69

  
	
  Section 6.19

  	
   

  	
  Property Value Ratio

  	
   

  	
  69

  
	
  ARTICLE VII

  	
  EVENTS OF DEFAULT; REMEDIES

  	
   

  	
  69

  
	
  Section 7.01

  	
   

  	
  Events of Default

  	
   

  	
  69

  
	
  Section 7.02

  	
   

  	
  Optional Acceleration of Maturity

  	
   

  	
  72

  
	
  Section 7.03

  	
   

  	
  Automatic Acceleration of Maturity

  	
   

  	
  72

  
	
  Section 7.04

  	
   

  	
  Right of Set-off

  	
   

  	
  73

  
	
  Section 7.05

  	
   

  	
  Non-exclusivity of Remedies

  	
   

  	
  73

  
	
  Section 7.06

  	
   

  	
  Application of Proceeds

  	
   

  	
  73

  
	
  ARTICLE VIII

  	
  THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

  	
   

  	
  74

  
	
  Section 8.01

  	
   

  	
  Appointment and Authority

  	
   

  	
  74

  
	
  Section 8.02

  	
   

  	
  Rights as a Lender

  	
   

  	
  74

  
	
  Section 8.03

  	
   

  	
  Exculpatory Provisions

  	
   

  	
  74

  
	
  Section 8.04

  	
   

  	
  Administrative Agent’s Reliance, Etc

  	
   

  	
  75

  
	
  Section 8.05

  	
   

  	
  Delegation of Duties

  	
   

  	
  75

  
	
  Section 8.06

  	
   

  	
  Lender Credit Decision

  	
   

  	
  75

  
	
  Section 8.07

  	
   

  	
  Indemnification

  	
   

  	
  76

  

 

 iii
 

 

	
  Section 8.08

  	
   

  	
  Successor Administrative Agent and Issuing Lender

  	
   

  	
  76

  
	
  Section 8.09

  	
   

  	
  Collateral Matters

  	
   

  	
  77

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
   

  	
  78

  
	
  Section 9.01

  	
   

  	
  Amendments, Etc

  	
   

  	
  78

  
	
  Section 9.02

  	
   

  	
  Notices; Effectiveness; Electronic Communication

  	
   

  	
  78

  
	
  Section 9.03

  	
   

  	
  Expenses; Indemnity; Damage Waiver

  	
   

  	
  79

  
	
  Section 9.04

  	
   

  	
  No Waiver; Remedies

  	
   

  	
  81

  
	
  Section 9.05

  	
   

  	
  Lender Assignments and Participations

  	
   

  	
  81

  
	
  Section 9.06

  	
   

  	
  Survival of Representations, Etc

  	
   

  	
  83

  
	
  Section 9.07

  	
   

  	
  Counterparts; Integration; Effectiveness

  	
   

  	
  83

  
	
  Section 9.08

  	
   

  	
  Successors and Assigns Generally

  	
   

  	
  84

  
	
  Section 9.09

  	
   

  	
  Electronic Execution of Assignments

  	
   

  	
  84

  
	
  Section 9.10

  	
   

  	
  Treatment of Certain Information; Confidentiality

  	
   

  	
  84

  
	
  Section 9.11

  	
   

  	
  Business Loans

  	
   

  	
  85

  
	
  Section 9.12

  	
   

  	
  Usury Not Intended

  	
   

  	
  85

  
	
  Section 9.13

  	
   

  	
  Payments Set Aside

  	
   

  	
  86

  
	
  Section 9.14

  	
   

  	
  Governing Law; Submission to Jurisdiction

  	
   

  	
  86

  
	
  Section 9.15

  	
   

  	
  USA Patriot Act

  	
   

  	
  87

  
	
  Section 9.16

  	
   

  	
  Restatement

  	
   

  	
  87

  
	
  Section 9.17

  	
   

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  87

  
	
  Section 9.18

  	
   

  	
  ORAL AGREEMENTS

  	
   

  	
  88

  

 

 

	
  EXHIBITS:

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  —

  	
  Form of Assignment and Assumption

  	
   

  	
   

  
	
  Exhibit B

  	
  —

  	
  Form of Compliance Certificate

  	
   

  	
   

  
	
  Exhibit C

  	
  —

  	
  Form of Guaranty

  	
   

  	
   

  
	
  Exhibit D

  	
  —

  	
  Form of Mortgage

  	
   

  	
   

  
	
  Exhibit E

  	
  —

  	
  Form of Note

  	
   

  	
   

  
	
  Exhibit F

  	
  —

  	
  Form of Notice of Borrowing

  	
   

  	
   

  
	
  Exhibit G

  	
  —

  	
  Form of Notice of Conversion or Continuation

  	
   

  	
   

  
	
  Exhibit H

  	
  —

  	
  Form of Security Agreement

  	
   

  	
   

  
	
  Exhibit I

  	
  —

  	
  Form of Transfer Letters

  	
   

  	
   

  
	
  Exhibit J

  	
  —

  	
  Form of Borrower’s Counsel Opinion

  	
   

  	
   

  

 

 iv
 

 

SCHEDULES:

 

	
  

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule I

  	
   

  	
  —

  	
   

  	
  Pricing Information

  
	
  Schedule II

  	
   

  	
  —

  	
   

  	
  Notice Information and Commitments

  
	
  Schedule 4.01

  	
   

  	
  —

  	
   

  	
  Existing Subsidiaries

  
	
  Schedule 4.05

  	
   

  	
  —

  	
   

  	
  Existing Debt

  
	
  Schedule 4.07

  	
   

  	
   

  	
   

  	
  Litigation

  
	
  Schedule 4.14

  	
   

  	
   

  	
   

  	
  Certain Environmental Matters

  
	
  Schedule 4.16

  	
   

  	
   

  	
   

  	
  Gas Contracts

  
	
  Schedule 4.19

  	
   

  	
  —

  	
   

  	
  Existing Hedging Agreements

  
	
  Schedule 4.20

  	
   

  	
  —

  	
   

  	
  Material Debt Agreements

  
	
  Schedule 4.21

  	
   

  	
  —

  	
   

  	
  Refunds

  
	
  Schedule 6.01

  	
   

  	
   

  	
   

  	
  Existing Liens

  
	
  Schedule 6.07

  	
   

  	
   

  	
   

  	
  Affiliate Transactions

  

 

 v

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

This Fourth Amended and Restated Credit Agreement
dated as of January 31, 2007 is among Edge Petroleum Corporation, a Delaware
corporation (“Borrower”), the Lenders (as defined below), and Union Bank
of California, N.A., as Administrative Agent and as Issuing Lender (as each
such terms are defined below).

RECITALS

A.            The
Borrower, the Administrative Agent, the Issuing Lender, and certain of the
Lenders are party to that certain Third Amended and Restated Credit Agreement
dated as of  December 31, 2003, among the
Borrower, Edge Petroleum Exploration Company, Edge Petroleum Operating Company,
Inc., Miller Oil Corporation, Miller Exploration Company, Union Bank of
California, N.A., as Agent (as defined therein and in such capacity, the “Existing
Administrative Agent”), and the lenders party thereto from time to time (“Existing
Lenders”), as amended by the Agreement and Amendment No. 1 to Third Amended
and Restated Credit Agreement dated as of May 31, 2005 and the Agreement,
Consent and Amendment to No. 2 to Third Amended and Restated Credit Agreement
dated as of November 3, 2005 (as so amended, the “Existing Agreement”).

B.            In
order to secure the full and punctual payment and performance of the
obligations under the Existing Agreement, the Borrower, Edge Petroleum
Exploration Company, Edge Petroleum Operating Company, Inc., Miller Oil
Corporation, Miller Exploration Company, and the Guarantors (as defined in the
Existing Agreement) have executed and delivered mortgages, deeds of trust,
collateral assignments, security agreements, pledge agreements and financing
statements in favor of the Existing Administrative Agent (or in favor of any
predecessors in such capacity) (collectively, the “Existing Security
Documents”) granting a mortgage lien and continuing security interest in
and to the collateral described in such Existing Security Documents.

C.            The
Borrower, the Administrative Agent, the Issuing Lender, and certain of the
Existing Lenders together with the other Lenders party hereto desire to (i)
amend and restate (but not extinguish) the
Existing Agreement in its entirety as hereinafter set forth through the
execution of this Agreement and (ii) have the obligations of the Borrower
hereunder continue to be secured by the liens and security interests created
under the Existing Security Documents.

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

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

 1
 

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

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

“Acceptable Security
Interest” in any Property means a Lien which (a) exists in favor of
the Administrative Agent for the benefit of the Administrative Agent, the
Issuing Lender, the Lenders, and any Swap Counterparty, (b) is superior to
all Liens or rights of any other Person in the Property encumbered thereby,
other than Permitted Liens, (c) secures the Obligations, and (d) is
perfected and enforceable.

“Acquisition”
means the purchase by the Borrower or any of its Subsidiaries of any business,
including the purchase of associated assets or operations or Equity Interest of
a Person.

“Acquisition
Instruments” means, collectively, the Smith Purchase and Sale Agreements
and all other documents executed and delivered by the Sellers, the Borrower and
Edge Petroleum Production Company in connection with the Smith Acquisition.

“Adjusted Reference
Rate” means, for any day, the fluctuating rate per annum of interest equal
to the greater of (a) the Reference Rate in effect on such day and
(b) the Federal Funds Rate in effect on such day plus 1¤2
of 1%.

“Administrative Agent”
means Union Bank of California, N.A., in its capacity as agent pursuant to
Article VIII, and any successor agent pursuant to Section 8.08.

“Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied by
the Administrative Agent or such other form provided by a Lender and acceptable
to the Administrative Agent.

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

“Affiliate” means,
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.

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

“Applicable Margin”
means:

(a) with respect to any
Advance, (i) during such times as any Event of Default exists, 2.00% per annum
plus the rate per annum set forth in the Pricing Grid for the relevant Type of
such Advance based on the present Utilization Level applicable from time to
time and (ii) at all other times, the rate per annum set forth in the Pricing
Grid for the relevant Type of such Advance based on the relevant Utilization
Level applicable from time to time;

 2
 

(b) with respect to the
Letter of Credit fees required under Section 2.08(b), the per annum rate for
Letter of Credit fees set forth in the Pricing Grid based on the relevant
Utilization Level applicable from time to time; and

(c) with respect to the
unused Commitment fees required under Section 2.08(a), the per annum rate set
forth for Commitment fees in the Pricing Grid based on the relevant Utilization
Level applicable from time to time.

The Applicable
Margin shall change when and as the relevant Utilization Level changes and, if
applicable, when and as any such Event of Default commences or terminates.

“Approved Fund”
means any Fund 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.

“Assignment and
Assumption” means an assignment and assumption entered into by a Lender and
an Eligible Assignee, and accepted by the Administrative Agent, in
substantially the form of Exhibit A or any other form approved by the
Administrative Agent.

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

“Borrowing” means,
subject to Section 2.03(c)(ii), a borrowing consisting of simultaneous Advances
of the same Type and made by each Lender pursuant to Section 2.03(a) or
Section 2.07(d), continued by each Lender pursuant to Section 2.03(b) or
Converted by each Lender to Advances of a different Type pursuant to
Section 2.03(b).

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

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

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

“Cash Collateral
Account” means a special interest bearing cash collateral account pledged
by the Borrower to the Issuing Lender containing cash deposited pursuant to 

 3
 

Sections 2.05(b),
7.02(b), or 7.03(b) to be maintained with the Issuing Lender in accordance with
Section 2.07(g)(i) and bear interest or be invested in the Issuing Lender’s
reasonable discretion.

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

“Change of Control”
means any of the following events: (a) any “person” or “group” (within the
meaning of Section 13(d) or 14(d) of the Exchange Act has become, directly or
indirectly, the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have “beneficial
ownership” of all such shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, by way of merger, consolidation or otherwise), of a majority or more of
the common stock of Borrower on a fully-diluted basis, after giving effect to
the conversion and exercise of all outstanding warrants, options and other
securities of the Borrower (whether or not such securities are then currently
convertible or exercisable), (b) during any period of two consecutive
calendar quarters, individuals who at the beginning of such period were members
of the Borrower’s board of directors cease for any reason to constitute a
majority of the directors of the Borrower then in office unless (i) such new
directors were elected by a majority of the directors of the Borrower who
constituted the board of directors of the Borrower at the beginning of such
period (or by directors so elected) or (ii) the reason for such directors
failing to constitute a majority is a result of retirement by directors due to
age, death or disability, or (c) Borrower ceases to own directly or indirectly
all of the Equity Interests of each of its Subsidiaries.

“Change in Law”
means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation
or treaty, (b) any change in any law, rule, regulation or treaty or in the
administration, interpretation or application thereof by any Governmental
Authority, or (c) the making or issuance of any request, guideline or
directive (whether or not having the force of law) by any Governmental
Authority.

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

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

“Commitment”
means, for any Lender, the amount set opposite such Lender’s name on Schedule
II as its Commitment, or if such Lender has entered into any Assignment and
Assumption, as set forth for such Lender as its Commitment in the Register
maintained by the Administrative Agent pursuant to Section 9.05(b), as such
amount may be reduced or terminated pursuant to Section 2.04 or Article VII or
otherwise under this Agreement.

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

 4
 

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

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

“Control” means
the possession, directly or indirectly, of the power to (a) vote 10% or more of
the securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners or other equivalent
governing body; or (b) 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.  “Controlling”
and “Controlled” have meanings correlative thereto.

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

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

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

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

“Debt” for any
Person, means without duplication:

(a)            the principal amount of indebtedness
of such Person for borrowed money;

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

(c)            obligations of such Person to pay
the deferred purchase price of Property or services (including obligations that
are non-recourse to the credit of such Person but are secured by the assets of
such Person);

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

 5
 

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

(f)            obligations of such Person under any
Hedge Contract (after giving effect to any netting agreements) that would be
required to be paid by such Person if such Hedging Contracts were terminated at
the date of determination;

(g)           cash redemption obligations of such
Person owing in respect of redeemable preferred stock or other preferred equity
interest of such Person which is subject to redemption (other than at the sole
option of such Person) at any time prior to one year after the Maturity Date;

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

(i)             any other obligations that
(i) would under GAAP be shown on such Person’s balance sheet as a
liability and (ii) are payable more than one year from the date of creation
thereof (other than reserves for taxes, deferred compensation liabilities and
other deferred liabilities and credits and reserves for contingent
obligations);

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

(k)            indebtedness or obligations of
others of the kinds referred to in clauses (a) through (j) secured by
any Lien on or in respect of any Property of such Person; provided that, for
purposes of determining the amount of Debt of the type described in this clause
(k), if recourse with respect to such Debt is limited to such asset, the amount
of such Debt shall be limited to the lesser of (i) the greater of (A) the book
value of such asset, or (B) the fair market value of such asset, and (ii) the
amount of such Debt; and

(l)             all liabilities of such Person in
respect of unfunded vested benefits under any Plan;

provided,
however, that the “Debt” of any Person shall not include Debt that is
incurred by such Person on ordinary trade terms to vendors, suppliers, or other
Persons providing goods and services for use by such Person in the ordinary
course of its business, unless and until such Debt is outstanding more than 90 days
past the original invoice or billing date thereof (except in cases where such
amount is being disputed in good faith and adequate reserves under GAAP have
been established).

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

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

 6
 

“EBITDAX” means
with respect to the Borrower and its consolidated Subsidiaries, for any period,
without duplication, the sum of (a) consolidated Net Income for such
period plus (b) to the extent deducted in determining consolidated
Net Income, Interest Expense, taxes, exploration expenses, depreciation,
amortization, depletion, oil and gas asset impairment write-downs, lease
impairment expense, and other non-cash charges (including any provision for the
reduction in the carrying value of assets recorded in accordance with GAAP and
including non-cash charges resulting from the requirements of SFAS 133 or 143)
for such period minus (c) all non-cash items of income which were
included in determining such consolidated Net Income (including non-cash income
resulting from the requirements of SFAS 133 or 143).

“Effective Date”
means January 31, 2007.

“Eligible Assignee”
means (a) a Lender, (b) an Affiliate of a Lender, (c) an
Approved Fund, and (d) any other Person (other than a natural person)
approved by (i) the Administrative Agent and the Issuing Lender, and
(ii) unless an Event of Default has occurred and is continuing, the
Borrower (each such approval not to be unreasonably withheld or delayed);
provided that notwithstanding the foregoing, “Eligible Assignee” shall not
include the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

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

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

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

“Environmental Law”
means, as to the Borrower or its Subsidiaries, all Legal Requirements or common
law theories applicable to the Borrower or its Subsidiaries arising from,
relating to, or in connection with the Environment, health, or safety,
including CERCLA, relating to (a) pollution, contamination, injury,
destruction, loss, protection, cleanup, reclamation or restoration of the air,
surface water, groundwater, land surface or subsurface strata, or other natural
resources; (b) solid, gaseous or liquid waste generation, treatment,
processing, recycling, reclamation, cleanup, storage, disposal or
transportation; (c) exposure to pollutants, contaminants, hazardous, or
toxic substances, materials or wastes; (d) the safety or health of
employees; or (e) the manufacture, processing, handling, transportation,
distribution in commerce, use, storage or disposal of hazardous, or toxic
substances, materials or wastes.

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

 7
 

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

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

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

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

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

“Eurodollar Rate
Reserve Percentage” of any Lender for the Interest Period for any
Eurodollar Rate Advance means the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be so applicable,
the daily average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under regulations
issued from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental, or other
marginal reserve requirement) for such Lender with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term equal
to such Interest Period.

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

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Excluded Taxes”
means, with respect to the Administrative Agent, any Lender, the Issuing Lender
or any other recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) taxes imposed on or measured by
its overall net income (however denominated), and franchise taxes imposed on it
(in lieu of net income taxes), by the jurisdiction (or any political
subdivision thereof) 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 is located 

 8
 

and (c) in
the case of a Foreign Lender (other than an assignee pursuant to a request by
the Borrower under Section 2.15), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes
a party hereto (or designates a new lending office) or is attributable to such
Foreign Lender’s failure or inability (other than as a result of a Change in
Law) to comply with Section 2.14(e) and Section 2.14(f), 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 from the Borrower with respect to such withholding tax pursuant to
Section 2.14(a).

“Existing Letters of
Credit” means the letters of credit issued and outstanding under the
Existing Agreement.

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

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

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

“Fee Letter” means
that certain fee letter dated as of January 31, 2007 between the Borrower and
Union Bank of California, N.A.

“Financial Statements”
means a pro forma balance sheet of the Borrower and its consolidated
Subsidiaries as of the Effective Date and after giving effect to the
consummation of the Smith Acquisition and referred to in Section 4.05, copies
of which have been delivered to the Administrative Agent and the Lenders.

“Foreign Lender”
means any Lender that is organized under the laws of a jurisdiction other than
that in which the Borrower is resident for tax purposes.  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.

“Fund” means any
Person (other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar
extensions of credit in the ordinary course of its business.

“GAAP” means
United States generally accepted accounting principles as in effect from time
to time, applied on a basis consistent with the requirements of Section 1.02.

 9
 

“Governmental Authority”
means the government of the United States of America or any other nation, or of
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 (including
any supra-national bodies such as the European Union or the European Central
Bank).

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

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

“Hazardous Substance”
means the substances identified as such pursuant to CERCLA and those regulated
under any other Environmental Law, including pollutants, contaminants,
petroleum, petroleum products, radionuclides, radioactive materials, and
medical and infectious waste.

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

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

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

“Hydrocarbons”
means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, and all other liquid and gaseous hydrocarbons produced
or to be produced in conjunction therewith from a well bore and all products,
by-products, and other substances derived therefrom or the processing thereof,
and all other minerals and substances produced in conjunction with such
substances, including sulfur, geothermal steam, water, carbon dioxide, helium,
and any and all minerals, ores, or substances of value and the products and
proceeds therefrom.

 10

“Indemnified Taxes”
means Taxes other than Excluded Taxes.

“Independent Engineer”
means Ryder Scott, W. D. Von Gonten & Co., or any other engineering firm
reasonably acceptable to the Administrative Agent.

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

“Interest Expense”
means, for the Borrower and its consolidated Subsidiaries for any period, total
interest, letter of credit fees, and other fees and expenses accrued in
connection with any Debt during such period (whether expensed in such period or
capitalized), including all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers’ acceptance financing,
imputed interest under Capital Leases, fees owed with respect to the
Obligations, and net costs under Hedge Contracts, all as determined in
conformity with GAAP.

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

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

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

 11
 

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

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

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

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

“Investments”
means any investment (including the making of an Acquisition), made directly or
indirectly, in any Person, whether by acquisition of shares of capital stock,
indebtedness or other obligations or securities or by loan, advance, capital
contribution or otherwise and whether made in cash, by the transfer of
property, or by any other means.

“Issuing Lender”
means Union Bank of California, N.A., and any successor issuing bank pursuant
to Section 8.08.

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

“Legal Requirement”
means, as to any Person, any law, statute, ordinance, decree, requirement,
order, judgment, rule, regulation (or official interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including Regulations D, T, U, and X, which is
applicable to such Person.

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

 12
 

“Lenders” means
the lenders having a Commitment or if such Commitments have been terminated,
lenders that are owed Advances or that hold a participation in the Letter of
Credit Obligations.

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

“Letter
of Credit” means, individually, any standby letter of credit issued by the
Issuing Lender for the account of an Obligor which is subject to this
Agreement.

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

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

“Letter of Credit
Exposure” means, at any time, the sum of (a) the aggregate undrawn
maximum face amount of each Letter of Credit at such time plus
(b) the aggregate unpaid amount of all Reimbursement Obligations at such
time minus the amount of any cash collateral held by the Administrative
Agent in the Cash Collateral Account at such time.

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

“Lien” means any
mortgage, lien, pledge, assignment, charge, deed of trust, security interest,
hypothecation, preference, deposit arrangement or encumbrance (or other type of
arrangement having the practical effect of the foregoing) to secure or provide
for the payment of any obligation of any Person, whether arising by contract,
operation of law, or otherwise (including the interest of a vendor or lessor
under any conditional sale agreement, synthetic lease, Capital Lease, or other
title retention agreement).

“Liquid Investments”
means:

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

(b)           (i) negotiable or nonnegotiable
certificates of deposit, time deposits, or other similar banking arrangements
maturing within 180 days from the date of acquisition thereof or which may be
liquidated for the full amount thereof without penalty or premium (“bank debt
securities”), issued by (A) any Lender (or any Affiliate of any Lender),
or (B) any other bank or trust company so long as such certificate of
deposit is pledged to secure the Borrower’s or any Subsidiaries’ ordinary
course of business bonding requirements, or any other bank or trust company
which has combined capital and surplus and undivided profit of not less than
$500,000,000.00, if at the time of deposit or purchase, such bank debt securities
are rated at least the third highest credit rating given by either Standard
& Poor’s Ratings Group or Moody’s

 13
 

Investors
Service, Inc., and (ii) commercial paper issued by (A) any Lender (or any
Affiliate of any Lender) or (B) any other Person if at the time of purchase
such commercial paper is rated at the highest or the second highest credit
rating given by either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc., or upon the discontinuance of both of such services, such other
nationally recognized rating service or services, as the case may be, as shall
be selected by the Borrower with the consent of the Required Lenders;

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

(d)           repurchase agreements relating to
investments described in clauses (a) and (b) above with a market value at least
equal to the consideration paid in connection therewith, with any Person who
regularly engages in the business of entering into repurchase agreements and
has a combined capital and surplus and undivided profit of not less than
$500,000,000.00, if at the time of entering into such agreement the debt
securities of such Person are rated at the highest or the second highest credit
rating given by either Standard & Poor’s Ratings Group or Moody’s Investors
Service, Inc.; and

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

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

“Material Adverse
Change” means (a) a material adverse change in the business, assets
(including the Oil and Gas Properties of the Borrower, any Guarantor or any of
their respective Subsidiaries), condition (financial or otherwise), or results
of operations of the Borrower, the Guarantors and their respective
Subsidiaries, taken as a whole, since the Effective Date (but after giving pro
forma effect to the Smith Acquisition); (b) a material adverse change on the
validity or enforceability of this Agreement or any of the other Loan
Documents; or (c) a material adverse effect on the Borrower’s, or any Guarantor’s
or any Subsidiary’s ability to perform its obligations under this Agreement,
any Note, any Guaranty, or any other Loan Document.

“Maturity Date”
means January 31, 2011.

“Maximum Rate”
means the maximum nonusurious interest rate under applicable law (determined
under such laws after giving effect to any items which are required by such
laws to be construed as interest in making such determination, including if
required by such laws, certain fees and other costs).

“Mortgages” means,
collectively, each mortgage or deed of trust executed by any one or more of the
Borrower, a Guarantor or any of their respective Subsidiaries in favor of the
Administrative Agent for the ratable benefit of the Lender Parties and the Swap
Counterparties in substantially the form of the attached Exhibit D or such
other form as may be reasonably

 14
 

requested by the
Administrative Agent, together with any assumptions or assignments of the
obligations thereunder by the Borrower, any Guarantor or any of their
respective Subsidiaries, and “Mortgages” shall mean all of such
Mortgages collectively.

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

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

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

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

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

“Obligations”
means (a) all principal, interest, fees, reimbursements, indemnifications, and
other amounts payable by the Borrower, any Guarantor or any of their respective
Subsidiaries to the Lender Parties under the Loan Documents, including the
Letter of Credit Obligations, and (b) all obligations of the Borrower, any
Guarantor or any of their respective Subsidiaries owing to any Swap
Counterparty under any Hedge Contract (including any such Obligations owing to
such Swap Counterparty under a Hedge Contract entered into before such person became
a Swap Counterparty).

“Obligors” means,
collectively, the Borrower and the Guarantors.

“Oil and Gas
Properties” means fee mineral interests, term mineral interests, Leases,
subleases, farm-outs, royalties, overriding royalties, net profit interests, carried
interests, production payments and similar mineral interests, and all unsevered
and unextracted Hydrocarbons in, under, or attributable to such oil and gas
Properties and interests.

“Other Taxes”
means 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 under any other Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement or any other Loan
Document.

“Overnight Rate”
means, for any day, the greater of (a) the Federal Funds Rate and (b) an
overnight rate determined by the Administrative Agent or the Issuing Lender, as
the case may be, in accordance with banking industry rules on interbank compensation.

 15
 

“Participant” has
the meaning assigned to such term in clause (c) of Section 9.05.

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

“Permit” means any
approval, certificate of occupancy, consent, waiver, exemption, variance,
franchise, order, permit, authorization, right or license of or from any
Governmental Authority, including an Environmental Permit.

“Permitted Liens”
means the Liens permitted to exist pursuant to Section 6.01.

“Person” (whether
or not capitalized) means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, limited
liability partnership, trust, unincorporated association, joint venture or
other entity, or a government or any political subdivision or agency thereof or
any trustee, receiver, custodian or similar official.

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

“Present Value”
means, as of any date of determination, the calculation of the present value
(using the average of the discount rates then customarily utilized by the
Administrative Agent for collateral valuation purposes, which, on the Effective
Date, is a 9% discount rate) of the projected future net revenues attributable
to the Present Value Production utilizing the price assumptions used by the
Administrative Agent in evaluating its oil and gas loans generally, adjusted to
give effect to applicable commodity prices (or caps or floors) under Hedge
Contracts permitted hereunder and covering such production.

“Present Value Production”
means, at any time of determination, the projected production of oil or gas
(measured by volume unit or BTU equivalent, not sales price) from properties
and interests owned by any Obligor which are located in or offshore of the
United States and Canada attributable to Proven Reserves, as such production is
projected in the most recent Independent Engineering Report delivered pursuant
to Section 5.06(c), after deducting projected production from any properties or
interests sold or under contract for sale that had been included in such report
and after adding projected production from any properties or interests that had
not been reflected in such report but that are reflected in a separate or
supplemental report which is satisfactory to the Administrative Agent.

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

“Pro Rata Share”
means, at any time and as to any Lender, the ratio (expressed as a percentage)
of such Lender’s Commitment at such time to the aggregate Commitments at such time,
or if the Commitments have been terminated or expired, the Pro Rata Share shall
be determined based upon the Commitments most recently in effect, giving effect
to any assignments.

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

 16
 

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

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

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

“Register” has the
meaning set forth in paragraph (b) of Section 9.05.

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

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

“Related Parties”
means, with respect to any Person, such Person’s Affiliates and the partners,
directors, officers, employees, agents and advisors of such Person and of such
Person’s Affiliates.

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

“Required Lenders”
means, as of the date of determination, Lenders holding more than 67% of the
aggregate Commitments, or if the Commitments have been terminated or expired,
Lenders holding more than 67% of the outstanding principal amount of the
Advances and Letter of Credit Exposure (with the aggregate amount of each
Lender’s risk participation and funded participation in Letter of Credit
Obligations being deemed to be “held” by such Lender for purposes of this
definition).

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

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

 17
 

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

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

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

“Sellers” means
(a) Smith Production Inc. and (b) Kerr McGee Oil & Gas Onshore LP.

“Smith Acquisition”
means the acquisition by the Borrower of the Smith Assets pursuant to the Smith
Purchase and Sale Agreements.

“Smith Assets”
means the assets and other Property being sold by the Sellers to the Borrower
and its Subsidiaries pursuant to the terms of the Smith Purchase and Sale
Agreements.

“Smith Purchase and
Sale Agreements” means, collectively: (a) the Primary Purchase and Sale
Agreement dated November 16, 2006 between Smith Production Inc. and Edge
Petroleum Exploration Company, (b) the Secondary Purchase and Sale Agreement
dated November 16, 2006 between Smith Production Inc. and Edge Petroleum
Production Company, and (c) the Purchase and Sale Agreement dated December 12,
2006 between Kerr McGee Oil & Gas Onshore LP and Edge Petroleum Exploration
Company and Edge Petroleum Corporation.

“Solvent” means,
with respect to any Person as of the date of any determination, that on such
date (a) the fair value of the Property of such Person (both at fair valuation
and at present fair saleable value) is greater than the total liabilities,
including contingent liabilities, of such Person, (b) the present fair saleable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its assets
and pay its debts and other liabilities, contingent obligations, and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person’s
Property would constitute unreasonably small capital after

 18
 

giving due
consideration to current and anticipated future capital requirements and
current and anticipated future business conduct and the prevailing practice in
the industry in which such Person is engaged. 
In computing the amount of contingent liabilities at any time, such
liabilities shall be computed at the amount which, in light of the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

“Subsidiary” of a
Person means any corporation or other entity of which more than 50% of the
outstanding Equity Interests having ordinary voting power under ordinary
circumstances to elect a majority of the board of directors or similar
governing body of such corporation or other entity (irrespective of whether at
such time Equity Interests of any other class or classes of such corporation or
other entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more Subsidiaries of such Person or by one or
more Subsidiaries of such Person.  Unless
otherwise indicated herein, each reference to the term “Subsidiary” shall mean
a Subsidiary of the Borrower.

“Swap Counterparty”
means any Lender (or Affiliate of a Lender) that is party to any Hedge Contract
with the Borrower or any of its Subsidiaries.

“Taxes” means all
present or future taxes, levies, imposts, duties, deductions, withholdings,
assessments, fees or other charges imposed by any Governmental Authority,
including any interest, additions to tax or penalties applicable thereto.

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

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

“Type” has the
meaning set forth in Section 1.03.

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

Section
1.02           Accounting Terms;
Changes in GAAP.  Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates

 19
 

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

Section
1.03           Types.  The “Type”, when used in respect of any
Advance or Borrowing, refers to the Rate (as defined below) by reference to
which interest on such Advances or on the Advances comprising such Borrowing is
determined.  For purposes hereof, the
term “Rate” shall include the Eurodollar Rate or the Reference Rate.

Section
1.04           Miscellaneous.  With reference to this Agreement and each
other Loan Document, unless otherwise specified herein or in such other Loan
Document:

(a)           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, (i) any definition of or reference to any
agreement, instrument or other document shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein or in any other Loan
Document), (ii) any reference to any Person shall be construed to include such
Person’s successors and assigns, (iii) the words “herein,” “hereof”
and “hereunder”, and words of similar import when used in any Loan
Document, shall be construed to refer to such Loan Document in its entirety and
not to any particular provision thereof, (iv) all references in a Loan Document
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, the Loan Document in
which such references appear, (v) any reference to any law shall include all
statutory and regulatory provisions consolidating, amending, replacing or
interpreting such law and any reference to any law or regulation shall, unless
otherwise specified, refer to such law or regulation as amended, modified or
supplemented from time to time, and (vi) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

(b)           In the computation
of periods of time from a specified date to a later specified date, the word “from”
means “from and including;” the words “to” and “until” each
mean “to but excluding”; and the word “through” means “to and
including.”

 20

(c)           Section headings herein and in the
other Loan Documents are included for convenience of reference only and shall
not affect the interpretation of this Agreement or any other Loan Document.

ARTICLE II

CREDIT FACILITIES

Section
2.01           Commitments.

(a)           Advances.  Each Lender severally agrees, on the terms
and conditions set forth in this Agreement, to make Advances to the Borrower
from time to time on any Business Day during the period from the Effective Date
until the Commitment Termination Date in an amount for each Lender not to
exceed such Lender’s Availability.  Each
Borrowing shall, in the case of Borrowings consisting of Reference Rate
Advances, be in an aggregate amount not less than $5,000,000 and in integral
multiples of $1,000,000 in excess thereof, and in the case of Borrowings
consisting of Eurodollar Rate Advances, be in an aggregate amount not less than
$10,000,000 and in integral multiples of $2,000,000 in excess thereof, and in
each case shall consist of Advances of the same Type made on the same day by
the Lenders ratably according to their respective Commitments.  Within the limits of each Lender’s
Availability, and subject to the terms of this Agreement, the Borrower may from
time to time borrow, prepay, and reborrow Advances.

(b)           Outstanding Loans
under Existing Agreement.  The
parties hereto acknowledge and agree that, effective as of the Effective Date,
all outstanding Loans (as defined in the Existing Agreement) shall be
automatically deemed to be Advances outstanding under this Agreement.

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

Section 2.02           Borrowing Base.

(a)           Generally.  The Borrowing Base in effect as of the date
of this Agreement has been set by the Administrative Agent and the Lenders and
acknowledged by the Borrower as $320,000,000. 
The Conforming Borrowing Base in effect as of the date of this Agreement
has been set by the Administrative Agent and the Lenders and acknowledged by
the Borrower as $300,000,000.  The amount
of such Borrowing Base and such Conforming Borrowing Base shall remain in
effect until each is redetermined pursuant to this Section 2.02.  Each of the Borrowing Base and the Conforming
Borrowing Base shall be determined in accordance with the standards set forth
in Section 2.02(d) and is subject to periodic redetermination pursuant to
Sections 2.02(b) and 2.02(c).

(b)           Calculation of
Borrowing Base and the Conforming Borrowing Base.

(i)            The Borrower shall
deliver to the Administrative Agent and each of the Lenders on or before each
March 31, beginning March 31, 2007, an Independent Engineering Report dated
effective as of the immediately preceding January 1, and such other information
as 

 21
 

may
be reasonably requested by any Lender with respect to the Oil and Gas
Properties included or to be included in each of the Borrowing Base and the
Conforming Borrowing Base.  Upon receipt
of such information, the Administrative Agent shall, in the normal course of
business, and in any event within 30 days after receipt of such information,
make a recommendation to the Lenders of each of (A) the Borrowing Base and (B)
the Conforming Borrowing Base.  The
Borrowing Base and the Conforming Borrowing Base each shall become effective
upon approval by the Required Lenders (or all of the Lenders if (A) the
Borrowing Base and/or the Conforming Borrowing Base is to be increased or (B)
the Borrowing Base shall be in an amount greater than the Conforming Borrowing
Base) and subsequent written notification from the Administrative Agent to the
Borrower, and which, subject to the other provisions of this Agreement, shall
be the basis on which the Borrowing Base and the Conforming Borrowing Base
shall thereafter be calculated until the effective date of the next
redetermination of the Borrowing Base and the Conforming Borrowing Base as set
forth in this Section 2.02; provided that, if no Conforming Borrowing
Base is determined pursuant to this Section 2.02, the Borrowing Base as
determined pursuant to this Section 2.02 shall also be the Conforming Borrowing
Base.

(ii)           The Borrower shall
deliver to the Administrative Agent and each Lender on or before each September
30, beginning September 30, 2007 an Internal Engineering Report dated effective
as of the immediately preceding July 1 and such other information as may be
reasonably requested by the Administrative Agent or any Lender with respect to
the Oil and Gas Properties included or to be included in each of the Borrowing
Base and the Conforming Borrowing Base. 
Upon receipt of such information, the Administrative Agent shall, in the
normal course of business, and in any event, within 30 days after receipt of
such information, make a recommendation to the Lenders of each of (A) the
Borrowing Base and (B) the Conforming Borrowing Base.  The Borrowing Base and the Conforming
Borrowing Base each shall become effective upon approval by the Required
Lenders (or all of the Lenders if (A) the Borrowing Base and/or the Conforming
Borrowing Base is to be increased or (B) the Borrowing Base shall be in an
amount greater than the Conforming Borrowing Base) and subsequent written
notification from the Administrative Agent to the Borrower, and which, subject
to the other provisions of this Agreement, shall be the basis on which the
Borrowing Base and the Conforming Borrowing Base shall thereafter be calculated
until the effective date of the next redetermination of the Borrowing Base and
the Conforming Borrowing Base as set forth in this Section 2.02; provided
that, if no Conforming Borrowing Base is determined pursuant to this Section
2.02, the Borrowing Base as determined pursuant to this Section 2.02 shall also
be the Conforming Borrowing Base.

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

 22
 

(iv)          Each delivery of an
Engineering Report by the Borrower to the Administrative Agent and the Lenders
shall constitute a representation and warranty by the Borrower to the
Administrative Agent and the Lenders that (A) the Borrower and its
Subsidiaries, as applicable, own the Oil and Gas Properties specified therein
subject to an Acceptable Security Interest and free and clear of any Liens
(except Permitted Liens), and (B) on and as of the date of such Engineering
Report each Oil and Gas Property described as “proved developed” therein was
developed for oil and gas, and the wells pertaining to such Oil and Gas
Properties that are described therein as producing wells (“Wells”), were
each producing oil and gas in paying quantities, except for Wells that were
utilized as water or gas injection wells or as water disposal wells.

(c)           Interim
Redetermination.  In addition to the
Borrowing Base redeterminations provided for in Section 2.02(b) and the interim
redetermination provided for in Section 2.02(e), the Administrative Agent and
the Lenders may, either in their sole discretion or at the request of the
Borrower and based on such information as the Administrative Agent and the
Lenders deem relevant (but in accordance with Section 2.02(d)), make additional
redeterminations of the Borrowing Base and the Conforming Borrowing Base during
any six-month period between scheduled redeterminations; provided that
neither the Administrative Agent and the Lenders nor the Borrower shall be
permitted to request more than one such unscheduled redetermination during any
six-month period between scheduled redeterminations.  The party requesting the redetermination
shall give the other party at least 10 days’ prior written notice that a redetermination
of the Borrowing Base and the Conforming Borrowing Base pursuant to this
paragraph (c) is to be performed.  In
connection with any redetermination of the Borrowing Base and the Conforming
Borrowing Base under this Section 2.02(c), the Borrower shall provide the
Administrative Agent and the Lenders with such information regarding the
Borrower and its Subsidiaries’ business (including its Oil and Gas Properties,
the Proven Reserves, and production relating thereto) as the Administrative
Agent or any Lender may reasonably request, including, in the case of a
proposed change in the Borrowing Base or Conforming Borrowing Base of
$10,000,000 or more, an updated Independent Engineering Report.  The Administrative Agent shall promptly, and
in any event within 45 days after the receipt of such information, recommend to
the Lenders a Borrowing Base and the Conforming Borrowing Base pursuant to this
Section 2.02(c), and once approved by the Required Lenders or Lenders, as
applicable, the Administrative Agent shall notify the Borrower in writing of
the amount of the Borrowing Base and the Conforming Borrowing Base as so
redetermined.

(d)           Standards for
Redetermination.  Each
redetermination of the Borrowing Base and the Conforming Borrowing Base by the
Administrative Agent and the Lenders pursuant to this Section 2.02 shall be
made (i) in the sole discretion of the Administrative Agent and the Lenders
(but in accordance with the other provisions of this Section 2.02(d)), (ii) in
accordance with the Administrative Agent’s and the Lenders’ customary internal
standards and practices for valuing and redetermining the value of Oil and Gas
Properties in connection with reserve based oil and gas loan transactions,
(iii) in conjunction with the most recent Independent Engineering Report or
Internal Engineering Report, as applicable, or other information received by
the Administrative Agent and the Lenders relating to the Proven Reserves of the
Borrower and its Subsidiaries, and (iv) based upon the estimated value of the
Proven Reserves owned by the Borrower and its Subsidiaries as determined by the
Administrative Agent and the Lenders and which are subject to an Acceptable
Security Interest.  In valuing and
redetermining the 

 23
 

Borrowing
Base and the Conforming Borrowing Base, the Administrative Agent and the
Lenders may also consider the business, financial condition, and Debt
obligations of the Borrower and its Subsidiaries and such other factors as the
Administrative Agent and the Lenders customarily deem appropriate.  In that regard, the Borrower acknowledges
that the determination of the Borrowing Base and the Conforming Borrowing Base
each contains an equity cushion (market value in excess of loan value), which
is essential for the adequate protection of the Administrative Agent and the
Lenders.  No Proven Reserves shall be
included or considered for inclusion in either the Borrowing Base or the
Conforming Borrowing Base unless the Administrative Agent and the Lenders shall
have received, at the Borrower’s expense, evidence satisfactory in form and
substance to the Administrative Agent that the Administrative Agent has an
Acceptable Security Interest in the Oil and Gas Properties relating thereto
pursuant to the Security Instruments (and, to the extent required by Section
5.10, title evidence satisfactory to the Administrative Agent).  At all times after the Administrative Agent
has given the Borrower notification of a redetermination of the Borrowing Base
and the Conforming Borrowing Base under this Section 2.02, the Borrowing Base
and the Conforming Borrowing Base each shall be equal to the redetermined
amount or such lesser amount designated by the Borrower and disclosed in
writing to the Administrative Agent and the Lenders until the Borrowing Base
and the Conforming Borrowing Base are each subsequently redetermined in
accordance with this Section 2.02.

(e)           Casualty Event Redetermination.  If the Borrower or any Subsidiary suffers a
casualty event or other loss of Property having a fair market value in an
aggregate amount equal to or exceeding $10,000,000, then the Administative
Agent and the Lenders shall have the right to perform an interim
redetermination of the Borrowing Base and the Conforming Borrowing Base in
accordance with the procedures set forth in Section 2.02 (c) above.

(f)            Limitations on Separate Borrowing
Bases.  For each redetermination of
the Borrowing Base and the Conforming Borrowing Base occurring from and after
January 31, 2008, only a Conforming Borrowing Base shall be determined pursuant
to this Section 2.02, and the Conforming Borrowing Base as so determined shall
also be the Borrowing Base for all purposes under this Agreement.

Section
2.03           Method of Borrowing.

(a)                     Notice.  Each
Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone
notice promptly confirmed in writing by a Notice of Borrowing), given not later
than 10:00 a.m.  (Los Angeles,
California time) (i) on the third Business Day before the date of the
proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate
Advances or (ii) on the Business Day of the proposed Borrowing, in the
case of a Borrowing comprised of Reference Rate Advances, by the Borrower to
the Administrative Agent, which shall in turn give to each Lender prompt notice
of such proposed Borrowing by facsimile. 
Each Notice of a Borrowing shall be given by facsimile (or by electronic
communication, if arrangements for such communication have been approved by the
Administrative Agent), confirmed immediately in writing, specifying the
information required therein.  In the
case of a proposed Borrowing comprised of Eurodollar Rate Advances, the
Administrative Agent shall promptly notify each applicable Lender of the
applicable interest rate under Section 2.09(b). 
Each applicable Lender shall, before Noon (Los Angeles, California time)
on the date of such Borrowing, make available 

 24
 

for the account of its Lending Office to the Administrative Agent at
its address referred to in Section 9.02, or such other location as the
Administrative Agent may specify by notice to the applicable Lenders, in same
day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such
Borrowing.  After the Administrative
Agent’s receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent shall make such funds
available to the Borrower at its account with the Administrative Agent.

(b)           Conversions and
Continuations.  The Borrower may
elect to Convert or continue any Borrowing under this Section 2.03(b) by
delivering an irrevocable Notice of Conversion or Continuation to the
Administrative Agent at the Administrative Agent’s office no later than
10:00 a.m.  (Los Angeles, California
time) (i) on the date which is at least three Business Days in advance of
the proposed Conversion or continuation date in the case of a Conversion to or
a continuation of a Borrowing comprised of Eurodollar Rate Advances and
(ii) on the Business Day of the proposed Conversion, in the case of a
Conversion to a Borrowing comprised of Reference Rate Advances.  Each such Notice of Conversion or
Continuation shall be in writing or by telecopier confirmed immediately in
writing specifying the information required therein.  Promptly after receipt of a Notice of
Conversion or Continuation under this Section, the Administrative Agent shall
provide each applicable Lender with a copy thereof and, in the case of a
Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate
Advances, notify each applicable Lender of the applicable interest rate under
Section 2.09(b).

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

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

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

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

 25
 

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

(v)           if the Borrower
shall fail to select the duration or continuation of any Interest Period for
any Eurodollar Rate Advances in accordance with the provisions contained in the
definition of “Interest Period” in Section 1.01 and paragraph (b) of
this Section 2.03, the Administrative Agent shall forthwith so notify the
Borrower and the applicable Lenders and such Advances shall be made available
to the Borrower on the date of such Borrowing as Reference Rate Advances or, if
an existing Advance, Convert into Reference Rate Advances.

(d)           Notices
Irrevocable.  Each Notice of
Borrowing and Notice of Conversion or Continuation shall be irrevocable and
binding on the Borrower.  In the case of
any Borrowing for which the related Notice of Borrowing specifies is to be
comprised of Eurodollar Rate Advances, the Borrower shall, and does hereby,
indemnify each Lender against any loss, out-of-pocket cost, or expense incurred
by such Lender as a result of any failure by the Borrower to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III including any loss
(including any loss of anticipated profits), cost, or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the Advance to be made by such Lender as part of such
Borrowing when such Advance, as a result of such failure, is not made on such
date.

(e)           Funding by
Lenders; Administrative Agent’s Reliance. 
Unless the Administrative Agent shall have received notice from a Lender
prior to the proposed date of any Borrowing of Eurodollar Rate Advances, or
prior to Noon (Los Angeles, California time) on the date of any Borrowing of
Reference Advances, 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 in accordance
with and at the time required in Section 2.03(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 in same
day funds 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 (A) in the case of a payment to be made by such
Lender, the Overnight Rate and (B) in the case of a payment to be made by the
Borrower, the interest rate applicable to the requested Borrowing.  If the Borrower and such Lender shall pay
such interest to the Administrative Agent for the same or an overlapping
period, the Administrative Agent shall promptly remit to the Borrower the
amount of such interest paid by the Borrower for such period.  If such Lender pays its share of the
applicable Borrowing to the Administrative Agent, then the amount so paid shall
constitute such Lender’s Advance included in such Borrowing.  

 26
 

Any
payment by the Borrower shall be without prejudice to any claim the Borrower
may have against a Lender that shall have failed to make such payment to the
Administrative Agent.  A notice of the
Administrative Agent to any Lender or the Borrower with respect to any amount
owing under this subsection (e) shall be conclusive, absent manifest error.

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

Section
2.04           Reduction of the
Commitments.  The Borrower shall have
the right, upon at least three Business Days’ (or such lesser period if agreed
to by the Administrative Agent in its sole discretion) irrevocable notice to
the Administrative Agent, to terminate in whole or reduce ratably in part the
unused portion of the Commitments taking into account the aggregate outstanding
Advances and the aggregate Letter of Credit Exposure; provided that each
partial reduction shall be in the aggregate amount of $5,000,000 or in integral
multiples of $1,000,000 in excess thereof. 
Any reduction and termination of the Commitments pursuant to this
Section 2.04 shall be applied ratably to each Lender’s Commitment and
shall be permanent, with no obligation of the Lenders to reinstate such
Commitments.

Section
2.05           Prepayment of Advances.

(a)           Optional.  The Borrower may prepay the Advances, after
giving by 10:00 a.m.  (Los Angeles,
California time): (i) in the case of Eurodollar Rate Advances, at least
three Business Days’ or (ii) in the case of Reference Rate Advances, same
Business Day’s, irrevocable prior written notice to the Administrative Agent
stating the proposed date and aggregate principal amount of such
prepayment.  If any such notice is given,
the Borrower shall prepay the Advances in whole or ratably in part in an
aggregate principal amount equal to the amount specified in such notice,
together with accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to
Section 2.12 as a result of such prepayment being made on such date; provided,
however, that each partial prepayment with respect to:  (A) any amounts prepaid in respect of
Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances
comprising part of the same Borrowing; and (B) any amounts prepaid in respect
of Reference Rate Advances shall be made in a minimum amount of $5,000,000  and in integral multiples of $1,000,000  in excess thereof, and (C) any prepayments
made in respect of Borrowings comprised of Eurodollar Rate Advances shall be
made in a minimum amount of $10,000,000 and in integral multiples of $2,000,000
in excess thereof and in an aggregate principal amount such that after giving
effect thereto such Borrowing shall have a remaining principal amount
outstanding with respect to such Borrowings of at least $5,000,000.  Full prepayments of any Borrowing are
permitted without restriction of amounts.

(b)           Mandatory.

(i)            If the aggregate
outstanding amount of the Advances plus the Letter of Credit Exposure
ever exceeds the lesser of (i) the Borrowing Base and (ii) the aggregate
Commitments, the Borrower shall after receipt of written notice from the
Administrative Agent 

 27
 

regarding
such deficiency, take any of the following actions (and the failure of the
Borrower to take such actions to remedy such Borrowing Base deficiency shall
constitute an Event of Default):

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

(B)           (1) notify the Administrative Agent
within 10 days after the date such deficiency notice is received by the
Borrower of its intention to pledge as Collateral for the Obligations
additional Oil and Gas Properties acceptable to the Administrative Agent and
the Required Lenders, and (2) take such action as is necessary to cause such
additional Collateral to be pledged within 20 days of the giving of such notice
by the Borrower to the Administrative;

(C)           (1) deliver within 10 days after the
date such deficiency notice is received by the Borrower from the Administrative
Agent, written notice to the Administrative Agent indicating the Borrower’s
election to repay the Advances and make deposits into the Cash Collateral
Account to provide cash collateral for the Letters of Credit, each in six
monthly installments equal to one-sixth of such Borrowing Base deficiency with
the first such installment due 30 days after the date such deficiency notice is
received by the Borrower from the Administrative Agent and each following
installment due 30 days after the preceding installment and (2) to make such
payments and deposits within such time period; or

(D)          (1) deliver, within 10 days after the
date such deficiency notice is received by the Borrower to the Administrative
Agent, written notice to the Administrative Agent indicating the Borrower’s
election to combine the options provided in clause (B) and clause (C) above,
and also indicating the amount to be prepaid in installments and the amount to
be provided as additional Collateral, and (2) make such six equal consecutive
monthly installments and deliver such additional Collateral within the time
required under clause (B) and clause (C) above.

(ii)           Each prepayment
pursuant to this Section 2.05(b) shall be accompanied by accrued interest
on the amount prepaid to the date of such prepayment and amounts, if any,
required to be paid pursuant to Section 2.12 as a result of such
prepayment being made on such date.  Each
prepayment under this Section 2.05(b) shall be applied to the Advances as
determined by the Administrative Agent and agreed to by the Lenders in their
sole discretion.

(c)           Reduction of
Commitments.  On the date of each
reduction of the aggregate Commitments pursuant to Section 2.04, the
Borrower agrees to make a prepayment in respect of the outstanding amount of
the Advances to the extent, if any, that the aggregate unpaid principal amount
of all Advances plus the Letter of Credit Exposure exceeds the lesser of
(i) the aggregate Commitments, as so reduced, and (ii) the Borrowing Base.  Each prepayment pursuant to this
Section 2.05(c) shall be accompanied by accrued interest on the amount
prepaid to the date of such prepayment and amounts, if any, required to be paid
pursuant to Section 2.12 as a result of such prepayment being made on such
date.  Each prepayment under this Section
2.05(c) shall be 

 28
 

applied
to the Advances as determined by the Administrative Agent and agreed to by the
Lenders in their sole discretion.

(d)           Illegality.  If any Lender shall notify the Administrative
Agent and the Borrower that the introduction of or any change in or in the
interpretation of any law or regulation by any administrative authority or by
any Governmental Authority charged with the administration thereof or by any
court makes it unlawful, or that any central bank or other Governmental
Authority asserts that it is unlawful for such Lender or its Lending Office for
Eurodollar Rate Advances to perform its obligations under this Agreement to
maintain any Eurodollar Rate Advances of such Lender then outstanding
hereunder, (i) the Borrower shall, no later than 10:00 a.m. (Los Angeles,
California time) (A) if not prohibited by law, on the last day of the
Interest Period for each outstanding Eurodollar Rate Advance made by such
Lender or (B) if required by such law, on the second Business Day
following its receipt of such notice, either prepay all of the Eurodollar Rate
Advances made by such Lender then outstanding or Convert all of the Eurodollar
Rate Advances made by such Lender then outstanding to Reference Rate Advances,
and, in either case, pay all accrued interest on the principal amount prepaid
or Converted to the date of such prepayment or Conversion and amounts, if any,
required to be paid pursuant to Section 2.12 as a result of such
prepayment or Conversion being made on such date, (ii) to the extent the
principal amount of Eurodollar Rate Advances are prepaid, such Lender shall
simultaneously make a Reference Rate Advance to the Borrower on such date in an
amount equal to the aggregate principal amount of the Eurodollar Rate Advances
prepaid to such Lender, and (iii) the right of the Borrower to select
Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be
suspended until such Lender gives notice referred to above shall notify the
Administrative Agent that the circumstances causing such suspension no longer
exist.

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

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

Section
2.07           Letters of Credit.

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

(i)            if such issuance,
increase, or extension would cause the Letter of Credit Exposure to exceed the
lesser of (A) $20,000,000 and (B) the aggregate Availability;

 

 29

(ii)           if such Letter of
Credit has an Expiration Date later than the earlier of (A) one year after
the date of issuance thereof (or, in the case of any extension thereof, one
year after the date of such extension); provided that, any such Letter of
Credit with a one-year tenor may expressly provide that it is renewable at the
option of the Issuing Lender for additional one-year periods, and (B) 30
days prior to the Maturity Date;

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

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

(v)           unless the Borrower
has delivered to the Issuing Lender a completed and executed Letter of Credit
Application; and

(vi)          unless such Letter
of Credit is governed by (1) the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, or (2) the International Standby Practices
(ISP98), International Chamber of Commerce Publication No. 590, in either
case, including any subsequent revisions thereof approved by a Congress of the
International Chamber of Commerce and adhered to by the Issuing Lender.

If
the terms of any Letter of Credit Application referred to in the foregoing
clause (vi) conflicts with the terms of this Agreement, the terms of this
Agreement shall control.

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

(c)           Issuing.  Each Letter of Credit shall be issued,
increased, or extended pursuant to a Letter of Credit Application (or by
telephone notice promptly confirmed in writing by a Letter of Credit
Application), given not later than 10:00 a.m. (Los Angeles, California
time) on the fifth Business Day before the date of the proposed issuance,
increase, or extension of the Letter of Credit (or such lesser period if
acceptable to the Issuing Lender in its sole discretion), and the Issuing
Lender shall give to each other Lender prompt notice thereof by telephone, or
telecopy.  Each Letter of Credit
Application shall be delivered by facsimile or by mail specifying the
information required therein (or by electronic communication if such
arrangement is approved by the Administrative Agent and the Issuing Lender); provided
that, if such Letter of Credit Application is delivered by facsimile, the
Borrower shall follow such facsimile with an original by mail.  After the Issuing Lender’s receipt of such
Letter of Credit Application (by facsimile or by mail) and upon fulfillment of
the applicable conditions set forth in Article III, the Issuing 

 30
 

Lender shall issue,
increase, or extend such Letter of Credit for the account of the applicable
Obligor.  Each Letter of Credit
Application shall be irrevocable and binding on the Borrower.

(d)           Reimbursement.

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

(ii)           Each Lender’s
obligation to make Advances or to purchase and fund risk participations in
Letters of Credit pursuant to this Section 2.07(d) shall be absolute and
unconditional and shall not be affected by any circumstance, including (a) any
setoff, counterclaim, recoupment, defense or other right which such Lender may
have against the Issuing Lender, the Borrower, or any other Person for any
reason whatsoever, (b) the occurrence or continuance of a Default, or (c) any
other occurrence, event or condition, whether or not similar to any of the
foregoing.  No such funding of risk
participations shall relieve or otherwise impair the obligation of the Borrower
to pay the Reimbursement Obligations together with interest as provided
herein.  Nothing herein is intended to
release the Borrower’s obligations under any Letter of Credit Application, but
only to provide an additional method of payment therefor.  The making of any Borrowing under this
Section 2.07(d) shall not constitute a cure or waiver of any Default or Event
of Default, other than the payment Default or Event of Default which is
satisfied by the application of the amounts deemed advanced hereunder, caused
by a Borrower’s failure to comply with the provisions of this Agreement or the Letter
of Credit Application.

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

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

 31
 

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

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

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

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

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

provided, however, that
nothing contained in this paragraph (e) shall be deemed to constitute a
waiver of the Borrower’s rights under Section 2.07(f).

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

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

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

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

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

except that the Borrower shall have
a claim against the Issuing Lender, and the Issuing Lender shall be liable to
the Borrower, to the extent of any direct, as opposed to consequential, damages
suffered by the Borrower which the Borrower proves were caused by (A)  the
Issuing Lender’s willful misconduct or gross negligence in determining whether
documents presented under a 

 32
 

Letter of Credit comply with the terms of such Letter
of Credit, or (B) the Issuing Lender’s willful failure to make lawful payment
under any Letter of Credit after the presentation to it of a draft and
certificate strictly complying with the terms and conditions of such Letter of
Credit.  In furtherance and not in
limitation of the foregoing, the Issuing Lender may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.

(g)           Cash Collateral
Account.

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

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

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

(h)           Letters of Credit
Issued for Subsidiaries. 
Notwithstanding that a Letter of Credit issued or outstanding hereunder
is in support of any obligations of, or is for the account of, a Subsidiary of
the Borrower, the Borrower shall be obligated to reimburse the Issuing Lender
hereunder for any and all drawings under such Letter of Credit issued hereunder
by the Issuing Lender.  The Borrower
hereby acknowledges that the issuance of Letters of Credit for the account of
its Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s
business derives substantial benefits from the businesses of such Subsidiaries.

 33
 

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

Section
2.08           Fees.

(a)           Commitment Fee.
The Borrower agrees to pay to the Administrative Agent, for the account of each
Lender having a Commitment, a commitment fee at a per annum rate equal to the
Applicable Margin for commitment fees on the daily Availability of such Lender
from the date of this Agreement until the Commitment Termination Date.  The commitment fees shall be due and payable
quarterly in arrears on the last day of each March, June, September, and
December commencing on March 31, 2007, and continuing thereafter through and
including the Commitment Termination Date.

(b)           Letter of Credit
Fees.

(i)            The Borrower agrees
to pay (A) to the Administrative Agent for the pro rata benefit of the Lenders
a per annum letter of credit fee for each Letter of Credit issued hereunder in
an amount equal to the greater of (1) the Applicable Margin for letter of
credit fees times the daily maximum amount available to be drawn under such
Letter of Credit and (2) $500.00 and (B) to the Issuing Lender, a fronting fee
on each Letter of Credit equal to such rates as agreed to between the Issuing
Lender and the Borrower under the Fee Letter. 
The fronting fee shall be payable annually in advance on the date of the
issuance of the Letter of Credit, and, in the case of an increase or extension
only, on the date of such increase or such extension.  The fee set forth in (A) above shall be
computed on a quarterly basis in arrears and be due and payable on the last day
of each March, June, September, and December commencing March 31, 2007.

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

(c)           Facility and
Other Fees.  The Borrower agrees to
pay to the Administrative Agent the fees described in Fee Letter.

(d)           Borrowing Base
Increase Fees.  The Borrower agrees
to pay to the Administrative Agent for the account of the Lenders having a
Commitment in connection with any increase of the Borrowing Base, a borrowing
base increase fee on the amount of such increase.  The borrowing base increase fee shall be an
amount equal to 0.25% multiplied by the amount of the increase and shall be due
and payable on the date that the increase to the Borrowing Base becomes
effective.

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

(a)           Reference Rate
Advances.  If such Advance is a
Reference Rate Advance, at a rate per annum equal at all times to the Adjusted
Reference Rate in effect from time to time plus 

 34
 

the Applicable Margin in
effect from time to time, payable quarterly in arrears on the last day of each
March, June, September, and December and on the date such Reference Rate
Advance shall be paid in full.

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

(c)           Additional
Interest on Eurodollar Rate Advances. 
The Borrower shall pay to each Lender, so long as any such Lender shall
be required under regulations of the Federal Reserve Board to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each
Eurodollar Rate Advance of such Lender, from the effective date of such Advance
until such principal amount is paid in full, at an interest rate per annum
equal at all times to the remainder obtained by subtracting (i) the Eurodollar
Rate for the Interest Period for such Advance from (ii) the rate obtained
by dividing such Eurodollar Rate by a percentage equal to 100% minus the
Eurodollar Rate Reserve Percentage of such Lender for such Interest Period,
payable on each date on which interest is payable on such Advance.  Such additional interest payable to any
Lender shall be determined by such Lender and notified to the Borrower through
the Administrative Agent (such notice to include the calculation of such
additional interest, which calculation shall be conclusive in the absence of
manifest error).

(d)           Usury Recapture.

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

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

(iii)          NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND
THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER AND THE
BORROWER TO CONFORM 

 35
 

STRICTLY
TO ANY APPLICABLE USURY LAWS. 
ACCORDINGLY, IF ANY LENDER CONTRACTS FOR, CHARGES, OR RECEIVES ANY
CONSIDERATION WHICH CONSTITUTES INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN
ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL
AT SUCH LENDER’S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT OF THE ADVANCES
MADE HEREUNDER BY SUCH LENDER OR BE REFUNDED TO THE BORROWER.

Section
2.10           Payments and
Computations.

(a)           Payment
Procedures.  The Borrower shall make
each payment under this Agreement and under the Notes not later than
10:00 a.m.  (Los Angeles, California
time) on the day when due in Dollars to the Administrative Agent at the
location referred to in the Notes (or such other location as the Administrative
Agent shall designate in writing to the Borrower) in same day funds without
deduction, setoff, or counterclaim of any kind. 
The Administrative Agent shall promptly thereafter cause to be
distributed like funds relating to the payment of principal, interest or fees
ratably (other than amounts payable solely to the Administrative Agent, the
Issuing Lender, or a specific Lender pursuant to Section 2.08(c), 2.09(c),
2.12, 2.13, 2.14, 8.07, or 9.03, but after taking into account payments
effected pursuant to Section 2.11) in accordance with each Lender’s Pro
Rata Share to the Lenders for the account of their respective Lending Offices,
and like funds relating to the payment of any other amount payable to any
Lender or the Issuing Lender to such Lender for the account of its Lending
Office, in each case to be applied in accordance with the terms of this Agreement.

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

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

(d)           Administrative
Agent Reliance.  Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the applicable Lenders or the Issuing Lender hereunder 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 Lender, 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 

 36
 

applicable Lenders or the
Issuing Lender, 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 Lender, in same day funds 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 Overnight Rate.  A notice of the Administrative Agent to any
Lender or the Borrower with respect to any amount owing under this subsection
(d) shall be conclusive, absent manifest error.

Section
2.11           Sharing of Payments, Etc.  If any Lender shall, by exercising any right
of setoff or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Advances or other obligations hereunder
resulting in such Lender’s receiving payment of a proportion of the aggregate
amount of its Advances and accrued interest thereon or other such obligations
greater than its Pro Rata Share thereof as provided herein, then the Lender
receiving such greater proportion shall (a) notify the Administrative Agent of
such fact and (b) purchase (for cash at face value) participations in the
Advances and such other obligations of the other Lenders, or make such other
adjustments as shall be equitable, 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 Advances and other
amounts owing them; 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 paragraph shall not be construed to apply to (x) any payment made by the
Borrower pursuant to and in accordance with the express terms of this Agreement
or (y) any payment obtained by a Lender as consideration for the assignment of
or sale of a participation in any of its Advances or participations in Letter
of Credit Obligations to any assignee or participant, other than to the
Borrower or any Subsidiary thereof (as to which the provisions of this
paragraph 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
setoff 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
2.12           Breakage Costs.  If (a) any payment of principal of any
Eurodollar Rate Advance or any Conversion of a Eurodollar Rate Advance is made
other than on the last day of the Interest Period for such Advance, whether as
a result of any payment or Conversion pursuant to Section 2.05, the
acceleration of the maturity of the Notes pursuant to Article VII, or
otherwise, or (b) the Borrower fails to make a principal or interest
payment with respect to any Eurodollar Rate Advance on the date such payment is
due and payable, the Borrower shall, within 30 days of any written demand
accompanied with the certificate required by Section 2.13(c) sent by any Lender
to the Borrower through the Administrative Agent, pay to the Administrative
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, out-of-pocket costs or expenses
which it may reasonably incur as a result of such payment or nonpayment,
including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by any Lender to fund or maintain such
Advance.

 37
 

Section
2.13           Increased Costs.

(a)           Generally.  If any Change in Law shall:

(i)            impose, modify or
deem applicable any reserve, special deposit, compulsory loan, insurance charge
or similar requirement against assets of, deposits with or for the account of,
or credit extended or participated in by, any Lender (except any reserve
requirement contemplated by Section 2.09(c)) or the Issuing Lender;

(ii)           subject any Lender
Party to any tax of any kind whatsoever with respect to this Agreement, any
Letter of Credit, any participation in a Letter of Credit, any Eurodollar Rate
Advance made by it, or change the basis of taxation of payments to such Lender
Party in respect thereof (except for Indemnified Taxes or Other Taxes covered
by Section 2.14 and the imposition of, or any change in the rate of, any
Excluded Tax payable by such Lender Party); or

(iii)          impose on any
Lender Party or the London interbank market any other condition, cost or
expense affecting this Agreement or Eurodollar Rate Advances made by such
Lender Party, or any Letter of Credit or participation therein;

and the result of
any of the foregoing shall be to increase the cost to such Lender Party of
making or maintaining any Eurodollar Rate Advance (or of maintaining its
obligation to make any such Advance), or to increase the cost to such Lender
Party of participating in, issuing or maintaining any Letter of Credit (or of
maintaining its obligation to participate in or to issue any Letter of Credit),
or to reduce the amount of any sum received or receivable by Lender Party
hereunder (whether of principal, interest or any other amount) then, upon
request of such Lender Party accompanied with the certificated required by
Section 2.13(c), the Borrower will pay to such Lender Party, such additional
amount or amounts as will compensate such Lender Party for such additional
costs incurred or reduction suffered.

(b)           Capital Adequacy.  If any Lender or the Issuing Lender
determines in good faith that any Change in Law affecting such Lender or the
Issuing Lender or any lending office of such Lender or such Lender’s or the
Issuing Lender’s holding company, if any, regarding capital requirements has or
would have the effect of reducing the rate of return on such Lender’s or the
Issuing Lender’s capital or on the capital of such Lender’s or the Issuing
Lender’s holding company, if any, as a consequence of this Agreement, the
Commitments of such Lender or the Advances made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Lender, to a level below that which such Lender or the Issuing Lender
or such Lender’s or the Issuing Lender’s holding company could have achieved
but for such Change in Law (taking into consideration such Lender’s or the
Issuing Lender’s policies and the policies of such Lender’s or the Issuing
Lender’s holding company with respect to capital adequacy), then, upon
request of such Lender Party accompanied with the certificated required by
Section 2.13(c), the Borrower
will pay to such Lender or the Issuing Lender, such additional amount or
amounts as will compensate such Lender or the Issuing Lender or such Lender’s
or the Issuing Lender’s holding company for any such reduction suffered.

(c)           Certificates for
Reimbursement.  A certificate of a
Lender Party setting forth the calculation of the amount or amounts necessary
to compensate such Lender Party or its holding 

 38
 

company, as the case may
be, as specified in paragraph (a) or (b) of this Section and
delivered to the Borrower shall be conclusive absent manifest error.  The Borrower shall pay such Lender Party the
amount shown as due on any such certificate within 30 days after receipt
thereof.

(d)           Delay in Requests.  Failure or delay on the part of any Lender
Party to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender Party’s right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender Party pursuant
to this Section for any increased costs incurred or reductions suffered more
than 120 days prior to the date that such Lender Party notifies the Borrower of
the Change in Law giving rise to such increased costs or reductions and of such
Lender Party’s intention to claim compensation therefor (except that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 120 day period referred to above shall be extended to include the
period of retroactive effect thereof).

Section
2.14           Taxes.

(a)           Payments Free of
Taxes.  Any and all payments by or on
account of any obligation of the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without reduction or withholding
for any Indemnified Taxes or Other Taxes; provided that if the Borrower
shall be required by applicable law to deduct any Indemnified Taxes (including
any 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) the Lender
Party receives an amount equal to the sum it would have received had no such
deductions been made; provided, however, that if the Borrower’s obligation to
deduct or withhold Taxes is caused solely by such Lender’s, the Issuing Lender’s,
or the Administrative Agent’s failure to provide the forms described in
paragraph (f) of this Section 2.14 and such Lender, the Issuing Lender, or the
Administrative Agent could have provided such forms, no increased shall be
required; (ii) the Borrower shall make such deductions; and (iii) the
Borrower shall timely pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

(b)           Payment of Other
Taxes by the Borrower.  Without
limiting the provisions of paragraph (a) above, the Borrower shall timely pay
any Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

(c)           Indemnification
by the Borrower.  THE BORROWER SHALL,
AND DOES HEREBY, INDEMNIFY EACH LENDER PARTY, WITHIN 30 DAYS AFTER DEMAND
THEREFOR, FOR THE FULL AMOUNT OF ANY INDEMNIFIED TAXES OR OTHER TAXES
(INCLUDING INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED ON OR
ATTRIBUTABLE TO AMOUNTS PAYABLE UNDER THIS SECTION) PAID BY SUCH LENDER PARTY
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 AS TO THE
AMOUNT OF SUCH PAYMENT OR LIABILITY DELIVERED TO THE BORROWER BY A LENDER OR
THE ISSUING LENDER (WITH A COPY TO THE ADMINISTRATIVE AGENT), OR BY THE 

 39
 

ADMINISTRATIVE AGENT ON
ITS OWN BEHALF OR ON BEHALF OF A LENDER OR THE ISSUING LENDER, 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 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)           Status of 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 resident for tax purposes, or any treaty to which such
jurisdiction is a party, with respect to payments hereunder or under 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 or reasonably
requested by the Borrower or the Administrative Agent, such properly completed
and executed documentation prescribed by applicable law as will permit such
payments to be made without withholding or at a reduced rate of
withholding.  In addition, any Lender, if
requested by the Borrower or the Administrative Agent, shall deliver such other
documentation prescribed by applicable law or reasonably requested by the
Borrower or the Administrative Agent as will enable the Borrower or the
Administrative Agent to determine whether or not such Lender is subject to
backup withholding or information reporting requirements.

(f)            Tax Forms.  Without limiting the generality of the
foregoing, in the event that the Borrower is resident for tax purposes in the
United States of America, any Foreign Lender shall deliver to the Borrower and
the Administrative Agent (in such number of copies as shall be requested by the
recipient) on or prior to the date on which such Foreign Lender becomes a
Lender under this Agreement (and from time to time thereafter upon the request
of the Borrower or the Administrative Agent, but only if such Foreign Lender is
legally entitled to do so), whichever of the following is applicable:

(i)            duly completed
copies of Internal Revenue Service Form W-8BEN claiming eligibility for
benefits of an income tax treaty to which the United States of America is a
party,

(ii)           duly completed
copies of Internal Revenue Service Form W-8ECI,

(iii)          in the case of a
Foreign Lender claiming the benefits of the exemption for portfolio interest
under section 881(c) of the Code, (x) a certificate to the effect that such
Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A)
of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning
of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation”
described in section 881(c)(3)(C) of the Code and (y) duly completed copies
of  Internal Revenue Service Form W-8BEN,
or

(iv)          any other form
prescribed by applicable law as a basis for claiming exemption from or a
reduction in United States Federal withholding tax duly completed together with
such supplementary documentation as may be prescribed by applicable law to permit
the Borrower to determine the withholding or deduction required to be made.

 40

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

Section
2.15           Mitigation Obligations;
Replacement of Lenders.

(a)           Designation of a
Different Lending Office.  If (i) any
Lender requests compensation under Section 2.13, (ii) requires the
Borrower to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.14, or (iii)
any Lender defaults in its obligation to fund Advances hereunder, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Advances hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the reasonable judgment of such Lender, such designation or assignment
(A) would eliminate or reduce amounts payable pursuant to Section 2.13
or 2.14 or avoids such default, as the case may be, in the future and
(B) 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.  A Lender
shall not be required to make any such delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such delegation cease to apply.

(b)           Replacement of
Lenders. If (i) any Lender requests compensation under Section 2.13,
(ii) 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 2.14, or (iii) any Lender defaults in its obligation to fund,
Convert or continue Advances hereunder (in any such case, the “Subject
Lender”), then the Borrower may, at its sole expense and effort, upon
notice to such Subject Lender and the Administrative Agent, require such
Subject Lender to assign and delegate, without recourse (in accordance with and
subject to the restrictions contained in, and consents required by,
Section 9.05), all of its interests, rights and obligations under this
Agreement and the related Loan Documents to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that:

(i)            the Borrower shall
have paid to the Administrative Agent the assignment fee specified in Section
9.05;

 41
 

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

(iii)          in the case of any
such assignment resulting from a claim for compensation under Section 2.13
or payments required to be made pursuant to Section 2.14, such assignment
will result in a reduction in such compensation or payments thereafter;

(iv)          such assignment does
not conflict with applicable law; and

(v)           a Subject Lender
shall not be required to make any such assignment if, prior thereto, as a
result of a waiver by such Subject Lender or otherwise, the circumstances
entitling the Borrower to require such assignment cease to apply.

ARTICLE III

CONDITIONS PRECEDENT

Section
3.01           Conditions Precedent to
Effectiveness.  The Existing
Agreement shall be amended and restated in its entirety as set forth herein
upon the occurrence of the following conditions precedent:

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

(i)            this Agreement, a
Note to each Lender in an amount equal to such Lender’s Commitment, the
Guaranties, the Security Agreements, and supplements to the existing Mortgages,
or if applicable, new Mortgages, encumbering, after giving effect to the Smith
Acquisition, 90% (by value) of the Borrower’s and its Subsidiaries’ Oil and Gas
Properties, and each of the other Loan Documents, and all attached exhibits and
schedules;

(ii)           favorable opinions
of (A) Baker & Botts LLP, special counsel to the Borrower, its
Subsidiaries, and the Guarantors, (B) Robert Thomas, general counsel to the
Borrower, its Subsidiaries and the Guarantors, and (C) local counsel to the
Administrative Agent in Mississippi, Louisiana and Michigan, each dated as of
the Effective Date and in form and substance satisfactory to the Administrative
Agent and the Lenders, and covering such matters as any Lender through the
Administrative Agent may reasonably request;

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

 42
 

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

(v)           copies, certified as
of the Effective Date by a Responsible Officer or the secretary or an assistant
secretary of each Guarantor of (A) the resolutions of the Board of Directors
(or other applicable governing body) of such Guarantor approving the Loan
Documents to which it is a party, (B) the articles or certificate (as
applicable) of incorporation (or organization) and bylaws of such Guarantor,
and (C) all other documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Guaranty, the Security
Instruments, and the other Loan Documents to which such Guarantor is a party;

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

(vii)         certificates of good
standing for the Borrower and each Guarantor as of a recent date in each state
in which each such Person is organized or qualified to do business;

(viii)        a certificate dated
as of the Effective Date from a Responsible Officer of the Borrower stating
that (A) all representations and warranties of the Borrower set forth in
this Agreement are true and correct in all material respects; (B) no
Default has occurred and is continuing; and (C) the conditions in this
Section 3.01 have been met;

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

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

(xi)           certificates
evidencing the Equity Interests required in connection with the Security
Agreements and powers executed in blank for each such certificate;

(xii)          the initial
Internal Engineering Report dated as of January 1, 2007 together with a letter
from Ryder Scott dated as of January    , 2007 detailing the
results of its audit of such report;

(xiii)         copies, certified
by a Responsible Officer of the Borrower, of the Acquisition Instruments and
all exhibits and schedules thereto, together with all amendments, modifications
or waivers thereto in effect on the Effective Date; and

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

 43
 

(b)           Payment of Fees.  On the Effective Date, the Borrower shall
have paid the fees required by Section 2.08(c) and all costs and expenses
that have been invoiced and are payable pursuant to Section 9.03.

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

(d)           Security
Instruments.  The Administrative
Agent shall have received all appropriate evidence required by the
Administrative Agent and the Lenders in their sole discretion necessary to
determine that the Administrative Agent (for its benefit and the benefit of the
Lenders and the Swap Counterparties) shall have an Acceptable Security Interest
in the Collateral (which shall include, after giving effect to the Smith
Acquisition, 90% (by value) of the Borrower’s and its Subsidiaries’ Oil and Gas
Properties) and that all actions or filings necessary to protect, preserve and
validly perfect such Liens have been made, taken or obtained, as the case may
be, and are in full force and effect.

(e)           Title.  The Administrative Agent shall be satisfied
in its sole discretion with the title to the Oil and Gas Properties to be
included in the initial Borrowing Base and that such Oil and Gas Properties,
after giving effect to the Smith Acquisition, (1) constitute at least 75% of
the Present Value of the Proven Reserves categorized as “proved, developed and
producing” of the Borrower and its Subsidiaries and (2) constitute at least 80%
of the Present Value of the Proven Reserves categorized as “total proved” of
the Borrower and its Subsidiaries, each as determined by the Administrative
Agent in its sole discretion.

(f)            Environmental.  The Administrative Agent shall have received
reports as it may reasonably require and shall be satisfied with the condition
of the Oil and Gas Properties with respect to the Borrower’s compliance with
Environmental Laws.

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

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

(i)            Material Adverse
Change.  No event or circumstance
that could reasonably be expected to cause a Material Adverse Change shall have
occurred.

(j)            No Proceeding or
Litigation; No Injunctive Relief.  No
action, suit, investigation or other proceeding (including the enactment or
promulgation of a statute or rule) by or before any arbitrator or any
Governmental Authority shall be threatened or pending and no preliminary or
permanent injunction or order by a state or federal court shall have been
entered (i) in connection with this Agreement or any transaction contemplated
hereby or (ii) which, in any case, in the judgment of the Administrative Agent,
could reasonably be expected to result in a Material Adverse Change.

(k)           Consents,
Licenses, Approvals, etc.  The
Administrative Agent shall have received true copies (certified to be such by
the Borrower or other appropriate party) of all consents, licenses and
approvals required in accordance with applicable law, or in accordance

 44
 

with
any document, agreement, instrument or arrangement to which the Borrower, the
Guarantors and their respective Subsidiaries is a party, in connection with the
execution, delivery, performance, validity and enforceability of this Agreement,
the other Loan Documents, and the Acquisition Instruments.  In addition, the Borrower, the Guarantors and
their respective Subsidiaries shall have all such consents, licenses and
approvals required in connection with the continued operation of the Borrower
the Guarantors and their respective Subsidiaries (other than those consents,
licenses and approvals the failure of which to obtain could not reasonably be
expected to cause a Material Adverse Effect), and such approvals shall be in
full force and effect, and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on this
Agreement and the actions contemplated hereby.  The Administrative Agent shall be satisfied
that the consummation of the Smith Acquisition does not contravene any law or
any material contractual restriction binding on or affecting the Borrower or
any Subsidiary, Sellers, or any other party to the Smith Acquisition
Instruments.

(l)            Material
Contracts.  The Borrower shall have
delivered to the Administrative Agent copies of all material contracts,
agreements or instruments listed on the attached Schedule 4.20.

(m)          Smith Acquisition.  All
conditions to the consummation and effectiveness of the Smith Acquisition
(other than the payment of the purchase price) shall have been met.  Furthermore, the Administrative Agent shall
have received (i) payoff letters in form and substance reasonably satisfactory
to the Administrative Agent covering all Debt secured by liens that encumber
any of the Properties being purchased by the Borrower under the Smith
Acquisition, and (ii) UCC financing statement terminations, deed of trust and
mortgage lien releases and other evidence reasonably required by the
Administrative Agent indicating that all liens (other than Permitted Liens)
encumbering the Smith Assets to be acquired by the Borrower and its
Subsidiaries have been terminated or released. 
In addition, the Administrative Agent shall have received copies of the
Acquisition Instruments certified by a Responsible Officer of the Borrower.

(n)           Hedging
Arrangements.  The Administrative
Agent and the Lenders shall be satisfied with the existing Hedge Contracts.

(o)           Minimum Liquidity.  The sum of the Borrower’s unrestricted cash
and Availability, after giving effect to the consummation of the Smith
Acquisition and the closing of the facilities evidenced hereby and the making
of any Credit Extensions, shall be at least $25,000,000 as of the Effective
Date.

(p)           Notice of
Borrowing.  The Administrative Agent
shall have received a Notice of Borrowing from the Borrower, with appropriate
insertions and executed by a duly authorized Responsible Officer of the
Borrower.

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

 45
 

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

(a)           the representations
and warranties contained in Article IV of this Agreement and the
representations and warranties contained in the Security Instruments, the
Guaranties, and each of the other Loan Documents are true and correct in all
material respects on and as of the date of such Borrowing or the date of the
issuance, increase, or extension of such Letter of Credit, before and after
giving effect to such Borrowing or to the issuance, increase, or extension of
such Letter of Credit and to the application of the proceeds from such
Borrowing, as though made on and as of such date (other than any such
representations and warranties that, by their terms, refer to a specific date,
which case they are true and correct as of such date); and

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

Section 3.03           Determinations under Sections 3.01
and 3.02.  For purposes of
determining compliance with the conditions specified in Sections 3.01 and 3.02,
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 the Lenders unless
an officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received written notice from such
Lender prior to the Credit Extensions hereunder specifying its objection
thereto and such Lender shall not have made available to the Administrative
Agent such Lender’s ratable portion of such Borrowings.

ARTICLE IV

REPRESENTATIONS
AND WARRANTIES

The Borrower
represents and warrants as follows:

Section
4.01           Existence; Subsidiaries.  The Borrower is a corporation duly organized
and validly existing under the laws of the state of their incorporation and in
good standing and qualified to do business in each jurisdiction where its
ownership or lease of Property or conduct of its business requires such
qualification, other than those jurisdictions wherein the failure to do so
could not reasonably be expected to cause a Material Adverse Change.  Each Subsidiary of the Borrower is duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of formation and in good standing and qualified to do business in
each jurisdiction where its ownership or lease of Property or conduct of its
business requires such qualification, other than those jurisdictions wherein
the failure to do so could not reasonably be expected to cause a Material
Adverse Change.  As of the Effective
Date, the Borrower has no Subsidiaries other than those listed on Schedule
4.01.

Section
4.02           Power.  The execution, delivery, and performance by
the Borrower of this Agreement, the Notes, and the other Loan Documents to
which it is a party and by the Guarantors of the

 46
 

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

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

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

Section
4.05           Financial Statements.

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

(b)           All projections, estimates,
and pro forma financial information furnished by the Borrower were prepared on
the basis of assumptions, data, information, tests, or conditions

 47
 

believed
by the Borrower to be reasonable at the time such projections, estimates, and
pro forma financial information were furnished.

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

(d)           As of the Effective
Date and after giving effect to the Smith Acquisition, the Borrower, the
Guarantors and their respective Subsidiaries have no Debt other than the Debt
listed on Schedule 4.05.

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

Section
4.07           Litigation; Compliance
with Laws.

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

(b)           The Borrower and its
Subsidiaries have complied in all material respects with all material statutes,
rules, regulations, orders and restrictions of any Governmental Authority
having jurisdiction over the conduct of their respective businesses or the
ownership of their respective Property, except to the extent that
non-compliance with such material statutes, rules, regulations, orders and
restrictions could not reasonably be expected to cause a Material Adverse
Change.

 48
 

Section
4.08           Use of Proceeds.  The proceeds of the Advances will be used by
the Borrower for the purposes described in Section 5.09.  The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U). 
No proceeds of any Advance will be used to purchase or carry any margin
stock in violation of Regulation T, U or X.

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

Section 4.10           Taxes.

(a)           Reports and
Payments.  All Returns (as defined
below in clause (c) of this Section 4.10) required to be filed by or on
behalf of the Borrower, the Guarantors, or any member of the Controlled Group
(hereafter collectively called the “Tax Group”) have been duly filed on
a timely basis or appropriate extensions have been obtained and such Returns
are and will be true, complete and correct, except where the failure to so file
would not be reasonably expected to cause a Material Adverse Change; and all
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto will have been paid in full on a timely basis, and no other
Taxes will be payable by the Tax Group with respect to items or periods covered
by such Returns, except in each case to the extent of (i) reserves reflected in
the Financial Statements or (ii) taxes that are being contested in good
faith.  The reserves for accrued Taxes
reflected in the financial statements delivered to the Lenders under this
Agreement are adequate in the aggregate for the payment of all unpaid Taxes,
whether or not disputed, for the period ended as of the date thereof and for
any period prior thereto, and for which the Tax Group may be liable in its own
right, as withholding agent or as a transferee of the assets of, or successor
to, any Person, except for such Taxes or reserves therefor, the failure to pay
or provide for which does not and would not reasonably be expected to cause a
Material Adverse Change.

(b)           Taxes Definition.  “Taxes” in this Section 4.10 shall mean all
taxes, charges, fees, levies, or other assessments imposed by any federal,
state, local, or foreign taxing authority, including income, gross receipts,
excise, real or personal property, sales, occupation, use, service, leasing,
environmental, value added, transfer, payroll, and franchise taxes (and
including any interest, penalties, or additions to tax attributable to or
imposed on or with respect to any such assessment).

(c)           Returns
Definition.  “Returns” in this
Section 4.10 shall mean any federal, state, local, or foreign report, estimate,
declaration of estimated Tax, information statement or return relating to, or
required to be filed in connection with, any Taxes, including any information
return or report with respect to backup withholding or other payments of third
parties.

Section
4.11           Pension Plans.  All Plans are in compliance in all material
respects with all applicable provisions of ERISA, except where such
non-compliance could not reasonably be expected to result in a Material Adverse
Change.  No Termination Event has
occurred with respect to any Plan that could reasonably be expected to result
in a Material Adverse Change, and each Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code, except where the failure to so comply or administer
could not reasonably be expected to result

 49

in a Material Adverse
Change.  No “accumulated funding
deficiency” (as defined in Section 302 of ERISA) has occurred and there has
been no excise tax imposed under Section 4971 of the Code, except, in each
case, as could not reasonably be expected to result in a Material Adverse
Change.  No Reportable Event has occurred
with respect to any Multiemployer Plan, and each Multiemployer Plan has
complied with and been administered in all material respects in accordance with
applicable provisions of ERISA and the Code, except where the failure to so
comply or administer could not reasonably be expected to result in a Material
Adverse Change.  The present value of all
benefits vested under each Plan (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits, except
where such circumstance could not reasonably be expected to result in a
Material Adverse Change.  Neither the
Borrower nor any member of the Controlled Group has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability.  As of the most recent
valuation date applicable thereto, neither the Borrower nor any member of the
Controlled Group would become subject to any liability under ERISA if the
Borrower or any member of the Controlled Group has received notice that any
Multiemployer Plan is insolvent or in reorganization, except where such
circumstance could not reasonably be expected to result in a Material Adverse
Change.  Based upon GAAP existing as of
the date of this Agreement and current factual circumstances, the Borrower has
no reason to believe that the annual cost during the term of this Agreement to
the Borrower or any member of the Controlled Group for post-retirement benefits
to be provided to the current and former employees of the Borrower or any
member of the Controlled Group under Plans that are welfare benefit plans (as
defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be
expected to cause a Material Adverse Change.

Section
4.12           Condition of Property;
Casualties.  Each of the Borrower and
the Guarantors has good and marketable title to all of its Properties as is
customary in the oil and gas industry in all material respects, free and clear
of all Liens except for Permitted Liens. 
The material Properties used or to be used in the continuing operations
of the Borrower and each of the Guarantors are in reasonably good repair,
working order and condition, ordinary wear and tear excepted.  Since the date of the Financial Statements,
neither the business nor the material Properties of the Borrower and each of
the Guarantors, taken as a whole, has been materially and adversely affected as
a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
Property or cancellation of contracts, Permits, or concessions by a
Governmental Authority, riot, activities of armed forces, or acts of God or of
any public enemy (whether or not covered by insurance).

Section
4.13           No Burdensome
Restrictions; No Defaults.

(a)            Neither the
Borrower nor any Guarantor or any of their respective Subsidiaries is a party
to any indenture, loan, or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction or provision of
applicable law or governmental regulation that could reasonably be expected to
cause a Material Adverse Change.  Neither
the Borrower nor any Guarantor or any of their respective Subsidiaries is in
default under or with respect to any contract, agreement, lease, or other
instrument to which the Borrower or any Guarantor or any of their respective
Subsidiaries is a party and which could reasonably be expected to cause a
Material Adverse Change.  Neither the
Borrower nor any Guarantor or any of their respective Subsidiaries has received
any notice of default under any contract, agreement, 

 50
 

lease,
or other instrument to which the Borrower, or Guarantor or any respective
Subsidiary is a party, which default could reasonably be expected to result in
a Material Adverse Change.

(b)           No Default has
occurred and is continuing.

Section
4.14           Environmental Condition.

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

(b)           Certain
Liabilities.  Except as set forth on
Schedule 4.14, to the Borrower’s actual knowledge, none of the present or
previously owned or operated Property of the Borrower or any Guarantor or of
any of their former Subsidiaries, wherever located: (i) has been placed on
or proposed to be placed on the National Priorities List, the Comprehensive
Environmental Response Compensation Liability Information System list, or their
state or local analogs, or, to the extent that the same could reasonably be
expected to cause a Material Adverse Change, have been otherwise investigated,
designated, listed, or identified as a potential site for removal, remediation,
cleanup, closure, restoration, reclamation, or other response activity under
any Environmental Laws; (ii) is subject to a Lien, arising under or in
connection with any Environmental Laws, that attaches to any revenues or to any
Property owned or operated by the Borrower or any Guarantor or any of their
respective Subsidiaries, wherever located, which could reasonably be expected
to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past
operations which has caused at the site or at any third-party site any
condition that has resulted in or could reasonably be expected to result in the
need for Response that would cause a Material Adverse Change.

(c)            Certain Actions.  Without limiting the foregoing and except as
set forth on Schedule 4.14: (i) all necessary notices have been properly
filed, and no further action is required under current Environmental Law as to
each Response or other restoration or remedial project undertaken by the
Borrower or the Guarantors or any of their former Subsidiaries on any of their
presently or formerly owned or operated Property and (ii) the present and, to
the Borrower’s best knowledge, future liability, if any, of the Borrower and
the Guarantors which could reasonably be expected to arise in connection with
requirements under Environmental Laws will not result in a Material Adverse
Change.

Section
4.15           Permits, Licenses, Etc.  The Borrower and the Guarantors possess all
authorizations, Permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade name rights and copyrights which are
material to the conduct of their business, except where the failure 

 51
 

to do so could not
reasonably be expected to result in a Material Adverse Change.  No such Person is in violation of the terms
under which it possesses such intellectual property or the right to use such
intellectual property, which violation could reasonably be expected to result
in a Material Adverse Change.  The
Borrower and the Guarantors manage and operate their business in all material
respects in accordance with all applicable Legal Requirements and good industry
practices, except for violations which could not reasonably be expected to
result in a Material Adverse Change.

Section 4.16           Gas Contracts.  Except as set forth on Schedule 4.16, neither
the Borrower nor any of the Guarantors, as of the Effective Date: (a) is
obligated in any material respect by virtue of any prepayment made under any
contract containing a “take-or-pay” or “prepayment” provision or under any similar agreement to deliver
hydrocarbons produced from or allocated to any of the Borrower’s and its
Subsidiaries’ Oil and Gas Properties at some future date without receiving full
payment therefor at, or within 90 days after, the time of delivery, or (b) has
produced gas, in any material amount, subject to, and neither the Borrower’s
nor any of its Subsidiaries’ Oil and Gas Properties is subject to, balancing
rights of third parties or subject to balancing duties under governmental
requirements or joint operating agreements, except as to such matters for which
the Borrower or any such Subsidiary has disclosed to the Administrative Agent
and has established monetary reserves adequate in amount to satisfy such
obligations and have segregated such reserves from other accounts.

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

Section
4.18           Solvency and Insurance.  As of the Effective Date and after giving effect to the Smith Acquisition,
the Borrower and each of its Subsidiaries is Solvent.  Additionally, each of the Borrower and its
Subsidiaries carry insurance required under Section 5.02.

Section
4.19           Hedging Agreements.  Schedule 4.19 sets forth, as of the Effective
Date, a true and complete list of all Interest Hedge Agreements, Hydrocarbon Hedge
Agreements, and any other Hedge Contracts of the Borrower and each Guarantor,
the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark to market value
thereof, all credit support agreements relating thereto (including any margin
required or supplied), and the counterparty to each such agreement.

Section
4.20           Material Agreements.  Schedule 4.20 sets forth a complete and
correct list of all material agreements, leases, indentures, purchase
agreements, obligations in respect of letters of credit, guarantees, joint
venture agreements, and other instruments in effect or to be in effect as of
the Effective 

 52
 

Date (other than (a) the
agreements set forth in Schedule 4.19, (b) the leases and agreements listed in
any Exhibit to a Mortgage), (c) the Acquisition Instruments and any material
agreements or instruments disclosed therein, (d) employment agreements, (e)
drilling contracts, seismic license agreements, master services contracts and
other similar vendor agreements, in each case entered into in the ordinary
course of business and providing for obligations of the Borrower and its
Subsidiaries not in excess of $5,000,000, (f) transportation, processing,
marketing and other similar agreements in connection with the delivery and sale
of Hydrocarbons produced from the Oil and Gas Properties of the Borrower and
its Subsidiaries, in each case, entered into in the ordinary course of business
but excluding long-term agreements providing for the sale of Hydrocarbons at a
fixed price, and (g) or any other agreements, documents and other instruments
relating to Oil and Gas Properties and providing for obligations of the
Borrower and its Subsidiaries, but only to the extent that all such agreements,
documents or instruments do not, when taken together, have aggregate
obligations in excess of $10,000,000) providing for, evidencing, securing or
otherwise relating to any Debt of the Borrower or any of the Guarantors, and
all obligations of the Borrower or any of the Guarantors to issuers of surety
or appeal bonds issued for account of the Borrower or any such Guarantor, and
such list correctly sets forth the names of the debtor or lessee and creditor
or lessor with respect to the Debt or lease obligations outstanding or to be
outstanding and the Property subject to any Lien securing such Debt or lease
obligation.  The Borrower has heretofore
delivered to the Administrative Agent and the Lenders a complete and correct
copy of all such material agreements and other instruments of the Borrower and
the Guarantors.

Section
4.21           Refunds.  Except as described on Schedule 4.21 attached
hereto, no orders of, proceedings pending before, or other requirements of the
Minerals Management Service, Bureau of Land Management, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in a Borrower or Guarantor being required to
refund any material portion of the proceeds received or to be received from the
sale of Hydrocarbons constituting part of the Collateral.

ARTICLE V

AFFIRMATIVE
COVENANTS

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

Section
5.01           Compliance with Laws,
Etc.  The Borrower shall comply, and
cause each of its Subsidiaries to comply, in all material respects with all
Legal Requirements, except where the failure to so comply could not reasonably
be expected to result in a Material Adverse Change.  Without limiting the generality and coverage of
the foregoing, the Borrower shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects, with all Environmental Laws
and all laws, regulations, or directives with respect to equal employment
opportunity and employee safety in all jurisdictions in which the Borrower or
any of its Subsidiaries do business, except where the failure to so comply
could not reasonably be expected to result in a Material Adverse Change; provided,
however, that this Section 5.01 shall not prevent the Borrower or
any of its Subsidiaries from, in good faith and with reasonable diligence,
contesting the validity or application of any such laws or regulations by
appropriate legal proceedings.  Without
limitation of the foregoing, the Borrower shall, and shall cause each of its
Subsidiaries to, (a) maintain and possess all authorizations, Permits,
licenses, trademarks, 

 53
 

trade names, rights and
copyrights which are necessary to the conduct of its business, except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Change and (b) obtain, as soon as practicable, all consents or
approvals required from any states of the United States (or other Governmental
Authorities) necessary to grant the Administrative Agent an Acceptable Security
Interest in the Borrower’s and its Subsidiaries’ Oil and Gas Properties.

Section
5.02           Maintenance of Insurance.

(a)            The Borrower shall,
and shall cause each of its Subsidiaries to, procure and maintain or shall
cause to be procured and maintained continuously in effect with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks and liabilities as are customarily maintained by companies engaged
in the same or similar businesses (including, as applicable, oil and gas
exploration and production companies), operating in the same or similar
locations and as otherwise reasonably satisfactory to the Administrative
Agent.  In addition, the Borrower shall,
and shall cause each of its Subsidiaries to, comply with all requirements
regarding insurance contained in the Security Instruments.

(b)           All copies of
policies (which copies must be certified by a Responsible Officer of the
Borrower) or certificates thereof, and endorsements and renewals thereof shall
be delivered to and retained by the Administrative Agent.  All policies of insurance shall either have
attached thereto a Lender’s loss payable endorsement for the benefit of the
Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative
Agent or shall name the Administrative Agent as an additional insured, as
applicable.  The Borrower shall furnish
the Administrative Agent with a certificate of insurance or a copy certified by
a Responsible Officer of the Borrower of all policies of insurance
required.  All policies or certificates
of insurance shall set forth the coverage, the limits of liability, the name of
the carrier, the policy number, and the period of coverage.  In addition, all policies of insurance
required under the terms hereof shall contain an endorsement or agreement by
the insurer that any loss shall be payable in accordance with the terms of such
policy notwithstanding any act of ordinary civil negligence of the Borrower, or
a Subsidiary or any party holding under the Borrower or a Subsidiary which
might otherwise result in a forfeiture of the insurance and the further
agreement of the insurer waiving all rights of setoff, counterclaim or
deductions against the Borrower and its Subsidiaries.  All such policies shall contain a provision
that notwithstanding any contrary agreements between the Borrower, its
Subsidiaries, and the applicable insurance company, such policies will not be
canceled, allowed to lapse without renewal or surrendered or amended in a way
that materially reduces the scope or limits of coverage) without at least 30
days’ prior written notice to the Administrative Agent.

(c)            If the Borrower or
any Subsidiary suffers a casualty event or other loss of Property having a fair
market value in an aggregate amount equal to or exceeding $10,000,000, then the
Administative Agent and the Lenders shall have the right to redetermine the
Borrowing Base and the Conforming Borrowing Base in accordance with Section
2.02.

(d)           After the occurrence
and during the continuance of an Event of Default, (i) all proceeds of
insurance, including any casualty insurance proceeds, property insurance
proceeds, proceeds from actions, and any other proceeds, shall be paid directly
to the Administrative Agent and if necessary, assigned to the Administrative
Agent, to be applied in accordance with

 54
 

 

Section
7.06 of this Agreement, whether or not the Obligations are then due and payable
and (ii) in the event that, notwithstanding the “lender’s loss payable
endorsement” requirement of this Section 5.02, the proceeds of any insurance
policy described above are paid to the Borrower or Subsidiaries and any
Obligations are outstanding, the Borrower shall deliver such proceeds to the
Administrative Agent immediately upon receipt.

(e)            In the event that
any insurance proceeds are paid to the Borrower or any of its Subsidiaries in
violation of clause (d), the Borrower or such Subsidiary shall hold the
proceeds in trust for the Administrative Agent, segregate the proceeds from the
other funds of the Borrower or such Subsidiary, and promptly pay the proceeds
to the Administrative Agent with any necessary endorsement.  Upon the request of the Administrative Agent,
each of the Borrower and its Subsidiaries shall execute and deliver to the
Administrative Agent any additional assignments and other documents as may be
necessary or desirable to enable the Administrative Agent to directly collect
the proceeds as set forth herein.

Section
5.03           Preservation of
Corporate Existence, Etc.   Except as
permitted by Section 6.04, the Borrower shall preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate or limited
liability company or limited partnership, as applicable, existence, rights,
franchises, and privileges in the jurisdiction of its incorporation or
organization, as applicable, and qualify and remain qualified, and cause each
such Subsidiary to qualify and remain qualified, as a foreign entity in each
jurisdiction in which qualification is necessary or desirable in view of its
business and operations or the ownership of its Properties, and, in each case,
where failure to qualify or preserve and maintain its rights and franchises
could reasonably be expected to cause a Material Adverse Change.

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

Section
5.05           Visitation Rights.  At any reasonable time and from time to time,
upon reasonable notice, the Borrower shall, and shall cause its Subsidiaries
to, permit the Administrative Agent and any Lender or any of their respective
agents or representatives thereof, to (a) examine and make copies of and
abstracts from the records and books of account of, and visit and inspect at
their reasonable discretion the Properties of, the Borrower and any such
Subsidiary, and (b) discuss the affairs, finances and accounts of the
Borrower and any such Subsidiary with any of their respective officers or
directors; provided that, in no event shall the Borrower or any Subsidiary be
required to disclose any information which would cause the Borrower or such
Subsidiary to be in violation of applicable Legal Requirements.  All such inspections and visits shall be at
the Borrower’s expense (except that, if any Lender makes more than two such
inspections during any calendar year and no Default shall exist at the time of such
inspections, then such Lender shall pay for such additional inspections during
such periods).

 55
 

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

(a)            Annual
Financials.  As soon as available and
in any event not later than 90 days after the end of each fiscal year of
the Borrower and its consolidated Subsidiaries, commencing with the fiscal year
ending December 31, 2006: (i) (A) a copy of the annual audit report for such
year for the Borrower and such consolidated Subsidiaries, including therein the
Borrower’s and such consolidated Subsidiaries’ balance sheets as of the end of
such fiscal year and the Borrower’s and such consolidated Subsidiaries’
statements of income, cash flows, and retained earnings, in each case certified
by independent certified public accountants of national standing reasonably
acceptable to the Administrative Agent and including any management letters
delivered by such accountants to the Borrower or any Subsidiary in connection
with such audit, (B) a certificate of such accounting firm to the
Administrative Agent and the Lenders stating that, in the course of the regular
audit of the business of the Borrower and its consolidated Subsidiaries, if
any, which audit was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm has obtained no
knowledge that a Default has occurred and is continuing, or if, in the opinion
of such accounting firm, a Default has occurred and is continuing, a statement
as to the nature thereof, and (C) a Compliance Certificate executed by a
Responsible Officer of the Borrower; and (ii) if requested by the
Administrative Agent, a copy of the unaudited annual consolidating financial
statements of each of its Subsidiaries, if any, including therein such
Subsidiary’s balance sheet and statements of income, cash flows, and retained
earnings for such fiscal year;

(b)           Quarterly
Financials.  As soon as available and
in any event not later than 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower and its consolidated
Subsidiaries, commencing with the fiscal quarter ending March 31, 2007: (i) the
unaudited balance sheet and the unaudited statements of income, cash flows, and
retained earnings of each such Person for the period commencing at the end of
the previous year and ending with the end of such fiscal quarter, all in
reasonable detail and duly certified with respect to such consolidated
statements (subject to the absence of footnotes 
and to year-end audit adjustments) by a Responsible Officer of the
Borrower as having been prepared in accordance with GAAP; and (ii) a Compliance
Certificate executed by a Responsible Officer of the Borrower;

(c)            Oil and Gas Reserve
Reports.

(i)             As soon as
available but in any event on or before March 31 of each year, an Independent
Engineering Report dated effective as of the immediately preceding January 1
for such year;

(ii)            As soon as
available but in any event on or before September 30 of each year an Internal
Engineering Report dated effective as of the immediately preceding July 1;

(iii)           Such other
information as may be reasonably requested by the Administrative Agent or any
Lender with respect to the Borrower’s and its Subsidiaries’ Oil and Gas
Properties;

 

 56

(iv)          With the delivery of
each Engineering Report, a certificate from a Responsible Officer of the
Borrower certifying that, to his best knowledge and in all material respects:
(a) the information contained in the Engineering Report and any other information
delivered in connection therewith was prepared on the basis of assumptions,
data, information, tests, or conditions believed by the Borrower to be
reasonable at the time delivered, (b) the Borrower or its Subsidiary, as
applicable, owns good and marketable title to the Oil and Gas Properties
evaluated in such Engineering Report and such Properties are subject to an
Acceptable Security Interest and are free of all Liens except for Permitted
Liens, (c) except as set forth on an exhibit to the certificate, on a net basis
there are no gas imbalances, take or pay or other prepayments with respect to
its Oil and Gas Properties evaluated in such Engineering Report which would
require the Borrower or any of its Subsidiaries to deliver Hydrocarbons
produced from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor, (d) none of its Oil and Gas
Properties have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its Oil and Gas Properties sold and in such
detail as reasonably required by the Required Lenders, (e) attached to the
certificate is a list of its Oil and Gas Properties added to and deleted from
the immediately prior Engineering Report and a list showing any change in
working interest or net revenue interest in its Oil and Gas Properties
occurring and the reason for such change, (f) attached to the certificate is a
list of all Persons disbursing proceeds to the Borrower or any of its
Subsidiaries, as applicable, from its Oil and Gas Properties, and (g) except as
set forth on a schedule attached to the certificate, all of the Oil and Gas
Properties evaluated by such Engineering Report are pledged as Collateral for
the Obligations;

(d)           Production
Reports.  As soon as available and in
any event within 45 days after the end of each calendar quarter, commencing
with the calendar quarter ending December 31, 2006, a report setting forth (i)
the production and associated lease operating statements for the Oil and Gas
Properties of the Borrower and its Subsidiaries containing Proven Reserves in
form and substance reasonably satisfactory to the Administrative Agent,
together with a certificate signed by a Responsible Officer of the Borrower as
to the truth and accuracy of such analyses in all material respects; (ii) any
changes to any producing reservoir, production equipment, or producing well
from the report delivered for the preceding fiscal quarter, which changes could
cause a Material Adverse Change and (iii) any sales of the Borrower’s or any
Subsidiaries’ Oil and Gas Properties since the delivery of the report for the
preceding fiscal quarter;

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

(f)            Quarterly
Hedging Reports.  Concurrent with the
delivery of the quarterly financials required to be delivered by the Borrower
to the Administrative Agent and the Lenders pursuant to Section 2.02, a
statement prepared by Borrower and certified as being true and correct in all
material respects by a Responsible Officer of Borrower, setting forth in
reasonable 

 57
 

detail
all Hydrocarbon Hedge Agreements to which any production of oil, gas or other
Hydrocarbons from the Oil and Gas Properties of the Borrower and its
Subsidiaries is then subject, together with a statement of Borrower’s position
with respect to each such Hydrocarbon Hedge Agreement; provided, however,
if the price of any of the oil, gas or other Hydrocarbons produced from such
Oil and Gas Properties is subject to a Hydrocarbon Hedge Agreement, then
Borrower shall promptly notify the Administrative Agent if such Hydrocarbon
Hedge Agreement is terminated, modified, amended or altered prior to the end of
its contractual term, or if there is an amendment, adjustment or modification
of the price of any of the oil, gas or other Hydrocarbons produced from such
Oil and Gas Properties that is subject to or established by a Hydrocarbon Hedge
Agreement;

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

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

(i)             Other ERISA
Notices.  Promptly and in any event
within five Business Days after (i) receipt thereof by the Borrower, any
Guarantor or any of their respective Subsidiaries from a Multiemployer Plan
sponsor, or (ii) the Borrower acquires knowledge of any other Controlled Group
member’s receipt thereof from a Multiemployer Plan sponsor, a copy of each
notice received by the Borrower or any member of the Controlled Group
concerning the imposition or amount of withdrawal liability pursuant to Section
4202 of ERISA;

(j)             Environmental
Notices.  Promptly upon the receipt
thereof by the Borrower or any of its Subsidiaries, a copy of any form of
request, notice, summons or citation received from the Environmental Protection
Agency, or any other Governmental Authority, concerning (i) violations or
alleged violations of Environmental Laws, which seeks to impose liability
therefor and could reasonably be expected to cause a Material Adverse Change,
(ii) any action or omission on the part of the Borrower or any of its
Subsidiaries or any of their former Subsidiaries in connection with Hazardous
Waste or Hazardous Substances which could reasonably result in the imposition
of liability therefor that could reasonably be expected to cause a Material
Adverse Change, including any information request related to, or notice of,
potential 

 58
 

responsibility
under CERCLA, or (iii) concerning the filing of a Lien upon, against or in
connection with the Borrower or any of its Subsidiaries or their former
Subsidiaries, or any of their leased or owned Property, wherever located;

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

(l)             Material
Changes.  Prompt written notice of any
condition or event of which the Borrower has knowledge, which condition or
event has resulted or may reasonably be expected to result in (i) a Material
Adverse Change or (ii) a breach of or noncompliance with any material term,
condition, or covenant of any material contract to which the Borrower or any of
its Subsidiaries is a party or by which they or their Properties may be bound,
which breach or noncompliance could reasonably be expected to result in a
Material Adverse Change;

(m)           Disputes, Etc.  Prompt written notice of (i) any claims,
legal or arbitration proceedings, proceedings before any Governmental
Authority, or disputes, or to the knowledge of the Borrower threatened, or
affecting the Borrower, or any of its Subsidiaries which, if adversely determined,
could reasonably be expected to cause a Material Adverse Change, or any
material labor controversy of which the Borrower or any of its Subsidiaries has
knowledge resulting in or reasonably considered to be likely to result in a
strike against the Borrower or any of its Subsidiaries and (ii) any claim,
judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any
Property of the Borrower or any of its Subsidiaries if the value of the claim,
judgment, Lien, or other encumbrance affecting such Property shall exceed
$10,000,000;

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

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

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

 59
 

Section
5.07           Maintenance of Property.  Subject to Section 6.04, the Borrower shall,
and shall cause each of its Subsidiaries to, maintain their owned, leased, or
operated Property in reasonably good condition and repair, ordinary wear and
tear excepted; and shall abstain, and cause each of its Subsidiaries to abstain
from, knowingly or willfully permitting the commission of waste or other
injury, destruction, or loss of natural resources, or the occurrence of
pollution, contamination, or any other condition in, on or about the owned or
operated Property involving the Environment that could reasonably be expected
to result in Response activities and that could reasonably be expected to cause
a Material Adverse Change.

Section
5.08           Agreement to Pledge.  The Borrower shall, and shall cause each
Subsidiary to, grant to the Administrative Agent an Acceptable Security
Interest in any Property of the Borrower or any of its Subsidiaries now owned
or hereafter acquired, including Oil and Gas Properties, promptly after receipt
of a written request from the Administrative Agent; provided that, so long as
no Default or Event of Default shall have occurred and be continuing, the
obligation of the Borrower and its Subsidiaries to grant an Acceptable Security
Interest in its Oil and Gas Properties shall be limited to 90% (by value) of
all such Oil and Gas Properties (but in no event shall the Administrative Agent
have an Acceptable Security Interest in less than 90% (by value) of all such
Oil and Gas Properties).

Section
5.09           Use of Proceeds.  The Borrower shall use the proceeds of the
Advances and Letters of Credit to (a) fund the acquisition of the Smith Assets
from the Seller pursuant to the Acquisition Instruments, (b) to refinance
existing Debt, (c) to finance the development and exploitation of Oil and Gas
Properties, and (d) for other general corporate purposes.

Section
5.10           Title.  The Borrower shall from time to time upon the
reasonable request of the Administrative Agent, take such actions and execute
and deliver such documents and instruments as the Administrative Agent shall
require to ensure that the Administrative Agent shall, at all times, have
received satisfactory title opinions (including, if requested, supplemental or
new title opinions addressed to it) or other title evidence, which title
opinions or other title evidence (a) shall collectively cover at least 80% of
the Present Value of the Proven Reserves of the Borrower and its Subsidiaries
shown on its most recently delivered Engineering Report (and together with any
Proven Reserves acquired since the date of such report) and at least 80% of the
Present Value of the Proven Reserves that are categorized as “proved, developed
and producing” on its most recently delivered Engineering Report (and together
with any Proven Reserves acquired since the date of such report), (b) shall be
in form and substance acceptable to the Administrative Agent in its sole
discretion, (c) shall include opinions or other title evidence regarding the
before payout and after payout ownership interests held by the Borrower and its
Subsidiaries for all wells located on the Oil and Gas Properties covered
thereby as to the ownership of Oil and Gas Properties of the Borrower and its
Subsidiaries, and (d) shall reflect that the Administrative Agent has an
Acceptable Security Interest in 90% (by value) of the Oil and Gas Properties of
the Borrower and its Subsidiaries covered thereby.

Section
5.11           Further Assurances; Cure
of Title Defects.  The Borrower
shall, and shall cause each Subsidiary to, cure promptly any defects in the
creation and issuance of the Notes and the execution and delivery of the
Security Instruments, this Agreement, or any of the other Loan Documents.  The Borrower hereby authorizes the Lenders or
the Administrative Agent to file any financing statements without the signature
of the Borrower to the extent permitted by applicable law in order to perfect
or maintain the perfection of any security interest granted under any of the
Loan Documents.  The Borrower at its
expense will, and will cause each Subsidiary to, promptly execute and 

 60
 

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

Section
5.12            Hedging Agreements.  The Borrower shall maintain in effect all
Hedge Contracts existing on the Effective Date.

ARTICLE VI

NEGATIVE
COVENANTS

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

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

(a)            Liens securing the
Obligations;

(b)           Liens securing Debt
permitted under Section 6.02(f); provided that the Debt secured by such
Liens (i) was incurred solely for the purpose of financing the acquisition of
such equipment and does not exceed the aggregate purchase price of such
equipment and the obligations incidental thereto, (ii) is secured only by such
equipment (together with any general intangibles, improvements and proceeds
related thereto) and not by any other assets of the Borrower and its
Subsidiaries, and (iii) is not increased in amount;

(c)            Liens for taxes,
assessments, or other governmental charges or levies not yet due or that (provided
foreclosure, sale, or other similar proceedings shall not have been initiated)
are 

 61
 

being
contested in good faith by appropriate proceedings, and such reserve as may be
required by GAAP shall have been made therefor;

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

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

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

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

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

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

(j)             deposits to secure
the performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of like nature incurred in the ordinary course of business;

(k)            Liens arising by
reason of any judgment or order of any Governmental Authority if (1)
appropriate legal proceedings for the review of such judgment or order are
being diligently prosecuted and execution or enforcement thereof is stayed
pending appeal and (2) such judgment or order does not constitute an Event of
Default under Section 7.01(f); and

 62
 

(l)             Liens
described in Schedule 6.01.

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

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

(b)           Debt listed on
Schedule 4.05 and any renewals, extensions or replacements thereof; provided
that the amount of such Debt may not be increased;

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

(d)           Debt under
Hydrocarbon Hedge Agreements or Interest Hedge Agreements that are not
prohibited by the terms of Section 6.14;

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

(f)            Debt under purchase
money obligations or Capital Lease obligations in respect of equipment of the
Borrower or any Subsidiary; provided that (i) with respect to lease
obligations, the aggregate rental payments thereunder and under any capital
leases included in Schedule 4.05 shall not exceed $2,000,000 in any 12-month
period and (ii) the aggregate liabilities, in accordance with GAAP, in respect
of all such capital leases and purchase money obligations (including the
Capital Leases and purchase money obligations included in Schedule 4.05) under
this clause (f) shall not exceed $10,000,000; and

(g)           Debt not otherwise permitted under this Section 6.02; provided that (i)
such Debt is not secured by any Lien and (ii) the aggregate of amount of such
Debt shall not to exceed $10,000,000 at
any time.

Section
6.03           Agreements Restricting
Liens and Distributions.  The
Borrower shall not, nor shall it permit any of its Subsidiaries to, create,
incur, assume or permit to exist any contract, agreement or understanding
(other than this Agreement, the Security Instruments, and the Subordinated Loan
Documents) which in any way prohibits or restricts the granting, conveying,
creation or imposition of any Lien on any of its Property, whether now owned or
hereafter acquired, to secure the Obligations or restricts any Subsidiary from
paying dividends to the Borrower, or that requires the consent of or notice to
other Persons in connection therewith; provided that the foregoing shall
not apply to (i) restrictions and conditions imposed by Legal
Requirements, (ii) customary restrictions or conditions imposed by any
agreement relating to other secured Debt permitted by this Agreement if such
restrictions or conditions apply only to the Property securing such Debt, (iii)
restrictions on the sublease, assignment or transfer of any Property that is
subject to a lease, license or similar contract (other than a lease, license or
similar contract covering or related to Oil and Gas Properties of the Borrower
and its Subsidiaries) or the 

 63
 

assignment or transfer of
any such lease, license or contract (other than a lease, license or similar
contract covering or related to any Oil and Gas Properties of the Borrower and
its Subsidiaries), and (iv) any restriction with respect to the transfer of any
Property of Borrower or any of its Subsidiaries imposed pursuant to an
agreement entered into by such Person in connection with a proposed sale of
such Property pending the closing of such sale.

Section
6.04           Merger or Consolidation;
Asset Sales.  The Borrower shall not,
nor shall it permit any of its Subsidiaries to (a) merge or consolidate with or
into any other Person without the prior consent of all of the Lenders; provided
that any Subsidiary may merge or be consolidated into the Borrower or any other
Subsidiary (except that, with respect to any such merger or consolidation
involving the Borrower, the Borrower must be the surviving entity); or (b) sell, lease, transfer, assign,
farm-out, convey, or otherwise dispose of any of its Property (including any
working interest, overriding royalty interest, production payments, net profits
interest, royalty interest, or mineral fee interest) other than: (i) the sale
of Hydrocarbons in the ordinary course of business; (ii) the sale or transfer
of equipment that is (A) obsolete, worn out, depleted or uneconomic and
disposed of in the ordinary course of business, (B) no longer necessary for the
business of such Person, (C) salvaged in connection with any plugging or
abandonment of any well, or (D) promptly thereafter replaced by equipment of at
least comparable use and value; (iii) sales of seismic data in the ordinary
course of business in an amount not to exceed $1,000,000 from the Effective
Date until the Maturity Date, (iv) the sale, lease, transfer, assignment,
farm-out, conveyance, or other disposition of any Oil and Gas Properties that
constitute Proven Reserves so long as the aggregate amount of all such sales,
leases, transfers, assignments, farm-outs, conveyances, or other dispositions
does not exceed $20,000,000 in any fiscal year (and, with respect to any such
transaction involving a disposition of assets having a fair market value of
$2,000,000 or more, the Borrower shall give prior written notice to the
Administrative Agent), (v) with prior written notice to the Administrative
Agent, the sale, lease, transfer, assignment, farm-out, conveyance, or other
disposition of any Oil and Gas Properties that consist of prospects and do not
include any Proven Reserves, and (vi) the sale or transfer of Property from the
Borrower to a Subsidiary, from a Subsidiary to the Borrower, from a Subsidiary
to a Subsidiary; provided that, (A) the Administrative Agent and the Lenders
shall continue to have an Acceptable Security Interest in the Property so sold
or transferred, and the new owner of such Property shall execute and deliver
all such agreements, instruments and documents requested by the Administrative
Agent which are necessary or desirable in order for the new owner to grant or
continue such Acceptable Security Interest, and (B) the Borrower shall give to
the Administrative Agent at least 10 days’ prior written notice of such sale or
transfer of Property.

Section
6.05           Restricted Payments.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, make any Restricted Payments except that:

(a)            the Subsidiaries of
the Borrower may make Restricted Payments to the Borrower; and

(b)           if no Default, Event of Default or Borrowing Base Deficiency exists or
would occur as a result thereof, (i) the Borrower may redeem warrants in
accordance with their terms, (ii) the Borrower may make cash payments in lieu
of fractional shares or other Equity Interests of the Borrower, (iii) the
Borrower and its Subsidiaries may make Restricted Payments in an aggregate
amount not to exceed $1,500,000 in any fiscal year of the Borrower in
connection with the redemption of Equity Interests or options held by employees
and members of management of the Borrower and its Subsidiaries, (iv) the
Borrower may make payment of dividends on its 

 64
 

5-3/4%
Series A Cumulative Convertible Perpetual Preferred Stock, and (v) the Borrower
may make Restricted Payments solely in exchange for, or out of the net cash
proceeds of, a substantially concurrent issuance of Equity Interests of the
Borrower that is otherwise permitted under the Loan Documents.

Section
6.06           Investments.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, make or permit to exist any Investments, except:

(a)            Liquid Investments;

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

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

(d)           capital expenditures
incurred in the ordinary course of business;

(e)            advances or
extensions of credit in the form of accounts receivable incurred in the
ordinary course of business and upon terms common in the industry for such
accounts receivable;

(f)            advances to
employees of the Borrower for the payment of expenses in the ordinary course of
business;

(g)           Investments in the
Borrower or any of its Subsidiaries;

(h)           advances made
pursuant to operating agreements, unitization and pooling agreements and
orders, farmout agreements, gas balancing agreements or similar arrangements in
the ordinary course of business to the extent customary in the oil, gas and
mineral production business;

(i)             plugging and
abandonment deposits, escrow deposits, purchase and sale agreement escrow
amounts and other similar deposits or escrows customary for the oil, gas and
mineral business and in each case made in the ordinary course of business;

(j)             Investments made
in replacement Property with the proceeds of a permitted asset sale, if such
Investments are made for fair consideration within 180 days of receipt of such
proceeds and in an amount not exceeding the amount of such proceeds;

(k)            provided no
Default, Event of Default or Borrowing Base deficiency exists prior to or
immediately  thereafter, any acquisition
of assets solely in exchange for, or out of the net cash proceeds of, a
substantially concurrent issuance of equity interests of the Borrower that is
permitted under the Loan Documents;

(l)             mergers or consolidations permitted
by Section 6.04;

 

 65

(m)           acquisitions of Oil and Gas
Properties and related Property (which may include operations);

(n)           the Smith
Acquisition pursuant to the terms of the Smith Acquisition Instruments; and

(o)           Investments not
otherwise permitted by this Section 6.06 that in the aggregate do not exceed
$20,000,000 at any time.

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

Section
6.08           Compliance with ERISA.  Except as could not, in each case or
in the aggregate, reasonably be expected to result in a Material Adverse Change, the Borrower shall not, nor shall it permit
any of its Subsidiaries to, directly or indirectly, (a) engage in, or permit
any Subsidiary or ERISA Affiliate to engage in, any transaction in connection
with which the Borrower, any Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to section 502(c), (i) or
(l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b)
terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan
in a manner, or take any other action with respect to any Plan, which could
result in any liability to the Borrower, any Subsidiary or any ERISA Affiliate
to the PBGC; (c) fail to make, or permit any Subsidiary or ERISA Affiliate to
fail to make, full payment when due of all amounts which, under the provisions
of any Plan, agreement relating thereto or applicable law, the Borrower, a
Subsidiary or any ERISA Affiliate is required to pay as contributions thereto;
(d) permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to
exist, any accumulated funding deficiency within the meaning of Section 302 of
ERISA or section 412 of the Code, whether or not waived, with respect to any
Plan; (e) permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities (as “actuarial present value
of the benefit liabilities” shall have the meaning specified in section 4041 of
ERISA) under any Plan maintained by the Borrower, any Subsidiary or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the current
value of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities; (f)
contribute to or assume an obligation to contribute to, or permit any
Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any Multiemployer Plan; (g) acquire, or permit any Subsidiary or
ERISA Affiliate to acquire, an interest in any Person that causes such Person
to become an ERISA Affiliate with respect to the Borrower, any Subsidiary or
any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at
any time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other
Plan that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value of
the assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities; (h) incur, or permit
any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a
Plan under section 515, 4062, 4063, 4064, 4201 or 

 66
 

4204 of ERISA; (i)
contribute to or assume an obligation to contribute to, or permit any
Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any employee welfare benefit plan, as defined in section 3(1) of
ERISA, including any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in
their sole discretion at any time without any material liability; (j) amend or
permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that the Borrower, any Subsidiary or any
ERISA Affiliate is required to provide security to such Plan under section
401(a)(29) of the Code; or (k) permit to exist any occurrence of any
Reportable Event (as defined in Title IV of ERISA), or any other event or
condition, which presents a material (in the opinion of the Required Lenders)
risk of such a termination by the PBGC of any Plan.

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

Section
6.10           Change of Business.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, make any material change in the character of its
business as an independent oil and gas exploration and production company, nor
will the Borrower or any Subsidiary operate or carry on any material business
in any jurisdiction other than the United States, including the Gulf of Mexico.

Section
6.11           Organizational
Documents, Name Change.  The Borrower
shall not, nor shall it permit any of its Subsidiaries to amend its name or change its jurisdiction of
incorporation, organization or formation, in any case, without prior
written notice to the Administrative Agent.

Section
6.12           Use of Proceeds; Letters
of Credit.  The Borrower will not
permit the proceeds of any Advance or Letters of Credit to be used for any
purpose other than those permitted by Section 5.09.  The Borrower will not engage in the business
of extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U). 
Neither the Borrower nor any Person acting on behalf of the Borrower has
taken or shall take, nor permit any of the Borrower’s Subsidiaries to take any
action which might cause any of the Loan Documents to violate Regulation T, U
or X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate Section 7 of the Exchange Act or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect, including the use of the proceeds of any Advance or Letters of Credit
to purchase or carry any margin stock in violation of Regulation T, U or
X.

Section
6.13           Gas Imbalances,
Take-or-Pay or Other Prepayments. 
The Borrower shall not, nor shall it permit any of its Subsidiaries to,
allow gas imbalances, take-or-pay or other prepayments with respect to the Oil
and Gas Properties of the Borrower or any Subsidiary that would require the
Borrower or any Subsidiary to deliver their respective Hydrocarbons produced on
a monthly basis from such Oil and Gas Properties at some future time without
then or thereafter receiving full payment therefor, except that the
Borrower and its Subsidiaries may have take-or-pay or other similar obligations
of the type described in this Section 6.13 in a net aggregate amount not
to exceed $5,000,000 at any time (net of balancing receivables or assets owing
by third parties to the Borrower or such Subsidiaries).

 67
 

Section
6.14           Limitation on
Speculative Hedging.  The Borrower
shall not, nor shall it permit any of its Subsidiaries to, (a) purchase,
assume, or hold a speculative position in any commodities market or futures
market or enter into any Hedge Contract for speculative purposes or (b) be
party to or otherwise enter into any Hydrocarbon Hedge Agreement, Interest
Hedge Agreement, or any other Hedge Contract that (i) is entered into for
reasons other than as a part of its normal business operations as a risk
management strategy and/or hedge against changes resulting from market conditions
related to the Borrower’s operations, (ii) covers notional volumes in excess of
80% of the anticipated production volumes attributable to Proven Reserves of
the Borrower and its Subsidiaries which are categorized as “proved, developed
and producing” during the period such hedge arrangement is in effect as shown
on its most recently delivered Engineering Report, (iii) is longer than two
years in duration, or (iv) except as consented to by the Administrative Agent,
is with a counterparty or has a guarantor of the obligation of the counterparty
who (unless such counterparty is a Lender Party or one of its Affiliates) at
the time the contract is made does not have long-term obligations rated
BBB or Baa2 or better, respectively, by either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., or is an investment grade-rated
industry participant.  Notwithstanding
the foregoing, the existence of the Hedge Contracts in effect on the Effective
Date (“Existing Hedge Contracts”) shall not be considered a violation of this
Section 6.14 (it being understood, however, that in determining compliance with
the foregoing requirements (including without limitation, the percentage of
volumes hedged) in connection with any Hedge Contracts proposed to be entered into
after the date of this Agreement, both the Existing Hedge Contracts and all
other Hedge Contracts existing after the date of this Agreement shall be
considered).

Section
6.15           Additional Subsidiaries.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, create or acquire any additional Subsidiaries
without (a) prior written notice to the Administrative Agent, (b) such new
Subsidiary executing and delivering to the Administrative Agent, at its
request, a Guaranty, a Security Agreement, a Mortgage, and such other Security
Instruments as the Administrative Agent or the Required Lenders may reasonably
request, (c) the equity holder of such Subsidiary executing and delivering to
the Administrative Agent a Security Agreement pledging 100% of the Equity
Interest owned by such equity holder of such Subsidiary along with the
certificates pledged thereby, if any, and appropriately executed stock powers
in blank, if applicable, and (d) the delivery by the Borrower and such
Subsidiary of any certificates, opinions of counsel, title opinions or other
documents as the Administrative Agent may reasonably request relating to such
Subsidiary.

Section
6.16           Account Payables.  The Borrower shall not, nor shall it permit
any of its Subsidiaries to, allow (a) any of its trade payables to be
outstanding for more than 90 days (except in cases where any such trade payable
is being disputed in good faith and adequate reserves under GAAP have been
established) or (b) the weighted average maturity of all such trade payables to
exceed 75 days.

Section
6.17           Current Ratio.  The Borrower shall not permit, as of the end
of any fiscal quarter, the ratio of (a) its consolidated current assets to (b)
its consolidated current liabilities, to be less than 1.00 to 1.00.  For purposes of this calculation (i) “current
assets” shall include, as of the date of calculation, the aggregate
Availability but shall exclude, as of the date of calculation (A) any cash
deposited with or at the request of a counterparty to any Hedge Contract, (B)
any assets representing a valuation account arising from the application of
SFAS 133 and 143, and (C) the current portion of any deferred tax assets, and
(ii) “current liabilities” shall exclude, as of the date of calculation, (A)
the current portion of long-term Debt permitted under this Agreement, (B) any
liabilities representing a valuation account arising from the application of
SFAS 133 and 143, and (C) the current portion of any tax deferred obligations.

 68
 

Section
6.18           Leverage Ratio.  The Borrower shall not permit, as of the end
of any fiscal quarter, the ratio of (a) all Debt of the Borrower and its
Subsidiaries as of such fiscal quarter end to (b) the consolidated EBITDAX of
the Borrower and its Subsidiaries for the four-fiscal quarter period then
ended, to be greater than 3.00 to 1.00, provided that, in calculating
such ratio (i) for the fiscal quarter ending March 31, 2007, EBITDAX shall be
measured by multiplying EBITDAX for the three-month period then ended by four;
(ii) for the fiscal quarter ending June 30, 2007, EBITDAX shall be measured by
multiplying EBITDAX for the two quarters then ended by two; (iii) for the
fiscal quarter ending September 30, 2007, EBITDAX shall be measured by
multiplying EBITDAX for the three quarters then ended by 4/3; and (iv) for each
fiscal quarter ending on or after December 31, 2007, EBITDAX shall be EBITDAX
for the four-fiscal quarter period then ended.

Section
6.19           Interest Coverage
Ratio.  The Borrower shall not
permit, as of the end of any fiscal quarter, the ratio of (a) the consolidated
EBITDAX of the Borrower and its Subsidiaries for the four-fiscal quarter period then ended to (b) the
consolidated Interest Expense of the Borrower and its Subsidiaries for the
four-fiscal quarter period then ended, to be less than 2.50 to 1.00; provided
that, in calculating such ratio (i) for the fiscal quarter ending March 31,
2007, each of EBITDAX and Interest Expense shall be measured by multiplying
EBITDAX or Interest Expense, as applicable, for the three-month period then
ended by four; (ii) for the fiscal quarter ending June 30, 2007, each of
EBITDAX and Interest Expense shall be measured by multiplying EBITDAX or
Interest Expense, as applicable, for the two quarters then ended by two; (iii)
for the fiscal quarter ending September 30, 2007, each of EBITDAX and Interest
Expense shall be measured by multiplying EBITDAX or Interest Expense, as
applicable, for the three quarters then ended by 4/3; and (iv) for each fiscal
quarter ending on or after December 31, 2007, each of EBITDAX and Interest
Expense shall be EBITDAX or Interest Expense, as applicable, for the
four-fiscal quarter period then ended.

ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

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

(a)            Payment.  The Borrower shall fail (i) to pay when due
any principal, interest or fees due hereunder, under the Notes or any other
Loan Document, (ii) to pay within one (1) Business Day after the same becomes
due, any Reimbursement Obligation, or (iii) to pay within five (5) Business
Days after the same becomes due, any reimbursements, indemnifications, or other
amounts (other than those covered under clause (i) or (ii) above) payable
hereunder, under the Notes, or under any other Loan Document;

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

 69
 

(c)            Covenant
Breaches.  The Borrower, any
Guarantor or any of their respective Subsidiaries shall fail to (i) perform or
observe any covenant contained in Section 5.02(a), Section 5.06(c), Section
5.06(e), Section 5.08, or Article VI or (ii) fail to perform or
observe any other term or covenant set forth in this Agreement or in any other
Loan Document that is not covered by clause (i) above or any other
provision of this Section 7.01, if such failure shall remain unremedied
for 30 days after the earlier of (A) such Loan Party’s knowledge of such breach
or failure and (B) the date notice thereof is given to the Borrower by the
Administrative Agent or any Lender;

(d)           Cross-Defaults.  (i) The Borrower, any Guarantor or any
of their respective Subsidiaries shall fail to pay any principal of or premium
or interest on its Debt which is outstanding in a principal amount of at least
$10,000,000 individually or when aggregated with all such Debt of the Borrower,
any Guarantor or any of their respective Subsidiaries so in default (but
excluding Debt evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt;
(ii) any other event shall occur or condition shall exist under any
agreement or instrument relating to Debt of the Borrower, any Guarantor or any
of their respective Subsidiaries which is outstanding in a principal amount of
at least $10,000,000 individually or when aggregated with all such Debt of the
Borrower, such Subsidiary, or such Guarantor so in default, and shall continue after
the applicable grace period, if any, specified in such agreement or instrument,
if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Debt; or (iii) any such Debt shall
be declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
provided that, for purposes of this subsection 7.01(d), the “principal
amount” of the obligations in respect of Hedging Contracts at any time shall be
the maximum aggregate amount (giving effect to any netting agreements) that
would be required to be paid if such Hedging Contracts were terminated at such
time;

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

(f)            Judgments.  Any judgment or order for the payment of
money in excess of $10,000,000 (exclusive of amounts covered by valid
collectable insurance and for which the insurer has not contested or denied
coverage) shall be rendered against the Borrower, any Guarantor or any of their
respective Subsidiaries and either (i) enforcement proceedings shall 

 70
 

have
been commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;

(g)           Termination
Events.  Any Termination Event with
respect to a Plan shall have occurred, and, 30 days after notice thereof shall
have been given to the Borrower by the Administrative Agent, (i) such
Termination Event shall not have been corrected and (ii) the then present
value of such Plan’s vested benefits exceeds the then current value of assets
accumulated in such Plan by more than the amount of $10,000,000 (or in the case
of a Termination Event involving the withdrawal of a “substantial employer” (as
defined in Section 4001(a)(2) of ERISA), the withdrawing employer’s
proportionate share of such excess shall exceed such amount);

(h)           Plan Withdrawals.  The Borrower or any member of the Controlled
Group as employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$10,000,000;

(i)             Change in
Control.  A Change in Control shall
have occurred;

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

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

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

(m)           Material Adverse
Change.  An event resulting in a
Material Adverse Change shall have occurred and the same shall remain
unremedied for 30 days after notice given by the Administrative Agent,
excluding any change in prevailing economic or business conditions that are
applicable, generally, to companies engaged in the domestic oil and gas
exploration and production business in the continental United States,
including, without limitation, fluctuations in oil and gas prices; or

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

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

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

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

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

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

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

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

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

 72
 

Section
7.04           Right of Set-off.  If an Event of Default shall have occurred
and be continuing, each Lender Party and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
applicable law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held
and other obligations (in whatever currency) at any time owing by such Lender
Party or any such Affiliate to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing under this Agreement or any other Loan Document to such Lender Party,
irrespective of whether or not such Lender Party shall have made any demand
under this Agreement or any other Loan Document and although such obligations
of the Borrower may be  contingent or
unmatured or are owed to a branch or office of such Lender Party different from
the branch or office holding such deposit or obligated on such
indebtedness.  The rights of each Lender
Party and its Affiliates under this Section are in addition to other rights and
remedies (including other rights of setoff) that such Lender Party or its
Affiliates may have.  Each Lender Party
agrees to notify the Borrower and the Administrative Agent promptly after any
such setoff and application; provided that the failure to give such
notice shall not affect the validity of such setoff and application.

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

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

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

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

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

 73
 

ARTICLE VIII

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

Section
8.01           Appointment and
Authority.  Each of the Lenders and
the Issuing Lender hereby irrevocably appoints Union Bank of California, N.A.
to act on its behalf as the Administrative Agent hereunder and under the other
Loan Documents 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 or thereof, together with such actions and powers as
are reasonably incidental thereto.  The
provisions of this Article are solely for the benefit of the Administrative
Agent, the Lenders and the Issuing Lender, and neither the Borrower nor any
Guarantor shall have rights as a third party beneficiary of any of such provisions.

Section
8.02           Rights as a Lender.  The Person serving as the Administrative
Agent hereunder shall have the same rights and powers in its capacity as a
Lender as any other Lender and may exercise the same as though it were not the
Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise
expressly indicated or unless the context otherwise requires, include the
Person serving as the Administrative Agent hereunder in its individual
capacity.  Such Person and its Affiliates
may accept deposits from, lend money to, act as the financial advisor or in any
other advisory capacity for and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if such Person
were not the Administrative Agent hereunder and without any duty to account
therefor to the Lenders.

Section
8.03           Exculpatory Provisions.  Neither the Administrative Agent nor any of
its Related Parties shall be liable for any action taken or omitted to be taken
(INCLUDING THE ADMINISTRATIVE AGENT’S OR SUCH
RELATED PARTY’S OWN NEGLIGENCE) by it or them under or in connection
with this Agreement or the other Loan Documents, except for its or their own
gross negligence or willful misconduct. 
The Administrative Agent shall not have any duties or obligations except
those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the
foregoing, the Administrative Agent:

(a)            shall not be
subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;

(b)           shall not have any
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 as
directed in writing by the Required Lenders (or such other number or percentage
of the Lenders as shall be expressly provided for herein or in the other Loan
Documents); provided that the Administrative Agent shall not be required
to take any action that, in its opinion or the opinion of its counsel, may
expose the Administrative Agent to liability or that is contrary to any Loan
Document or applicable law; and

(c)            shall not, except
as expressly set forth herein and in the other Loan Documents, 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 Affiliates that is communicated to or
obtained by the Person serving as the Administrative Agent or any of its
Affiliates in any capacity.

The Administrative Agent
shall not be liable for any action taken or not taken by it (i) with the
consent or at the request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary, or as the Administrative Agent
shall believe in good faith shall be 

 74
 

necessary, under the
circumstances as provided in Sections 9.01, Section 7.02 and Section 7.03) or
(ii) in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until notice describing such
Default is given to the Administrative Agent by the Borrower, a Lender, or the
Issuing Lender.

The Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire
into (A) any statement, warranty or representation made in or in connection
with this Agreement or any other Loan Document, (B) the contents of any
certificate, report or other document delivered hereunder or thereunder or in
connection herewith or therewith, (C) the performance or observance of any of
the covenants, agreements or other terms or conditions set forth herein or
therein or the occurrence of any Default, (D) the validity, enforceability, effectiveness
or genuineness of this Agreement, any other Loan Document or any other
agreement, instrument or document or (E) the satisfaction of any condition set
forth in Article III or elsewhere herein, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.

Section
8.04           Administrative Agent’s
Reliance, Etc.  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 (including any electronic message, Internet or
intranet website posting or other distribution) believed by it to be genuine
and to have been signed, sent or otherwise authenticated 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 have been
made by the proper Person and shall not incur any liability for relying
thereon.  In determining compliance with
any condition hereunder to the making of an Advance, or the issuance, increase
or extension of a Letter of Credit, that by its terms must be fulfilled to the
satisfaction of a Lender or the Issuing Lender, the Administrative Agent may
presume that such condition is satisfactory to such Lender or the Issuing
Lender unless the Administrative Agent shall have received notice to the
contrary from such Lender or the Issuing Lender prior to the making of such
Advance or the issuance, increase or extension of such Letter of Credit.  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.

Section
8.05           Delegation of Duties.  The Administrative Agent may perform any and
all of its duties and exercise its rights and powers hereunder or under any
other Loan Document 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 of
its duties and exercise its rights and powers by or through their respective
Related Parties.  The exculpatory
provisions of this Article 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
8.06           Lender Credit Decision.  Each Lender and the Issuing Lender
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender or any of their Related Parties and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement.  Each Lender and the Issuing Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any 

 75
 

other Lender or any of their
Related Parties 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
or any related agreement or any document furnished hereunder or thereunder.

Section
8.07           Indemnification.  THE LENDERS SEVERALLY AGREE TO INDEMNIFY THE
ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH OF THEIR RESPECTIVE
RELATED PARTIES (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO
THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY
ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE
ADMINISTRATIVE AGENT’S, THE ISSUING LENDER’S, AND EACH OF
THEIR RESPECTIVE RELATED PARTIES’ OWN NEGLIGENCE), AND INCLUDING
ENVIRONMENTAL LIABILITIES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO
PERSON SEEKING INDEMNIFICATION, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES,
CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (X) ARE DETERMINED BY A
COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON SEEKING
INDEMNIFICATION.  WITHOUT LIMITATION OF
THE FOREGOING, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE
ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET
EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN
CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE
EXTENT THAT THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED
FOR SUCH BY THE BORROWER.

Section
8.08           Successor Administrative
Agent and Issuing Lender.  The
Administrative Agent and the Issuing Lender may at any time give notice of its
resignation to the other Lender Parties and the Borrower.  Upon receipt of any such notice of
resignation, the Required Lenders shall have the right, in consultation with
the Borrower, to appoint a successor Administrative Agent and Issuing Lender
which shall be a bank with an office in Texas or an Affiliate of any such bank
with an office in Texas.  If no such
successor shall have been so appointed and shall have accepted such appointment
within 30 days after the retiring Administrative Agent or Issuing Lender
gives notice of its resignation, then the retiring Administrative Agent or
Issuing Lender, as applicable, may on behalf of the Lenders and Issuing
Lenders, appoint a successor agent or issuing lender meeting the qualifications
set forth above; provided that if the retiring Administrative Agent or
Issuing Lender shall notify the Borrower and the Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (a) the retiring
Administrative Agent or Issuing Lender, as applicable, shall be discharged from
its duties and obligations hereunder and under the other Loan

 76
 

Documents (except that (i)
in the case of any collateral security held by the Administrative Agent on
behalf of the Lenders or the Issuing Lender under any of the Loan Documents,
the retiring Administrative Agent shall continue to hold such collateral
security until such time as a successor Administrative Agent is appointed and
(ii) the retiring Issuing Lender shall remain the Issuing Lender with respect
to any Letters of Credit outstanding on the effective date of its resignation
and the provisions affecting the Issuing Lender with respect to such Letters of
Credit shall inure to the benefit of the retiring Issuing Lender until the
termination of all such Letters of Credit), and (b) all payments,
communications and determinations provided to be made by, to or through the
retiring Administrative Agent or Issuing Lender, as applicable, shall instead
be made by or to the Lenders, until such time as the Required Lenders appoint a
successor Administrative Agent or Issuing Lender as provided for above in this
paragraph.  Upon the acceptance of a
successor’s appointment as Administrative Agent or Issuing Lender hereunder,
such successor shall succeed to and become vested with all of the rights,
powers, privileges and duties of the retiring (or retired) Administrative Agent
or Issuing Lender, as applicable, and the retiring Administrative Agent or
Issuing Lender, as applicable, shall be discharged from all of its duties and
obligations hereunder or under the other Loan Documents (if not already
discharged therefrom as provided above in this paragraph).  The fees payable by the Borrower to a
successor Administrative Agent or Issuing Lender, as applicable shall be the
same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor.  After the
retiring Administrative Agent’s or Issuing Lender’s resignation hereunder and
under the other Loan Documents, the provisions of this Article and Sections
9.03(a), (b), and (c), Section 8.07, and Section 2.07(f) shall continue in effect
for the benefit of such retiring Administrative Agent and Issuing Lender, its
sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while the retiring Administrative
Agent or Issuing Lender, as applicable, was acting as Administrative Agent or
Issuing Lender.

Section 8.09           Collateral Matters.  Administrative Agent is authorized on behalf
of the Lenders, without the necessity of any notice to or further consent from
the Lenders, from time to time, to take any actions with respect to any
Collateral or Security Instruments which may be necessary to perfect and
maintain Acceptable Security Interests in and Liens upon the Collateral granted
pursuant to the Security Instruments. 
Administrative Agent is further authorized on behalf of the Lenders,
without the necessity of any notice to or further consent from the Lenders,
from time to time, to take any action (other than enforcement actions requiring
the consent of, or request by, the Required Lenders as set forth in Section
7.02 or Section 7.03 above) in exigent circumstances as may be reasonably
necessary to preserve any rights or privileges of the Lenders under the Loan
Documents or applicable law.  Each Lender
irrevocably authorizes Administrative Agent to release any Lien granted to or
held by the Administrative Agent upon any Collateral: (a) upon termination of
the Commitments, termination or expiration of all Letters of Credit, and
payment in full of all Obligations payable under this Agreement and under any
other Loan Document; (b) constituting Property sold or to be sold or disposed
of as part of or in connection with any disposition permitted under this
Agreement or the other Loan Documents; (c) constituting Property in which the
Borrower or any Subsidiary owned no interest at the time the Lien was granted
or at any time thereafter; (d) constituting Property leased to the Borrower or
any Subsidiary under a lease which has expired or has been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower or such Subsidiary to be, renewed
or extended; or (e) if approved, authorized or ratified in writing by the
applicable Required Lenders or all the Lenders, as the case may be, as required
by Section 9.01.  Upon the request of the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent’s authority to release particular types or items of
Collateral pursuant to this Section 8.09.

 77

  
  ARTICLE IX
  
  MISCELLANEOUS
  Section
9.01           Amendments, Etc.  No amendment or waiver of any provision of
this Agreement, the Notes, or any other Loan Document, nor consent to any
departure by the Borrower or any Subsidiary therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Required
Lenders and the Borrower, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given; provided,
however, that:
  (a)            no amendment,
waiver, or consent shall, unless in writing and signed by all the Lenders, do
any of the following:  (i) increase the
Borrowing Base, the Conforming Borrowing Base, or the aggregate Commitments,
(ii) establish a Borrowing Base in an amount greater than the Conforming
Borrowing Base, or (iii) postpone any date fixed for any payment of principal
of, or interest on, the Notes; (iv) waive any of the conditions specified
in Section 3.01, (v) reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder or under any other Loan Document,
(vi) postpone any date fixed for any fees or other amounts (other than
principal  and interest thereon) payable
hereunder or extend the Maturity Date or the Commitment Termination Date, (vii) change
the percentage of Lenders which shall be required for the Lenders or any of
them to take any action hereunder or under any other Loan Document,
(viii) amend Section 2.11 or this Section 9.01, (ix) amend the
definition of “Required Lenders”, (x) release any Guarantor from its
obligations under any Guaranty, (xi) amend Section 6.04(a), or (xii) release
any Collateral securing the Obligations, except for releases of Collateral sold
as permitted by this Agreement; and
  (b)           no amendment, waiver
or consent shall, unless in writing and signed by the Administrative Agent or
the Issuing Lender in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent or the Issuing
Lender, as the case may be, under this Agreement or any other Loan Document.
  Section
9.02           Notices; Effectiveness;
Electronic Communication.
  (a)            Notices
Generally.  Except in the case of
notices and other communications expressly permitted to be given by telephone
(and except as provided in paragraph (b) below), 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 telecopier as follows: (i) if to the Borrower, to it at its address set
forth in Schedule II; (ii) if to the Administrative Agent, to it at its address
set forth in Schedule II; (iii) if to the Issuing Lender, to it at its address
set forth in Schedule II; and (iv) if to a Lender, to it at its address (or
telecopier number) set forth the administrative questionnaire delivered by such
Lender to the Administrative Agent. 
Notices sent by hand or overnight courier service, or mailed by
certified or registered mail, shall be deemed to have been given when received;
notices sent by telecopier shall be deemed to have been given when sent (except
that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next business day
for the recipient).  Notices delivered
through electronic communications to the extent provided in paragraph (b)
below, shall be effective as provided in said paragraph (b).

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    (b)           Electronic
Communications.  Notices and other
communications to the Lenders and the Issuing Lender hereunder may be delivered
or furnished by electronic communication (including e mail and Internet or
intranet websites) pursuant to procedures approved by the Administrative
Agent,  provided that the
foregoing shall not apply to notices to any Lender or the Issuing Lender
pursuant to Article II if such Lender or the Issuing Lender, as applicable, has
notified the Administrative Agent that it is incapable of receiving notices
under such Article by electronic communication. 
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.
  Unless the Administrative Agent otherwise prescribes, (i) notices and
other communications sent to an e-mail address shall be deemed received upon
the sender’s receipt of an acknowledgement from the intended recipient (such as
by the “return receipt requested” function, as available, return e-mail or
other written acknowledgement); provided that if such notice or other
communication is not sent during the normal business hours of the recipient,
such notice or communication shall be deemed to have been sent at the opening
of business on the next business day for the recipient, and (ii) notices or
communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address
therefor.
  (c)            Change of
Address, Etc.  Any party hereto may
change its address or telecopier number for notices and other communications
hereunder by notice to the other parties hereto.
  Section
9.03           Expenses; Indemnity;
Damage Waiver.  
  (a)            Costs and
Expenses.  The Borrower shall pay
(i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates (including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent), in connection with
the preparation, negotiation, execution, delivery and administration of this
Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated) and the syndication of
credit facilities hereunder; (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Lender in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder; and (iii) all out-of-pocket expenses
incurred by any Lender Party (including the fees, charges and disbursements of
any counsel for any Lender Party), in connection with the enforcement or
protection of its rights (A) in connection with this Agreement and the
other Loan Documents, including its rights under this Section, or (B) in
connection with the Advances made or Letters of Credit issued hereunder,
including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Advances or Letters
of Credit.
  (b)           Indemnification
by the Borrower.  THE BORROWER SHALL,
AND DOES HEREBY INDEMNIFY, THE ADMINISTRATIVE AGENT (AND ANY SUB-AGENT
THEREOF), EACH LENDER AND THE ISSUING LENDER, AND EACH RELATED PARTY OF ANY OF
THE FOREGOING PERSONS (EACH SUCH PERSON BEING 

 79
 

    CALLED
AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY
AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES (INCLUDING
THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE),
INCURRED BY ANY INDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THEREUNDER, THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, OR, IN THE CASE OF THE ADMINISTRATIVE AGENT
(AND ANY SUB-AGENT THEREOF) AND ITS RELATED PARTIES ONLY, THE ADMINISTRATION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, (II) ANY LOAN OR LETTER OF
CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY
REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY
COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR
ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY
OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (IV) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY, WHETHER BROUGHT BY A THIRD PARTY OR BY THE
BORROWER OR ANY GUARANTOR, AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY
THERETO, IN ALL CASES, WHETHER OR NOT
CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY
OR SOLE NEGLIGENCE OF THE INDEMNITEE; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH
LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (X) ARE
DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE
JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNITEE OR (Y) RESULT FROM A CLAIM BROUGHT BY THE BORROWER OR ANY
GUARANTOR AGAINST AN INDEMNITEE FOR ACTS COMMITTED IN BAD FAITH OR BREACH OF
CONTRACT OF SUCH INDEMNITEE’S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN
DOCUMENT, IF THE BORROWER OR SUCH GUARANTOR HAS OBTAINED A FINAL AND
NONAPPEALABLE JUDGMENT IN ITS FAVOR ON SUCH CLAIM AS DETERMINED BY A COURT OF
COMPETENT JURISDICTION.
  (c)            Waiver of
Consequential Damages, Etc.  TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AGREES THAT IT 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 

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    DOCUMENT
OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, ANY ADVANCE OR LETTER OF CREDIT OR THE USE OF
THE PROCEEDS THEREOF.  NO INDEMNITEE
REFERRED TO IN SUBSECTION (B) ABOVE SHALL BE LIABLE FOR ANY DAMAGES ARISING
FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS
DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION
TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
  (d)           Payments.  All amounts due under this Section shall be
payable not later than ten days after demand therefor.
  (e)            Survival.  The agreements in this Section shall survive
the resignation of the Administrative Agent and the Issuing Lender, the
replacement of any Lender, the termination of the Commitments, termination or
expiration of all Letters of Credit, and the repayment, satisfaction or
discharge of all the other Obligations.
  Section
9.04           No Waiver; Remedies.  No failure on the part of any Lender, the
Administrative Agent, or the Issuing Lender to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
  Section
9.05           Lender Assignments and
Participations.
  (a)            Assignments by
Lenders.  Any Lender may at any time
assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Advances at the time owing to it) and its Pro Rata Share participation
in the Letters of Credit; provided that
  (i)             except in the case
of an assignment of the entire remaining amount of the assigning Lender’s
applicable Commitments and the related Advances and Letters of Credit at the
time owing to it or in the case of an assignment to a Lender or an Affiliate of
a Lender or an Approved Fund with respect to a Lender, the aggregate amount of
the Commitments (which for this purpose includes Advances and Letters of Credit
outstanding thereunder) or, if the applicable Commitment is not then in effect,
the principal outstanding balance of the Advances plus the outstanding
Letters of Credit 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 or, if “Trade Date” is
specified in the Assignment and Assumption, as of the Trade Date) shall not be
less than $5,000,000, unless the Administrative Agent and, so long as no Event
of Default has occurred and is continuing, the Borrower otherwise consent (each
such consent not to be unreasonably withheld or delayed);
  (ii)            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 with respect to
the applicable Commitment assigned;

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    (iii)           any assignment of
a Commitment must be approved by the Administrative Agent and the Issuing
Lender unless the Person that is the proposed assignee is itself a Lender with
a Commitment (whether or not the proposed assignee would otherwise qualify as
an Eligible Assignee); and
  (iv)          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
the Eligible Assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.
  Subject to
acceptance and recording thereof by the Administrative Agent pursuant to
paragraph (b) of this Section, from and after the effective date specified
in each Assignment and Assumption, the Eligible Assignee thereunder shall be a
party to this Agreement 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 Sections 2.12, 2.13, 2.14(b),
9.03(a), 9.03(b), and 9.03(c) with respect
to facts and circumstances occurring prior to the effective date of such
assignment.  Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does not comply
with this paragraph 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 paragraph (c) of this Section.
  (b)           Register.  The Administrative Agent, acting solely for
this purpose as an agent of the Borrower, shall maintain at one of its offices
in Los Angeles, California or Dallas, Texas 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 Commitments of, and principal amounts of the
Advances 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 and the Lender Parties 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 and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
  (c)            Participations.  Any Lender may at any time, without the
consent of, or notice to, any Borrower or the Administrative Agent, sell
participations to any Person (other than a natural person or the Borrower or
any Affiliate or Subsidiaries thereof) (each, a “Participant”) in all or
a portion of such Lender’s rights and/or obligations under this Agreement
(including all or a portion of its Commitments and/or the related Advances and
Letters of Credit owing to it); provided that (i) such Lender’s
obligations under this Agreement shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and (iii) the Borrower and the Lender Parties shall
continue to deal solely and directly with such Lender Party in connection with
such Lender Party’s rights and obligations under this Agreement.

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    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 clauses (a), (b), or (c) of Section 9.06 that affects such
Participant.  Subject to paragraph (d)
of this Section, the Borrower agrees that each Participant shall be entitled to
the benefits of Sections 2.12, 2.13, and 2.14 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (a) of this Section.  To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 7.04 as though it were a Lender; provided such
Participant agrees to be subject to Section 2.11 as
though it were a Lender.
  (d)           Limitations upon
Participant Rights.  A Participant
shall not be entitled to receive any greater payment under Sections 2.13 and
2.14 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 2.14 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
2.14(e) and Section 2.14(f) as though it were a
Lender.
  (e)            Certain Pledges.  Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.
  Section
9.06           Survival of
Representations, Etc.  All
representations and warranties contained in this Agreement or made in writing
by or on behalf of the Borrower in connection herewith shall survive the
execution and delivery of this Agreement and the Loan Documents, the making of
the Advances, the issuance of the Letters of Credit, and any investigation made
by or on behalf of the Lenders, none of which investigations shall diminish any
Lender’s right to rely on such representations and warranties.  All obligations of the Borrower provided for
in Sections 2.12, 2.13, 2.14(c), and 9.03 and all of the obligations of
the Lenders in Section 8.07 shall survive any termination of this Agreement and
repayment in full of the Obligations.
  Section
9.07           Counterparts;
Integration; Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto in
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement and 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 supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 3.01, 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 that, when taken together, bear the signatures of each of
the other parties hereto.  Delivery of an
executed counterpart of a signature page of this Agreement by telecopy or by
pdf electronically shall be effective as delivery of a manually executed
counterpart of this Agreement.

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    Section
9.08           Successors and Assigns
Generally.  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, except that
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender Party and no Lender
may assign or otherwise transfer any of its rights or obligations hereunder
except (i) to an Eligible Assignee in accordance with the provisions of
Section 9.05(a), (ii) by way of participation in accordance with the
provisions of Section 9.05(c), or (iii) by way of pledge or assignment of
a security interest subject to the restrictions of Section 9.05(e) (and any
other attempted assignment or transfer by any party hereto shall be null and
void).  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,
Participants to the extent provided in Section 9.05(c) and, to the extent
expressly contemplated hereby, the Related Parties of the Administrative Agent
and each Lender) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
  Section
9.09           Electronic Execution of
Assignments.  The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper-based
recordkeeping system, as the case may be, to the extent and as provided for in
any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records
Act, or any other similar state laws based on the Uniform Electronic
Transactions Act.
  Section
9.10           Treatment of Certain
Information; Confidentiality.  Each
of the Administrative Agent, the Lenders and the Issuing Lender agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its Affiliates and to its and its
Affiliates’ respective partners, directors, officers, employees, agents,
advisors and other representatives (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 purporting to have
jurisdiction over it (including any self-regulatory authority, such as the
National Association of Insurance Commissioners), (c) to the extent
required by applicable laws or regulations or by any subpoena or similar legal
process, (d) to any other party hereto, (e) in connection with the exercise
of any remedies hereunder or under any other Loan Document or any action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any swap
or derivative transaction relating to the Borrower and its obligations,
(g) with the consent of the Borrower, or (h) to the extent such
Information (x) becomes publicly available other than as a result of a
breach of this Section or (y) becomes available to the Administrative
Agent, any Lender, the Issuing Lender or any of their respective Affiliates on
a nonconfidential basis from a source other than the Borrower.
  For purposes of this Section, “Information” means all
information received from the Borrower or any of its Subsidiaries relating to
the Borrower or any of its Subsidiaries or any of their respective businesses,
other than any such information that is available to the Administrative Agent,
any Lender or the Issuing Lender on a nonconfidential basis prior to

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    disclosure
by the Borrower or any of its Subsidiaries; provided that, in the case
of information received from the Borrower or any of its Subsidiaries after the
Effective Date, 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 shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
  Section
9.11           Business Loans.  The Borrower warrants and represents that the
Loans evidenced by the Notes are and shall be for business, commercial,
investment, or other similar purposes and not primarily for personal, family,
household, or agricultural use, as such terms are used in Chapter One (“Chapter
One”) of the Texas Credit Code.  At
all such times, if any, as Chapter One shall establish a Maximum Rate, the
Maximum Rate shall be the “indicated rate ceiling” (as such term is defined in
Chapter One) from time to time in effect.
  Section
9.12           Usury Not Intended.  It is the intent of the Borrower and each
Lender in the execution and performance of this Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws,
including conflicts of law concepts, governing the Advances of each Lender
including such applicable laws of the State of Texas, the United States from
time to time in effect, and any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement.  In furtherance thereof,
the Lenders and the Borrower stipulate and agree that none of the terms and provisions
contained in this Agreement or the other Loan Documents shall ever be construed
to create a contract to pay, as consideration for the use, forbearance or
detention of money, interest at a rate in excess of the Maximum Rate and that
for purposes of this Agreement and all other Loan Documents, “interest” shall
include the aggregate of all charges which constitute interest under such laws
that are contracted for, charged or received under this Agreement or any other
Loan Document; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Obligations, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess shall be deemed to be a
mistake and each Lender receiving same shall credit the same on the principal
Obligations owing to such Lender (or if all such Obligations shall have been
paid in full, refund said excess to the Borrower).  In the event that the maturity of the
Obligations are accelerated by reason of any 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 may never include more than the Maximum Rate, and excess
interest, if any, provided for in this Agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited on the applicable Obligations (or, if the
applicable Obligations shall have been paid in full, refunded to the Borrower
of such interest).  In determining
whether or not the interest paid or payable under any specific contingencies
exceeds the Maximum Rate, the Borrower and the Lenders shall to the maximum
extent permitted under applicable law amortize, prorate, allocate and spread in
equal parts during the period of the full stated term of the Obligations all
amounts considered to be interest under applicable law at any time contracted
for, charged, received or reserved in connection with the Obligations.  The provisions of this Section shall control
over all other provisions of this Agreement or the other Loan Documents which
may be in apparent conflict herewith.

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    Section
9.13           Payments Set Aside.  To the extent that any payment by or on
behalf of the Borrower is made to any Lender Party, or any Lender Party
exercises its right of setoff, and such payment or the proceeds of such setoff
or any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by any Lender Party in its discretion) to be repaid to a trustee,
receiver or any other party, in connection with any proceeding under any
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors’ rights generally or otherwise, then (a) to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied shall
be revived and continued in full force and effect as if such payment had not
been made or such setoff had not occurred, and (b) each Lender and the Issuing
Lender severally agrees to pay to the Administrative Agent upon demand its
applicable share (without duplication) of any amount so recovered from or
repaid by the Administrative Agent, plus interest thereon from the date of such
demand to the date such payment is made at a rate per annum equal to the
applicable Overnight Rate from time to time in effect, in the applicable
currency of such recovery or payment. 
The obligations of the Lenders and the Issuing Lender under clause (b)
of the preceding sentence shall survive the payment in full of the Obligations
and the termination of this Agreement.
  Section
9.14           Governing Law;
Submission to Jurisdiction.
  (a)            Governing Law.  This Agreement, the Notes and the other Loan
Documents (unless otherwise expressly provided therein) shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Texas.  Without limiting the intent of
the parties set forth above, (a) Chapter 346 of the Texas Finance Code, as
amended (relating to revolving loans and revolving tri-party accounts (formerly
Tex.  Rev.  Civ. 
Stat.  Ann.  Art. 
5069, Ch.  15)) shall not apply to
this Agreement, the Notes, or the transactions contemplated hereby and (b) to
the extent that any Lender may be subject to Texas law limiting the amount of
interest payable for its account, such Lender shall utilize the indicated (weekly)
rate ceiling from time to time in effect. 
Each Letter of Credit shall be governed by either the Uniform Customs
and Practice for Documentary Credits, International Chamber of Commerce
Publication No. 500 (1993 version) or the International Standby Practices
(ISP98), International Chamber of Commerce Publication No. 590 (and any
subsequent revisions thereof approved by a Congress of the International
Chamber of Commerce and adhered to by the Issuing Lender).
  (b)           Submission to
Jurisdiction.  The Borrower irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Federal or Texas state court sitting in Dallas County, and
any appellate court from any thereof, in any action or proceeding arising out
of or relating to this Agreement or any other Loan Document, or for recognition
or enforcement of any judgment, and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Texas State court or, to the
fullest extent permitted by applicable law, in such Federal court.  Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  Nothing in this
Agreement or in any other Loan Document shall affect any right that Lender
Party may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against the Borrower or any Guarantor or
its properties in the courts of any jurisdiction.

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    (c)            Waiver of Venue.  The Borrower irrevocably and unconditionally
waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the laying of venue of any action or proceeding
arising out of or relating to this Agreement or any other Loan Document in any
court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
  (d)           Service of
Process.  Each party hereto
irrevocably consents to service of process in the manner provided for notices
in Section 9.02.  Nothing in this
Agreement will affect the right of any party hereto to serve process in any
other manner permitted by applicable law.
  Section
9.15           USA Patriot Act.  Each Lender that is subject to the Act (as hereinafter
defined) and the Administrative Agent (for itself and not on behalf of any
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
or the Administrative Agent, as applicable, to identify the Borrower in
accordance with the Act.
  Section
9.16           Restatement.  This Agreement amends and restates the
Existing Agreement in its entirety. 
Borrower hereby agrees that (a) the Debt outstanding under the Existing
Agreement and the Loan Documents (as defined in the Existing Agreement;
together with the Existing Agreement, the “Existing Credit Documents”)
and all accrued and unpaid interest thereon and (b) all accrued and unpaid fees
under the Existing Credit Documents shall be deemed to be outstanding under and
governed by this Agreement.  Borrower
hereby acknowledges, warrants, represents and agrees that this Agreement is not
intended to be, and shall not be deemed or construed to be, a novation or
release of the Existing Credit Documents. Each Lender (which is a Lender under
the Existing Credit Documents) hereby waive any requirements for notice of
prepayment, minimum amounts of prepayments of the loans thereunder, ratable
reductions of the commitments of Lenders under the Existing Credit Documents and
ratable payments on account of the principal or interest of any loan under the
Existing Credit Documents to the extent that any such prepayment, reductions or
payments are required to ensure that, upon the effectiveness of this Agreement,
the loans of the Lenders shall be outstanding on a ratable basis in accordance
with their respective Pro Rata Share. 
Each Lender hereby authorizes Administrative Agent and Borrower to
request Borrowings from Lenders, to make prepayment of the loans under the
Existing Credit Documents and to reduce the commitments under the Existing
Credit Documents among Lenders in order to ensure that, upon the effectiveness
of this Agreement, the loans of Lenders shall be outstanding on a ratable basis
in accordance with their respective Pro Rata Share.
  Section
9.17           WAIVER OF
JURY TRIAL.  EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR 

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    OTHERWISE,
THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
  Section
9.18           ORAL
AGREEMENTS.  THIS WRITTEN
AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
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 88

 

EXECUTED
as of the date first above written.

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  EDGE PETROLEUM CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael G. Long

  
	
   

  	
  Name:

  	
  Michael G. Long

  
	
   

  	
  Title:

  	
  Executive Vice President & CFO

  
	
   

  	
   

  	
   

  
	
   

  	
  ADMINISTRATIVE AGENT, ISSUING LENDER, AND LENDERS

  
	
   

  	
   

  
	
   

  	
  UNION BANK OF CALIFORNIA, N.A.,

  
	
   

  	
  as Administrative Agent, Issuing Lender and a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Damien G. Meiburger

  
	
   

  	
  Name:

  	
  Damien G. Meiburger

  
	
   

  	
  Title:

  	
  Senior Vice President

  

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

 

	
  

  	
  JPMORGAN CHASE BANK, N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jo Linda Papadakis

  
	
   

  	
  Name: 

  	
  Jo Linda Papadakis

  
	
   

  	
  Title: 

  	
  Vice President

  

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

 

	
   

  	
  SUNTRUST BANK

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sean Roche

  
	
   

  	
  Name: 

  	
  Sean Roche

  
	
   

  	
  Title: 

  	
  Vice President

  

 

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

 

	
   

  	
  MIZUHO CORPORATE BANK, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leon Mo

  
	
   

  	
  Name: 

  	
  Leon Mo

  
	
   

  	
  Title: 

  	
  Senior Vice President

  

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

 

	
  

  	
  BNP PARIBAS

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Betsy Jocher

  
	
   

  	
  Name: 

  	
  Betsy Jocher

  
	
   

  	
  Title: 

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell Otts

  
	
   

  	
  Name: 

  	
  Russell Otts

  
	
   

  	
  Title: 

  	
  Vice President

  

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

 

	
  

  	
  FORTIS CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darrell Holley

  
	
   

  	
  Name: 

  	
  Darrell Holley

  
	
   

  	
  Title: 

  	
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott Myatt

  
	
   

  	
  Name: 

  	
  Scott Myatt

  
	
   

  	
  Title: 

  	
  Vice President

  

Signature page to Credit
Agreement

(Edge Petroleum Corporation)

SCHEDULE I

PRICING GRID

Applicable
Margins

	
  Utilization Level

  	
   

  	
  Eurodollar 

  Rate 

  Advances

  	
   

  	
  Reference 

  Rate 

  Advances

  	
   

  	
  Letter of 

  Credit Fee

  	
   

  	
  Commitment 

  Fee

  
	
  Level I

  	
   

  	
  Greater than or
  equal to 100%

  	
   

  	
  2.50%

  	
   

  	
  0.50%

  	
   

  	
  2.50%

  	
   

  	
  0.250%

  
	
  Level II

  	
   

  	
  Less than 100%
  but greater than or equal to 90%

  	
   

  	
  2.00%

  	
   

  	
  0.25%

  	
   

  	
  2.00%

  	
   

  	
  0.250%

  
	
  Level III

  	
   

  	
  Less than 90%
  but greater than or equal to 75%

  	
   

  	
  1.75%

  	
   

  	
  0.00%

  	
   

  	
  1.75%

  	
   

  	
  0.375%

  
	
  Level IV

  	
   

  	
  Less than 75%
  but greater than or equal to 50%

  	
   

  	
  1.50%

  	
   

  	
  0.00%

  	
   

  	
  1.50%

  	
   

  	
  0.375%

  
	
  Level V

  	
   

  	
  Less than 50%

  	
   

  	
  1.25%

  	
   

  	
  0.00%

  	
   

  	
  1.25%

  	
   

  	
  0.500%

  

Schedule I to Credit
Agreement

(Edge Petroleum Corporation)

Pricing Grid

SCHEDULE
II

NOTICE INFORMATION AND COMMITMENTS

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

Administrative
Agent/Issuing Lender:

Union Bank of California, N.A.

Lincoln Plaza

500 N. Akard Street, Suite 4200

Dallas, Texas  75201

Attention: Mr. Damien Meiburger

Facsimile:
214.922.4209

Borrower:

Edge Petroleum Corporation

1301 Travis, Suite 2000

Houston, Texas 77002

Attention: Mr. Michael Long

Facsimile:
713.650.6494

	
  Lenders:

  	
   

  	
  Commitments

  	
   

  
	
  Union Bank of
  California, N.A.

  	
   

  	
  $

  	
  187,500,000.00

  	
   

  
	
  JPMorgan Chase Bank,
  N.A.

  	
   

  	
  $

  	
  117,187,500.00

  	
   

  
	
  SunTrust Bank

  	
   

  	
  $

  	
  117,187,500.00

  	
   

  
	
  Mizuho Corporate Bank,
  Ltd.

  	
   

  	
  $

  	
  117,187,500.00

  	
   

  
	
  BNP Paribas

  	
   

  	
  $

  	
  117,187,500.00

  	
   

  
	
  Fortis

  	
   

  	
  $

  	
  93,750,000.00

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  750,000,000.00

  	
   

  

 

Schedule II to
Credit Agreement

(Edge Petroleum Corporation)

Notice Information and Commitments

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